Income distribution

Income before (green) and after (pink) taxes and Transfer payments for different income groups starting with the lowest quintile. Top 20% people take approximately 45% of the all income.

The concept of inequality is distinct from that of poverty[5] and fairness. Income inequality metrics (or income distribution metrics) are used by social scientists to measure the distribution of income, and economic inequality among the participants in a particular economy, such as that of a specific country or of the world in general. While different theories may try to explain how income inequality comes about, income inequality metrics simply provide a system of measurement used to determine the dispersion of incomes.

There exist some problems and limitations in the measurement of inequality as there is a large gap between the national accounts (which focus on macroeconomic totals) and inequality studies (which focus on distribution).

The lack of a comprehensive measure about how the pretax income differs from the post-tax income makes hard to assess how government redistribution effects inequality.

There is not a clear view on how long-run trends in income concentration are shaped by the major changes in woman's labour force participation.

The progressive income tax takes a larger percentage of high incomes and a smaller percentage of low incomes. Effectively, the poorest pay the least of their earned incomes on taxes which allows them to keep a larger percentage of wealth. Justification can be illustrated by a simple heuristic: The same dollar amount of money (e.g. $100) has a greater economic impact on only one party—the poor. That same amount has little economic impact on a wealthy individual, so the disparity is addressed by ensuring the richest individuals are taxed a greater share of their wealth. The state then uses the tax revenue to find necessary and beneficial activities for the society at large. Every person in this system would have access to the same social benefits, but the rich pay more for it, so progressive tax significantly reduces the inequality.

If a cash is given to a poor person, he or she may not make "the best" choice in case, what to buy for this extra money. Then, there is the solution in form of the food stamps or directly the food as an in-kind transfer to the poorest.

The rent and upkeep of housing form a large portion of spending in the lower income families. Housing subsidies were designed to help the poor obtaining adequate housing.

This provides actual money to the people with very low or no income and gives them an absolute freedom in decision-making how to use this benefit. This works best if we assume that they are rational and make decisions in their best interest.

Income mobility is another factor in the study of income inequality. It describes how people change their economic well-being, i.e. move in the hierarchy of earning power over their lifetime. When someone improves his economic situation, this person is considered upwardly mobile. Mobility can vary between two extremes: 1) rich people stay always rich and poor stay always poor: people can not that easily change their economic status and inequality then seems as a permanent problem. 2) individuals can easily shift their income class, e.g. from middle earning class to upper class or from lower class to middle class. Inequality is "fluid" and temporary so it does not create a serious permanent problem.[7]

Mobility is measured by the association between parents´ and adult children's socioeconomic standing, where higher association means less mobility. Socioeconomic standing is captured by four different measures:[8]

1. Occupational status: – it is weighted average of the mean level of earnings and education of certain occupations. It has advantages such a collecting important information about parents, which can be reported retrospectively by adult children. It also remains relatively stable in between the occupation career so single measuring provides adequate information of long run standing. On the other hand, it has also limitations for the mobility analyzing. Whereas occupational earning of men usually tends to be higher than by women, by the occupational education it is the other way around.
2. Class mobility: – Classes are instead categorical groupings based on specific occupational assets that determine life chances as expressed in outcomes such as income, health or wealth.
3. Earnings mobility: – Earning mobility evaluates the relationship between two certain generations by means of linear regression (upper math) of the long transformed measure of children's and parents' earnings.
4. Total family income mobility and the mobility of women: – Old economic analysis has been making one mistake, that they did analysis that focused mostly on the father-son pairs and their individual earnings. In the last two decades, they have expanded their researches and now they focus more on the mother-daughter pairs as well. Generally earnings provides a stable measure of well-being independently of another financial assets or any kind of transfers.

• Thailand has been ranked the world's third most unequal nation after Russia and India, with a widening gap between rich and poor according to Oxfam in 2016.[19] A study by Thammasat University economist Duangmanee Laovakul in 2013 showed that the country's top 20 land owners owned 80 percent of the nation's land. The bottom 20 owned only 0.3 percent. Among those having bank deposits, 0.1 percent of bank accounts held 49 per cent of total bank deposits.[20] As of 2019, Thai per capita income is US$8,000 a year. The government aims to raise it to US$15,000 (498,771 baht) per year, driven by average GDP growth of five to six percent. Under the 20-year national plan stretching out to 2036, the government intends to narrow the income disparity gap to 15 times, down from 20 times in 2018.[21]

2011: In the United States, income has become distributed more unequally over the past 30 years, with those in the top quintile (20 percent) earning more than the bottom 80 percent combined.[22]

2019: The wealthiest 10% of American households control nearly 75% of household net worth.[23]

• Post-tax Gini coefficient: 0.39.
• Unemployment rate: 4.4%.
• GDP per capita: $53 632.
• Poverty rate: 11.1%.[24]

Low unemployment rate and high GDP are signs of the health of the U.S. economy. But there is almost 18% of people living below the poverty line and the Gini coefficient is quite high. That ranks the United States 9th income inequal in the world.[23]

The U.S. has the highest level of income inequality among its (post-)industrialized peers.[25] When measured for all households, U.S. income inequality is comparable to other developed countries before taxes and transfers, but is among the highest after taxes and transfers, meaning the U.S. shifts relatively less income from higher income households to lower income households. In 2016, average market income was $15,600 for the lowest quintile and $280,300 for the highest quintile. The degree of inequality accelerated within the top quintile, with the top 1% at $1.8 million, approximately 30 times the $59,300 income of the middle quintile.[26]

The economic and political impacts of inequality may include slower GDP growth, reduced income mobility, higher poverty rates, greater usage of household debt leading to increased risk of financial crises, and political polarization.[27][28] Causes of inequality may include executive compensation increasing relative to the average worker, financialization, greater industry concentration, lower unionization rates, lower effective tax rates on higher incomes, and technology changes that reward higher educational attainment.[29]

Inequality in the UK has been very high in the past, and did not change much until the onset of industrialization. Incomes used to be remarkably concentrated pre-industrial evolution: up to 40% of total income went into the pockets of the richest 5%.[30] In the more recent years income distribution is still an issue. The UK experienced a large increase in inequality during the 1980s—the incomes of the highest deciles increase while everyone else was stagnant. Uneven growth in the years leading up to 1991 meant further increases in inequality. Throughout the 1990s and 2000s, more even growth across the distribution meant little changes in inequality, with rising incomes for everybody. In sight of Brexit, there is more predicted income distribution discrepancies between wages.[31][32]

2019: The United Kingdom was doing a lot to reduce one of the widest gap between rich and poor citizens, what has led to getting on the 13th place in the ranking of income inequality in the world.[23]

• Post-tax Gini coefficient: 0.35.
• Unemployment rate: 4.3%.
• GDP per capita: $39 425.
• Poverty rate: 11.1%.[23]

• Post-tax Gini coefficient: 0.38.
• Unemployment rate: 5.2%.
• GDP per capita: $24 417.
• Poverty rate: NA.

Occupying the 11th place in the ranking of income inequality in the world. USA TODAY stated: "Russia has a Corruption Perceptions Index score of 28 – tied for the worst among OECD member states and affiliates and one of the lowest in the world. "[23] The cause of the income gap are the close connections of Russian oligarchs and the government, thanks to these relationships oligarchs get lucrative business deals and earn more and more money.

• Post-tax Gini coefficient: 0.62.
• Unemployment rate: 27.3%.
• GDP per capita: $12 287.
• Poverty rate: 26.6%.

The highest income inequality is in the South Africa, based on 2019 data.[23] It is due to the recent policy of apartheid. There were huge differences between white and the other people, not only in wages, but also in the place they can enter and so on.