Sociology Plus
Distribution of Income and Wealth Definition
The distribution of income and wealth is the spread of material resources among a population. It is a key indicator of social inequality, and tracking changes in the distribution over time reveals whether a society is becoming more or less equal. “Income” refers to material resources obtained as wages and salaries, social benefits and pensions, interest on investments, and rents. “Wealth” has no precise definition but generally denotes the accumulation of resources, monetary and non-monetary; despite the growing number of “self-made” rich, inherited wealth remains vital to any account of who is wealthy.
Difficulties of Measurement
Investigating the spread of personal income and wealth is fraught with difficulty for several reasons: the data are often inaccurate; the appropriate unit of analysis is hard to settle (individuals, families, or households); non-monetary benefits — including those derived from government expenditure — are difficult to evaluate; and individuals’ positions change over the life-cycle. Wealth is even harder to study than income, since the data depend largely on estate tax returns, which are inaccurate and require extensive adjustment; consistent series over time are elusive; and there is the further problem of whether to count only marketable assets or to include non-marketable ones, such as the capital value of state and occupational pension rights. Wealth is also a relative notion: a 1986 Gallup Poll found that over two-thirds of the population considered someone wealthy at £200,000 — coincidentally the level then enjoyed by the richest 1 percent — while at the extreme the “super rich” own upwards of a billion pounds.
Income Distribution and the Tax-Benefit System
One simple way to present income data is to compare original income (received by households from employment, occupational pensions, and investments) with post-tax income (original income plus state benefits, minus income taxes, VAT, and national insurance). The tax-benefit system clearly reshapes the distribution: in the UK in 1992, the top decile’s original income was thirty times that of the poorest decile, but after taxes and benefits the ratio fell to eleven to one.
Trends: Equalization and Reversal
From the 1940s to the 1970s post-tax incomes tended to become more equal. From the late 1970s the trend reversed. Between 1977 and 1988 the share of total post-tax income taken by the richest quintile rose from 37 to 44 percent while every other quintile’s share fell — the top fifth in effect taking income from all four others, especially the poorest two — and the total income of the poorest tenth actually fell between 1979 and 1992. The Royal Commission on the Distribution of Income and Wealth (1974–79), using income tax returns supplemented by the Family Expenditure Survey and New Earnings Survey, found that in 1976–77 the top half of the population received 75.9 percent of all income, with taxation reducing this only slightly. Between 1979 and 1987 the top 20 percent of UK earners enjoyed a 22 percent increase in income — six times that of the bottom 20 percent — and inequalities in both disposable and final income (disposable income after indirect taxes such as VAT and the poll tax, plus government benefits in kind such as health and education) widened through the 1980s.
Several factors drove the reversal. Among those in work, hourly wage disparities grew rapidly: real wages for the lowest paid barely changed while high wages grew by 50 percent. During the 1980s more people depended on state benefits, partly through rising unemployment, and the relative value of those benefits fell because they are pegged to prices rather than wages. The tax system did nothing to correct rising pre-tax inequality, and its discretionary elements actually shifted the tax burden away from the better-off. Although inequality grew in many countries from the late 1970s, the increase was greater in the UK than anywhere except New Zealand.
Wealth Distribution
Taking marketable assets as the measure, the wealthiest 10 percent in the UK owned more than half of marketable property in 1989. Much of the nation’s wealth is held in housing; excluding houses, inequality is sharper still — in 1989 the richest 1 percent held 28 percent of marketable wealth net of housing. Over the long run there has been some equalization: since 1923 the share of the top 1 percent has fallen from about 61 percent to about 32 percent. But this redistribution occurred essentially within the richer half of the population; the poorer half did not increase its share. The Royal Commission also confirmed that wealth is less equally distributed than income. Moreover, the narrowing of wealth differences slowed or stopped between 1976 and 1992 — the richest 1 percent owned 50 percent of all wealth in 1976 and still 49 percent in 1992 — so this period saw a reversal of the older trend toward greater equality in both income and wealth. The topic connects closely with poverty, class, and social stratification.