General Principles of Income
Distribution
Group 3
Personal Income Distribution
● is the distribution of income based on persons or households
who participated in the generation of the national income.
Income Distribution
● is the smoothness or equality with which income is dealt out among
members of a society. If everyone earns exactly the same amount of
money, then the income distribution is perfectly equal. If no one
earns any money except for one person, who earns all of the money,
then the income distribution is perfectly unequal. Usually, however,
a society's income distribution falls somewhere in the middle
between equal and unequal.
Trends in Income Inequality
● Income Inequality
○ is the unequal distribution of economy's total income
among persons or families in the economy
Causes of Growing Inequality
● Greater demand for highly skilled workers
● Demographic changes
● International trade, immigration, decline in unionism
Lorenz Curve
The Lorenz curve is a graph of the percentage of total income
obtained by cumulative percentages of families. It is a
convenient means of visualizing the degree of income
inequality. Specifically, the area between the diagonal (the line
of perfect equality) and the Lorenz curve represents the degree
of inequality in the distribution of total income.
Income Mobility
Economic mobility is the ability of an individual, family or
some other group to improve (or lower) their economic status
usually measured in income. Economic mobility is often
measured by movement between income quintiles. Economic
mobility may be considered a type of social mobility, which is
often measured in change in income.
Government Redistribution
One of the basic functions of the government is to redistribute
income. Government significantly redistributes income from
higher- to lower-income households through its taxes and transfer.
Causes of Income Inequality
● Ability Differences
● Education and Training
● Discrimination
● Tastes and Risks
● Unequal Distribution of Wealth
● Market Power
● Luck, Connections, and Misfortunes
Equality vs. Efficiency
The Case for Equality: Maximizing Total Utility
● In any time period, income receivers spend their first dollars
received on products they value most-products whose
marginal utility is high. As their most pressing wants become
satisfied, consumers then spend additional dollars of income
on less important, lower-marginal-utility goods.
The Case for Equality: Maximizing Total Utility
The Case for Inequality: Incentives and Efficiency
● The tax and transfer process of income diminishes the income
rewards of high-income person and raises the income rewards of
low- income person; in so doing, it reduces the incentives of both
to earn high incomes.
The Equality and Efficiency Trade-off
● Economic Efficiency
○ The relationship between the input of scarce resources and the
resulting output of a good or service
● Equality vs. Efficiency Trade-off
○ The decrease in economic efficiency that appears to accompany a
decrease in income inequality; the presumption that an increase in
income inequality is required to increase.
The Economics of
Poverty
Poverty
● is a condition in which a person or family does not have
the means to satisfy basic needs for food, clothing
shelter, and transportation.
Incidence of Poverty
● Poverty incidence is the proportion of population whose
annual per capita income falls below the per annual per
capita poverty threshold to the total number of population.
Poverty Trends in the Philippines
● Philippines' poverty line marks a per capita income of ₱16,841 a year.
According to the data from the National Statistical Coordination Board,
more than one-quarter (27.9%) of the population fell below the poverty
line the first semester of 2012, an approximate 1 per cent increase since
2009.
● Poverty incidence among Filipinos eased to 24.9 percent in the first
semester of 2013, from 27.9 percent posted in the same period in 2012,
the local statistics agency said today.
Poverty Trends in the Philippines
● The Philippine Statistics Authority (PSA) said in a report that poverty
incidence among Filipino families also slowed to 19.1 percent in January
to June 2013, from 22.3 percent recorded in the same period in 2012.
● "The faster growth of poor households' income compared with the
slower increase of basic commodity prices implies a robust increase in
real incomes of the poor, which played a significant role in reducing
poverty during the period," said by Arsenio Balisacan.
The Income
Maintenance System
Social Insurance Programs
● SSS (Social Security System)
○ is a social insurance program for workers in the Philippines. It is a
government agency that provides retirement and health benefits to all
enrolled employees in the Philippines. Members of the SSS can also
make 'salary' or 'calamity' loans. Salary loans depend on the monthly
salary of the employee, Calamity loans are for such times when there is
a calamity that has been so declared by the government, in the area
where the SSS member lives, such as flooding, earthquake and natural
disasters.
Social Insurance Programs
● Unemployment Compensation
○ money that substitutes for wages or salary, paid to
recently unemployed workers under a program
administered by a government or labor union.
Public Assistance Program
● Pantawid Pamilyang Pilipino Program (4P's)
○ a conditional cash transfer program of the Philippine
government under the DSWD. It aims to eradicate extreme
poverty in the Philippines by investing in health and
education particularly in ages 0-14. It is patterned on
programs in other developing countries like Brazil (Bolsa
Familia) and Mexico (Oportunidades).
Public Assistance Program
● The Philippine Health Insurance Corporation (PhilHealth) was
created in 1995 to create a universal health coverage for the
Philippines. It is a tax-exempt, government- owned and
government-controlled corporation (GOCC) of the
Philippines, and is attached to the DOH.
