Reaction Paper to Income Distribution

Reaction Paper to Income Distribution

            In economics, income distribution can either be referred to as the functional distribution of income or personal and household distribution of income - Reaction Paper to Income Distribution introduction. Functional distribution of income refers to the study of income returns to factors of production. On the other hand, personal and household distribution of income is the study of income returns that involve people or households (Campano and Salvatore, 2006). Having these definitions in mind, income distribution is one of the most important aspects that influence the well-being of the society. Proper income distribution has a vital role in order for the citizens of a country to address their needs, which entails the prudent use of income that people earn.  However, unequal distribution is widely observable especially in capitalist countries. States that are regarded as developed nations also experience this kind of situation, which often becomes the cause of the wide disparity between rich and poor citizens. This exact issue is tackled by John Isbister (2001) in his article entitled Income Distribution.

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            John Isbister discusses the strikingly unequal income distribution in the United States. He referred to Plato’s Laws as the starting point of his argument regarding the moral justification that an equal distribution should have. In Plato’s colony, he explicitly said that in a just society, the rich should only have no more than four times as much as the poor. In this sense, Isbister analyzes the thesis of this article regarding limits that there should be to inequality in order for a just distribution of income to still exist. He further explains the purpose of his study by asserting that perfect equality of income tends to impede efficiency. He also added that pay differentials are essential because it compensates the various factors that affect the work of an individual (Isbister, 2001). In line with this, the author also poses a moral problem of whether inequality of income distribution to a certain limit can still be considered as justifiable.

            The author disregarded the utopian society wherein every individual receives the same amount of resources. Isbister asserted that this kind of society will be inefficient due to his belief that people will no longer have financial incentive to strive to be more productive. In line with this, he also said that the equality in their incomes will not reflect the individuals’ respective contribution to society. As a result, he pointed out that the concept of efficiency conflicts with equality, which is why the idea of compromise should take place. This paved the way for the emergence of minimum departures from equality that is essential to bring about efficiency. Nevertheless, Isbister noted that these departures should only be minimal because of the fact that every concession to income differences contributes to unequal opportunity for children (Isbister, 2001).

            Isbister enumerated justifications for the unequal distribution of income for the sake of efficiency. First, unequal wages aid in pursuing people to take further studies in order to earn more. People who undertake education, apprenticeships, and training programs that will hone their talents and skills deserve to earn more as compared to those who did not do such. Second, earning differences is necessary because many people need the idea of higher earnings or the fear of lower earnings for them to work hard and effectively. This goes to show that inequality in earnings is needed to further pursue efficiency. Third, the relation between wage inequality and efficiency also comes from organizational hierarchies. In most cases, it is essential that those people who are at the superior level of an organization to have quite a higher salary than those below them. This is due to the idea that it is difficult to supervise people with higher salaries and in the same manner, to be supervised by people who earn lower. Lastly, he also emphasizes that adhering to equal income distribution could cause shortage of capital and entrepreneurship as well as some violations to an individual’s right to property (Isbister, 2001).

            The solution that the author proposes in his article foregoes Plato’s idea of giving a specific ration between the highest and lowest incomes that coincides with justice. John Isbister used another measure, which analyzed the share of total personal incomes accruing to different percentiles of the population. He created a hypothetical income distribution for a country that has 1,000 people in order to clearly exemplify his solution. In the table that he made, he enumerated the annual income in thousand dollars, the average income of families in range, number of families, and the income earned by group. The process of his operation includes grouping the families by their annual income and the average income that they obtained in that particular bracket. Afterwards, he would multiply the number of families that belongs to a particular bracket with the amount of average income that they have. In this sense, the income range that most families receive will be higher because there are more people who belong within the bracket, as such they should be distributed with more income. Simply put, Isbister’s solution is better exemplified by a bell-shaped model wherein those that belong in the middle class receive more as compared with the poor and the rich. Furthermore, this also lessens experiencing extreme cases of affluence and poverty (Isbister, 2001).

The solution of Isbister is working for the United States society. This is proven by the fact that applying this method, there is a more egalitarian distribution of income that exists in the United States. The bottom 20 percent of the population earns 7.5 percent while the higher 20 percent have 29 percent of income. Moreover, I agree that Isbister’s solution is indeed applicable in enhancing the income distribution in America. Based on the figures used by Isbister, it shows that the lowest 20 percent of the population receives only 5 percent of income while the highest 20 percent receives 45 percent. These figures show that the American society is dominated by the middle class. The bell-shaped model that he used clearly coincides with this situation because it gives more priority to the middle class as they compose the majority of the population. Moreover, this also addresses the widening gap between the rich and the poor population in the country because it prevents them from being severely skewed at these ends.

References

Campano, F., & Salvatore, D. (2006). Income Distribution. United Kingdom: Oxford University Press.

Isbister, J. (2001). Income Distribution. Virginia: Kumarian Press.

 

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