Crucially involved is the notion that individuals have control over the use to which scarce resources including ideas can be put, and that this right of control is saleable or transferable. The role of the body politic in this system is twofold. Firstly, the government or courts must help decide which individuals possess what property rights and, therefore, who has the power to claim that his rights are affected by others.
Secondly, property rights so assigned must be protected by the police power of the state or the owners must be allowed to protect property rights themselves. Stewart , p. However, measuring the value of all but the first of these types of assets, and dividing the result between individuals, both involve such conceptual and practical problems that actual calculations of the personal distribution of wealth are most commonly based on marketable wealth alone.
Marketable wealth may take any one of a number of forms, some of which are more liquid than others, in the sense that they can be exchanged for money quickly with little if any loss of potential value. Housing is a relatively illiquid form of marketable wealth, while more liquid forms include cash, and other financial assets ranging in liquidity from money at call to shares. In this book the composition of wealth is discussed only in so far as it has a bearing on the distribution of wealth, to which we now turn.
A useful benchmark for measuring the personal distribution of wealth is a society in which every individual possesses the same amount of wealth. In such a society wealth can be said to be equally distributed. In every other case the distribution of wealth can be said to be unequal — though measuring the degree of inequality is no easy matter, as will become apparent in Chapter 2. The distribution of wealth shares with public goods the characteristic that whatever is enjoyed by one member of a society is enjoyed by all.
Just as it is impossible for one member of a society to experience a high level of defence provision and another member of the same society to experience a low level, so it is impossible for one member of a society to experience an equal distribution of wealth and another member of the same society simultaneously to experience an unequal distribution of wealth.
There is by now a substantial literature on the distribution of income; the interested reader is referred in particular to Handbook of Income Distribution , volume 1 and volume 2A , edited by Anthony B. A separate study of the distribution of wealth might appear superfluous if it were true that the distribution of wealth is the same as the distribution of income.
In fact, however, the distribution of wealth is always more unequal than the distribution of income. The distribution of wealth also need not necessarily mirror that of income. This fact is illustrated by calculations reported in an article by Donald L. Lerman and James D. Given the relatively low correlation between the distribution of wealth and the distribution of income, the distribution of total resources among households may be less unequal than the distribution of either wealth or income.
Unfortunately, neither the Australian Bureau of Statistics nor Whiteford notes that the distribution of total household resources among households can alternatively be measured by disposable income when households are ranked by net worth. The distribution of wealth is important in its own right because the well-being of individuals is affected by their wealth independently of their income.
To take a simple example, consider a society in which the distribution of income is equal, but half the population has wealth and half does not. The well-being of those possessing wealth will exceed that of those without wealth for a number of reasons. Those possessing wealth will be better able to purchase a home in a secure environment, and will find it easier to cope with an adverse economic event such as loss of an uninsured asset. They will be able to sustain a higher consumption level after retirement.
They will be able to leave more to their children. Given these economic advantages, they have the option of making do with less income than those without wealth, so as to be able to enjoy more leisure. They are likely to enjoy a higher social status, particularly if their wealth takes a conspicuous form, such as an expensive house in a prestigious locality. And the more wealthy the individual, the greater the political power they are likely to enjoy, not only if the wealth takes the form of media ownership, but also through the ability to influence political parties through contribution of funds.
Of course possessing wealth carries with it some disadvantages. As Lisa A. Keister , pp. Excess wealth can attract unwanted media attention and solicitations of various kinds. In some cases, wealth can invite security threats and may produce social isolation.
Figure 3. The sample for the Survey of Consumer Finances is too small to disaggregate wealth among the diverse groups that make up this population. See Figure 4. Figure 4. See Figure 5.
Figure 5. Net worth taxes typically apply only to the relatively wealthy or extremely wealthy and exempt the rest of the population. The patterns of wealth inequality among the entire population shown above are mirrored among the wealthy. See Figure 6. Figure 6. Low-wealth and high-wealth families differ in terms of the assets and liabilities they hold. Cars and other vehicles account for the overwhelming majority of wealth for low-wealth families.
Middle-wealth families hold much more of their wealth in home equity, with more modest contributions from retirement accounts, bank accounts, and cars. Very high-wealth families hold much more of their wealth in business equity and financial assets outside retirement accounts. See Figure 7. Figure 7. All tabulations in this brief rely on the public-use version of the Survey of Consumer Finances.
No adjustment is made for the exclusion of the Forbes from the survey. Including such an adjustment would modestly increase the top wealth share. Economy Economics. Table of Contents Expand. What Is Income Inequality? Understanding Income Inequality. Special Considerations. Key Takeaways Income inequality studies help to show the disparity of incomes among different population segments. When analyzing income inequality, researchers commonly study distributions based on gender, ethnicity, geographic location, and occupation.
Case studies and analyses of income inequality, income disparity, and income distributions are provided regularly by a variety of top sources. The Gini Index is a popular way to compare income inequalities universally across the globe. An income gap refers to the difference in income earned between demographic segments.
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This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace. The Gini index, or Gini coefficient, is a measure of the distribution of income across a population. The Great Gatsby Curve illustrates the relationship between income inequality in a country and the potential for its citizens to achieve upward mobility. What Is Egalitarianism?
Egalitarianism is a philosophical perspective that emphasizes equality across gender, religion, economic status, and political beliefs. What Is Generational Wealth? Generational wealth refers to assets passed by one generation of a family to another, such as stocks, bonds, real estate, and family businesses. Partner Links. Related Articles. Economy Median Income by State. Economics The Racial Wealth Gap. Investopedia is part of the Dotdash publishing family.
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