Measuring Income & Wealth Inequality (Cambridge (CIE) A Level Economics): Revision Note

• The higher the skill level the higher the level of income.

• A country with a poor education system will see greater inequality than one with a good education system

• Countries with strong trade union membership tend to have higher levels of income.

• With low trade union membership, the exploitation of workers through low wages is easier

• Countries that provide a range of benefits (such as unemployment, disability, child support, housing support etc) raise the income of the lowest 20% of the population resulting in more equal distribution

• State pension payments ensure a minimum standard of living for retirees resulting in a more equal distribution of income.

• Countries without it have a much higher percentage of pensioners living in poverty

Wage rates

Employment legislation

Tax structure

Asset ownership

• The purpose of a national minimum wage is to improve the equity in the distribution of income.

• Without a minimum wage → lower incomes for low-skilled workers → greater income inequality

• Generally, the more workers are protected by law, the better the income distribution in an economy e.g. maternity benefits ensure that new mothers have a higher level of income during the first months of leave after a birth

• Progressive tax systems allow all income earners to contribute to public revenue according to their ability.

• Decreasing taxes on the lower end and increasing it on the upper end would mean that the system is more progressive and there would be a more equal distribution of income

• Assets generate income.

• The more equal the asset ownership in an economy the less the inequality in income distribution

• Wealth passed across generations → increases wealth inequality