ECONOMIC

CHAPTER 5Distribution of IncomeIMPLICITLY OR EXPLICITLY, MOST DISCUSSIONS of the performanceof the American economy and the economic role of the Governmentare concerned with the growth of national income and the way it isdistributed.Three fundamental principles of equity concerning the distribution ofincome are widely accepted: those who produce the same amount shouldbe rewarded equally (horizontal equity) ; those who produce more should berewarded more (vertical equity); and no individual or household should beforced to fall below some minimum standard of consumption regardless ofproductive potential. Although there is fairly general agreement on theseprinciples, the desirability of any given amount of inequality in the incomedistribution remains a matter of personal judgment and of social and politicaldebate.One of the principal social debates has been about the extent to whichthose having high incomes should share with those having less. Among itschief objectives, the Government seeks the proper balance between redistributingincome to the disadvantaged so that they may have the basicamenities of life and allowing a reward system which gives individuals incentivesto work to their fullest capacity.OUTLINE AND SUMMARYThis chapter looks at the distribution of income among families and individualsand examines some of the government policies which have influencedit. The chapter considers the distribution of income among individualsand families and among various classifications of the population:age, sex, and race.While the inequality of family income is quite stable over the long term, itvaries over the business cycle. Inequality increases during a recession anddecreases in an expansion. This is a consequence of the variation in weeksworked that occurs because of changes in the unemployment rate.Because the concept of income used to measure inequality is essentiallylimited to money income before taxes, these measures need not reflect thetrue inequality of economic well-being. Some sources of income which areomitted would increase measured inequality and others would decrease it,137