Income Distribution

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Income Distribution

• How free markets create divide wealth

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Top 1 pay more taxes 20 gt 40 The bottom 90
pay less 50 gt 33 BUT, the inequality gap rises!
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Distribution of Income

• Egalitarian Society-
• means a equal society
• Free markets focus on efficiency not equality
• Free markets produce tremendous wealth but also a
  large gap between rich poor
• Inequality today is the highest since the 1920s
• Globalization Technology have exacerbated this
  trend

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Where do YOU want to live?
Country A GDP per capita 20,000 per year
Country B GDP per capita 60,000 per year
Which country do YOU want to live in?
Population 100,000 Each person earns
20,000 GDP 2 billion or 20,000 per capita
Population 100,000 400 people earn 15
million 99,600 earn 1,000 per year GDP 6
billion or 60,000 per capita
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Measuring Income Inequality

• How do you best measure income inequality?
• Average income
• Median income
• Lorenz curve precisely measures income
  inequality.
• Straight line represents perfect income
  equality

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Lorenz Curve
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Gini Index Summary

• Measures the distance from line of perfect
  equality to Lorenz Curve
• Gini Index ranges from Zero to 1
• An index of 0 (zero) means perfect EQUALITY
• on the line gt 40 population has 40 of income
• As the Gini Index moves from 0 ? 1 inequality
  increases

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Lorenz Curve Review
France .34
Line of Income equality
Gini Coefficient 0 - 1
USA .46
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Gini Index by Country
Sweden .23
Germany .28
England .36
France .32
USA .46
Japan .25
Brazil .59
South Africa .58
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Practice Test
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Wealth vs. Income

• Top 1 has 21 of Income
• Top 1 has 40 of Wealth

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Gini Coefficient of WEALTH .82
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Winner Take All Society?
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Top 1 versus Top 0.1

• Top 1
• Income Over 350,000 per year
• 1.5 million households
• Top 0.1
• Income 1.4 million per year
• Only 146,000 households

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The Rich get Richer
Top 1
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