Income Distribution and Differences in UK

Income Distribution and Differences in UK 13

IncomeDistribution and Differences in UK

Table of Contents

1. Table of Content 2

2.Income differences situation 3

3. Chart 1 4

4. Causes of Income Inequalities in the UK 5

5. Issues and Concerns 7

6. Evaluating the Income Distribution Situation 8

7. Factors Influencing changes in income distribution 9

8. Conclusion 10

7. References List 11

Incomedistribution is the diversity and relativity that exist among peoplein the economy, in terms of the income. Therefore, income inequalityis a situation where a few rich people in the economy dominate alarge share of a country’s income at the expense of the majoritywho control a small percentage of the income. In the case of U.K, alarge percentage of the income is controlled by the minority richminority people while the poor majority controls a small portion ofthe economy. Over the past 40 years, there have been a consistentincome differences and inequalities in distribution the UnitedKingdom. This paper will explore the income distribution situationover the years and consider the factors that have influenced thesituation over the years. Moreover, this paper will explore thefinancial data that support the discussion on the causes,issues and concerns of the income situation in the UK.

Incomedifferences situation

Overthe past 40 years, the United Kingdom has experienced incomeinequalities and income differences in a consistently pronouncedtrend. The trend of income distribution differences has developedgradually into a non-manageable income inequality with a wide gap.The situation has led to two main extreme ends the majority rich andminority poor (Heyne et al,2010). According tothe Inequality Trust (2012), the country is the most unequal countryin the world as per the parameters of the developed world. In the2012 report, the inequality index was 0.34 compared to the inequalityindex of 0.24 in 1977 (Inequality Trust, 2012). This indicates agrowing concern that the income inequality in the country is at analarming rate as illustrated below.

Chart1: 2012 UK Income Distribution(Inequality Trust,2012).

Thediversity in the income distribution is anchored in the structures ofcompensation in terms of employment. According to the IFS (2013), the2011 distribution showed a growing income inequality among theworkers in the economy. In 2011 and 2012 survey, the median full timeincome in the economy was 26,200 pounds, but the extremes variedhighly (IFS, 2013). While the minimum average earnings by full timeemployee was 11,000 pounds, the top 10% of the employed populationearned over 52,600 pounds (IFS, 2013). The differences in the incomefurther translate into growing inequality since the economy growswith the same trend dominating in the GDP (Shaheen,2014). The situationshows that the country has an imbalance in the economic status thatcan lead to further diversity if the trend continues in the future.

Ina further translation of the 2011 economic statistics of the UnitedKingdom, the Organizationfor Economic Co-operation and Development (OECD)found out that10% of the population had incomes that were 12 times greater than themajority 90% of the population (Ramesh, 2011). According to Ramesh(2011), the income inequality in the country in 2011 was eight timesgreater than it was in 1985. This inequality translated into agradual inequality trend that has grown over the last 40 years. Forinstance, in 1970, f40 years before the study, the top 1% of thepopulation controlled only 7.1% of the national income (Ramesh,2011). However, according the same 1% controlled 14.3% of the incomein 1005, which is more than double the ratio. This is highlycontributed by the growth in the inequality that exists among theworking population.

Furtherincome differences and income inequalities are exhibited not only inthe income distribution, but also in the increases in income. Thesame trend and ratio of income inequality is distributed whenever theeconomy records an economic growth that leads to income increment(Weeks, 2007).According to Poverty index statistics, the around 80% of the totalincrements in income benefits the minority that are the top earners(Palmer, 2010). On the other hand, around 20% of the incrementsbenefit the majority population (Shaheen,2014). Moreover, thePoverty Statistics observes that the income of the richest 10% of thepopulation is more than the income of the rest of the population(Palmer, 2010). This shows the unequal situation of the incomedistribution in the United Kingdom.

Causesof Income Inequalities in the UK

Thisincome inequality in the UK is caused by a number of reasons thatrelate to the factors of the economy. The first cause of inequalitiesis the differences in the remuneration of the workers in terms ofwages and salaries (Robinson, 2012). The differences exist in thecases where people work in different jobs, occupations and careersare paid differently. This is contributed by a range of factors thatrelate to the type of the job, the time spent and the skills used(Pettinger, 2012). In the UK, the unskilled workers in both theformal and informal sectors earn less income compared to the skilledworkers. This creates a direct income inequality since the skilledworkers will belong to the minority group that shares the largestpercentage of the country’s GDP.

Additionally,people with the same level of skills, either formal or informal, arepaid differently, yet they work in similar jobs or in equal jobenvironments (Salverda &amp Nolan, 2009). According to Xavier(2006), the differences in the remuneration paid to people in theeconomy, create a gap between the two ends of the incomedistribution. The ends in the income distribution is between thosewho are lowly paid on one side and those who are highly paid on theother. The gaps lead to income differences in the UK for most of thepeople earn their income from jobs (Cribb, n.d). In addition,employment is a significant element of the economy and so to theincome distribution equation. Therefore, any inequality in theremuneration structures such as salaries and wages affects the entireeconomy in terms of income distribution.

Unequaldistribution of wealth is another cause of differences in incomedistribution in the United Kingdom. This inequality exists becauseresources in the economy are owned by both the government and privatesector (Reynolds, 2006).Resources in the private sector control are used discriminately sincethe owners use the resources to generate more income and remain rich(Pettinger, 2012). As their income increases, the income gap betweenthe poor and the rich widens over time.

Theuse of economic resources leads to further widening of the incomedistribution gap since the use transfers income from the poor to therich. An example of the case would be the use of land, which is themost fundamental economic resource in an economy. The owners of landand real estate intend to earn from their own by letting the land tolow income workers who pay rent from their salaries (Henderson,2008). The situation leads to a transferof the income from their salaries to the rich who control resourcesas the same scenario replicates in every sector of the economy.

Issuesand Concerns

Thereare fundamental issues that underlie the income distributionsituation in the United Kingdom. Some of these issues involveeconomic policies and administrative guidelines that relate to therole of government in the economy. One of the main issues is theemployment structure where people earn on different scales(Robinson, 2012). Accordingto a study by the OECD, the current situation in employment incomediversities is as a result of the rise of elite working groups suchas financial services elites (Weeks, 2007). According to Ramesh(2012), the working group accumulate wealth through their highincomes due to education. On the other hand, the uneducated workersconcentrate on the unskilled jobs leading to low incomes.

Inthe middle of the income distribution imbalances, there is a concernfor the effect of the recession in the UK’s situation. The effectof recession left many families deprived of the incomes and livingbelow the average income line (Stewart&amp Osborne, 2012).This affected consumption at the level of disposable income in theeconomy reduced. Consequently, the production in the country reducedsince the demand for general goods declined over time. This led tounemployment increased unemployment in the country, a situation thataffected the low end extreme of the majority poor (Elgot,2014). At the sametime, the income levels of the high-earners was reduced, but was notdeprived of their disposable income. Therefore, the recession wasequally distributed across the income divide of the two ends.

Evaluatingthe Income Distribution Situation

Thiscurrent situation in the United Kingdom is in need of policies thatcan be adopted to create an equitable distribution of resources. Thesituation can be rectified if the main economic resources in theeconomy can be controlled by the state or state agencies and used tooffer employment opportunities and generate public income (Warsh,2006). The replication of such policies in all the economic units andsectors in the U.K economy will reduce the gap by improving theincome distribution in the country.

Theemployment and unemployment situation in the country translates tothe income distribution imbalance. The achievement of equaldistribution of income requires policies that will alter the currentdeficiencies in the equality of the incomes from employment. Equaldistribution of wages and salaries across the economy will reduce theincome gap that has existed between the two extremes (Stewart&amp Osborne, 2012).Therefore, the government needsto pass laws or adopt policies that will guarantee equal pay. Forinstance, the government can introduce the economic tools of minimumwages or wage equalization in all the sectors of the economy (Xavier,2006). However, this will only solve the income inequality situationthat relates to employment and not that which emanates fromunemployment.

Theunemployment in the country is a situation that leads to incomedistribution imbalances. This is because the unemployed have no meansof generating income, and remain in the low income extreme. Accordingto the Equality Trust (2012), the ratio for the high end earners toaverage UK earners was that 0.1% of the population controlled overone million pounds. On the other end, the 90% of the populationcontrolled bare 12,969 pounds. This translates to 90% of thepopulation earning less than 10% of the income in the UK (EqualityTrust, 2012). Continued unemployment therefore increases incomeinequality since it increases the population in the economy that ispoor. Reducing the levels of unemployment will proportionately reducethe diversity of the income inequality. The trend of the incomeequality will lead to a resultant equality in terms of the incomeearned by the retiring individuals since pension depends on the levelof employment income.

FactorsInfluencing changesin incomedistribution

Themacroeconomic factors are a significant influence on the incomedistribution in the United Kingdom. One of the macroeconomic factorsis inflation and unemployment that dictates the incomes of thepopulation. The influence of unemployment is clearer since ittranslates to the income of an individual and the country in terms ofGDP. Inflation affects the value of the currency in the country, thusdictating the extent at which the income inequality gap affects thetwo extreme ends. High unemployment worsens the situation while thehigh inflation rate worsens the value of the income gained fromemployment.

Governmentexpenditure is another influence that determines the extent of theincome gap that exists between the two ends. Prudent spending by thegovernment on the low income population increases their earningpotential and thereby reduces the inequality. However, poorgovernment policy in terms of spending transfers more income to theminority rich a situation that lead to further income inequality.Similarly, government macroeconomic policies such as tax regimes andtariffs influence the income distribution. By taxing the high incomeearners more than lower income earners, the government will use itsexpenditure policies to balance the two ends. Moreover, if thegovernment imposes high customs and excise duties on high-incomeconsumer goods, the income distribution will be influenced since itreduces the income brackets of the extreme high end.

Geographicalfactors affect the distribution of income since it influences thedistribution of natural resources. Areas endowed with more economicresources such as land have a higher tendency of supporting higherproduction in terms of output. This diversity translates to highincome levels of the people in such areas compared to those in lowlyendowed regions. Other factors include general developments ineducation and technology in the United Kingdom. The rise oftechnology and developments in industries has greatly influenced thedistribution of income where the elite in IT has a higher advantagein terms of earnings.

Conclusion

Incomedistribution differences exist in the United Kingdom since themajority of income is controlled by a minority of the populationwhile majority share a little percentage of the economic output. Thissituation is a consequence of the domination of the minority richover the economic resources in the economy while the minority worksas the tools of income generation. As the economy grows, theemployment situation exists in imbalance since people earndifferently, while the unemployed do not earn at all. The situationin the UK has two extreme, ends with the minority rich on one enddominating over the majority poor on the other end. The status quo ofthe income situation in the economy is maintained by the use ofeconomic resources that is dominated by the rich, which transfersfurther income to them during the exchange of basic economic goods.To correct the economic situation in the UK, active involvement ofthe government is required in terms of policies and economic laws.

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