Essay: Explain why the distribution of income in the UK is unequal
Distribution of income refers to the relative incomes that people have within an economy. For example, in the UK the poorest 10% of people have roughly only 2.5% of the nations total income. The richest 10% have approx 35%. This suggests there is relative poverty because the richest have a bigger % share of income; this can also be illustrated with a Lorenz curve or Gini coefficient.
The first reason, is that income is unequal because of differences in wages/ salaries. For example, the wages of unskilled catering workers will be much lower than for lawyers, this can be explained using economic theory.
a) lawyers b) McDonalds workers
The supply of waiters is quite elastic because no qualifications are required. Demand for labour depends upon the Marginal Revenue Product =MPP *MR therefore the demand is quite low because the productivity of waiters is not too high, they do not add much to total profit.
However, the supply of lawyers is quite inelastic because it is difficult to get the necessary qualifications. Also, the demand will be much higher because they can affect the productivity and profitability of a firm significantly; therefore firms are willing to pay higher wages. Generally specialised jobs such as lawyers and accountants will be able to get higher salaries causing income inequality
Income inequality could occur because of differences in wealth, for example, those who own assets such as houses can rent them and receive extra income; if you inherited money you could set up a business with the possibility of earning a high income.
The biggest cause of poverty in the UK is unemployment. Unemployment benefits are quite low, therefore, if you have no job then your income will be much lower than those who are in employment.
Pensioners tend to have lower incomes as well; especially those who rely on state pensions will have an income far below the average wage.
There are other groups of people who rely on state benefits and these will tend to have lower incomes, e.g. single mothers and those on disability allowance.
In the UK those who work in the public sector e.g. nurses and council workers tend to have wages lower than comparable jobs in the private sector, the govt is more reluctant to increase wages. Poorly paid jobs are often found in the service sector, e.g. there are many part time jobs in catering and cleaning which pay close to the minimum wage of £4.20. Women predominantly do these jobs. Wages tend to be higher if the industry has powerful trades unions.
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