Income & Wealth
20 important questions on Income & Wealth
What does GDP not take into account?
GDP excludes important activities, such as services by homemakers; it takes no account of leisure; and it often does a poor job of measuring those things that are included. p172
Who are generally amongst the group with highest poverty rates in the US?
Children are more likely to be in poverty than adults, but they, like other groups and like the population as a whole, have seen little or no reduction in poverty rates in the past thirty years. p181
What is an example of 'equality of opportunity'?
One way of measuring equality of opportunity is to look at the correlation between the earnings of fathers and sons. In a completely mobile society, with perfect equality of opportunity, your earnings should be unrelated to what your father earned; by contrast, in a hereditary caste society, in which jobs are handed down from one generation to the next, the correlation would be 1. p.207
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Income, wealth and consumption
- In our consumer society consumption possibilities are determined by the level of income and wealth
- The higher the level of income and wealth, the higher your possible consumption levels are
- This holds for savings as well
- It may sound as a truism, but the formalization of the relationships between Y, C and S is subject of debate: absolute, relative and permanent income hypotheses
What is the right definition of disposable income?
The part of national income that is available to families, after taxes have been paid and any transfers received. p171
Relationships between income and wealth
The various sources of income are:
- Income from labour (earnings)
- Income from capital (interest, dividents)
- Transfer income (social security, family alowances)
Explain how the Gini coefficient measures inequality
Gini = A/(A+B). The lower the better (the closer to 0, the more equal the situation). It measures how much % of the population owns how much % of the income, so how income is distributed.
What are factors used to objectively measure social class?
Three variables have been traditionally used for identifying social class: income, socio-professional category, and educational level.
What does Figure 6.7 tell you about social class and leisure activities?
- People with high income and high education appreciate monuments
- People with high income and low education appreciate Holidays in Hotels
- People with low income and a high education level appreciate Festivals
Income and wealth dispersion (spreiding)
- The Gini-coefficient:
- Derived from a Lorenz curve
- When a curve approaches the diagonal, the Gini coefficient comes close to zero, which means perfect equality in income distribution. The opposite holds when the coefficient approaches unity.
- Gini = A/(A+B)
How can social class be measured?
Three variables have been traditionally used for identifying social class: income, socio-professional category, and educational level.
Different ways to measure income
- Primary income:
- The majority of the primary income of households consists of the remuneration (vergoeding) of employees, which includes wages and social contributions.
- This income also includes the income from property resulting from the loan or rental of financial assets or land (interest, dividends, land income etc.)
- Gross income:
- Remuneration of employees before taxes or other deductions
- Disposable income:
- The income remaining after deduction of taxes and social security charges, available to spent or saved as one wishes
- Standardized income:
- Corrected for the size of the households
Measure method: Pen's Parade
- In a parade all households in the Netherlands pass by in one hour, in order of the level of their income
- Each household is represented in the procession by one of the family members
- The height of this representative is made proportional of the household income. If this is equal to the average income, the participating family member will be given the height of the average Dutch person
Social classes are stratified, what does this mean?
As opposed to age groups or lifestyles, which are juxtaposed mosaics of human attributes, social classes always include the idea of superior or inferior status. This characteristic is important for understanding consumption patterns for many publicly consumed products. Consider clothing. To a large extent, the way people dress tends to express their social position. Sociologists have thus coined the expression ·blue collar workers' to refer to manual workers.
Explain the difference between social class and lifestyle.
Why care about income inequality?
- Pareto efficiency: no problem if some earn more, as long as others do not get worse of?
- Deaton:
- Can increase inequality of opportunity
- How did they get richer and at the expense of whom?
- Too large influence in Society (sitting on eachother's board)
What is GDP according to the OECD and to IMF
Wealth distribution in Netherlands in 2016
- About 50% of the dutch households has no net wealth
- 20% has negative wealth
- The home is the most important (negative) wealth item
- Wealth is more unequal than income
- Wealth and income distribution is more unequal when share of labour income of the market sector in total income is lower or decreases
Socio-economic approach to consumption
- Socio-economic (SE) approach appropriate to consumption issues: income, education, household characteristics as type, size, life-cycle
- Restriction to income and education, social class
- Income and household type are related:
- In NL among the poor singles and one parent families dominate
- Couples and two parent families are the wealthier people
- For economists: lifestyles = consumption (total, product category, product, brand)
Economic approaches to social class and life styles
- Social class: large aggregate, stratified, evolving, multidimensional, relatively homogeneous
- Measurement:
- Subjective: self-perception
- Reputation: perception of others
- Objective: single or composite variable index based on occupation; education; income; quality of neighbourhood or dwelling; inventory of possessions
- In economically oriented consumer and consumption research: income (amount and/or source), education as predictors of consumption
- Lot of attention to the affluent consumer: discretionary income high
- Further differentiation in the Upper deck: number of earners, presence of children
- Bourdieu and the distinction in taste; Bourdieu ‘s economic (income) and cultural capital (education) can be applied to consumption
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