What is income distribution?

Income distribution describes how income is shared among people, households or social groups. Rising total income does not mean everyone benefits equally. Depending on the measure, wages, business income, interest, rent and transfers may be included.

How is income distribution measured?

1. Defining income Market income differs from disposable income after taxes and transfers. Household size and age composition also affect needs. Equivalized household-income measures seek to improve comparisons; the method must be specified. 2. Mean and median Mean income divides total income by the number of people. The median is the middle value when people are ordered by income. Very high incomes can raise the mean, so it may differ from the typical household’s experience. Both measures together are more informative. 3. Gini and income shares The Gini coefficient is usually expressed between 0 and 1, sometimes on a 0–100 scale. Higher values indicate greater inequality. Shares received by high- and low-income groups are also useful. Societies with the same Gini can have different distribution patterns.

Causes of inequality and policy tools

4. Income versus wealth Income is a flow earned during a period; wealth is a stock of assets minus debts. Someone without a high income may own valuable assets. Income inequality, wealth inequality and poverty are related but distinct concepts. 5. Influences on distribution Education, labour markets, regional opportunities, inheritance, technology and institutions affect outcomes. Discrimination or unequal care responsibilities can also limit opportunity. Single-cause explanations miss this complexity. 6. Policy and data limitations Taxes, social support, quality public services and employment opportunities can influence distribution. Surveys may miss very high incomes or informal earnings. Comparisons between years and countries must check income definitions, data coverage and price levels.