This part presents a theoretical overview of some of the principal determinants of the distribution of income. Since distribution theory has advanced so rapidly and in so many directions in recent years, it seemed useful to pull together in a brief review several of its basic themes. The next three chapters thus outline the theoretical background of the study. They show (1) the way underlying determinants and behaviour interact with each other, (2) the distributional environment in which government activity and policy-making must be carried on, (3) the rationale for the analytical perspective pursued in later chapters, and (4) the...

The subject of this study is the size distribution of income and its associated structure of inequality; that is, it examines differences in income among individual income recipient units. Consequently, we begin by looking at the economic behaviour of these individual recipient units, emphasizing the choices available to them, the constraints they face, and the implications of their decisions. Households and individuals are remunerated according to the productive factors they offer to the market. The present chapter considers the various supply-side factors affecting income difference and the distribution of income.

Analysis of the supply-side determinants of the distribution of income...

As was pointed out in the introduction to Part One, theoretical analyses of the determinants of the size distribution of income have tended to emphasize supply-side considerations. Demand-side factors nonetheless can still have a considerable effect on the distributional structure through their impact on rates of factor remuneration and employment. The present chapter discusses some demand-side determinants of the distributional structure and their effects on wage rates and employment. The next chapter brings the supply and demand sides together in a discussion of market determination of factor prices, particularly in the labour market.

In the 1950s, substantial research occurred on...

Chapter 2 examined in some detail the supply of factors of production by individuals and households in a life-cycle framework with particular emphasis on the age-income trajectories generated by the life-cycle models. Chapter 3 then turned to the demand-side of the labour market and considered some of the implications for distributional inequality of employer behaviour in the market with particular emphasis on specific human-capital investment and cost-minimization in the face of imperfect information about employees’ productive characteristics. In each case the discussion focused on one side of the factor market. We now try to bring the two sides together and...

We shall be using various methods for describing distribution of income and wealth and for measuring the inequality in the distribution. Since the emphasis will be on the effects on measured inequality of various adjustments to income and wealth data, it is important that the reader have some familiarity with the principal statistics that characterize the important features of a distribution. Such distributional measures will include Gini coefficients, Lorenz curves, coefficients of variation, and Atkinson’s inequality index. This chapter briefly explains what is meant by a distribution and how inequality in a distribution can be characterized and interpreted. The discussion...

The distribution of income amongindividualsacross the province is for a number of reasons a logical place to start a review of empirical patterns of inequality. For most sources of earnings and self-employment, pension, and investment income, the individual is the basic income-receiving unit, and the amount he receives depends on his own particular characteristics (e.g. his productivity and wealth-holdings) as evaluated by the market system; it is some of these characteristics that we wish to highlight. Much of the theory of the size distribution of income considered in Part One focuses on the individual as the basic subject...

The distribution of family incomes is built up from the incomes of individuals considered in the last chapter. We now turn to family distributions as the principal focus for the rest of this study. Whereas individuals are the basic recipients of income, families may be viewed as the basic beneficiary units of income. Common resources and consumption bundles are shared within the family. Consequently, if income distributions are to be viewed as indicators of the distribution of well-being across the population, ultimately it is family income distributions that we ought to look at. According to the theoretical discussion in Part...

So far our empirical investigation has been of the distribution of income among individuals and family units. As both the theory of life-cycle behaviour and the evidence of the previous two chapters show, one of the causes of income inequality is income from wealth. Inequality in the distribution of wealth can do much to cause and maintain income inequality: large quan tities of wealth, whether from inheritance, past savings, or good luck, yield high capital income; furthermore, large incomes facilitate high savings levels and hence rapid accumulation of net worth. Consequently inequalities in income and in net worth might be...

In Part Two we reviewed recent evidence on the general structure and patterns of family economic inequality in Ontario as revealed by standard data on income and wealth from the Canadian census and surveys. The reason for examining these distributions, of course, is that they are observable proxies or estimates of the distribution of economic well-being across families in the province. But family income, for example, is an overly simple and imperfect approximation because it ignores many important factors or does not take them into account. Part Three, therefore, attempts to adjust conventional family income figures for a number of...

This chapter examines the ways in which the structure and pattern of inequality change when the conventional basis for inequality comparisons, total family income reported, is adjusted to reflect the disposable real income resources available. It is clear that the distribution of economic well-being depends partly upon income other than that reported, imputed and non-pecuniary real income benefits, and tax payments that must be paid out of any given level of income. This chapter reviews the pattern of inequality in the distribution of total family income, and compares it to that of non-transfer income receipts and disposable family income; examines...

The principal objective of Part Three is to evaluate the ways in which the structure of inequality across the population changes when adjustments are made to conventional family income figures so as to reflect more accurately the distribution of economic well-being. The last chapter considered limitations to the use of reported money income as a proxy for economic well-being, limitations associated with under-reporting or non-inclusion of various forms of real income. In the present chapter we turn to another aspect of the same general issue: how well does total family income actually represent the economic well-being of the members of...

As we have already pointed out, one objective of Part Three of this study is to measure better the distribution of economic well-being in the population. Economic well-being depends not only upon current money income and non-pecuniary receipts for a given family size and composition, but more generally upon any economic benefits that could increase one’s command over available resources and thus increase the potential level of consumption attainable by family members. This theoretical concept of real personal income is very close to the classic Simons-Hicks view that ‘personal income may be defined as the algebraic sum of (a) the...

In the last chapter, the argument was made that economic well-being could be related to the potential consumption attainable by a family over a given period of time such as a year. Clearly, potential consumption and economic well-being of a family can be increased not only by higher income, but also by greater amounts of net worth. Consequently, some account of total net worth holdings should be included in our empirical measure of economic well-being, and it is this matter that the current chapter addresses. Indeed, according to the life cycle theories of Part One, consumption was essentially related to...

Family economic well-being can obviously be affected by the public sector as well as the private sector of the economy. So far, though, the adjustments we have made to family income figures in order to provide an improved index of economic well-being have concentrated almost entirely on various privately held resources. However, publicly provided resources such as social security and health insurance can also affect the economic well-being of families, and a disregard for this form of resources, or what may be called social security wealth, might be expected to bias inferences based solely on conventional income and private wealth...