The total incomes of the population, their level, structure, methods of obtaining and differentiation are indicators of the economic and social well-being of society. Their distribution has a pronounced socio-political coloring, predetermining property and social differentiation.
The traditional dispute between proponents and opponents of government regulation in the area of distribution boils down to the problem of the relationship between efficiency and equality. The formulation of the problem of equality inevitably leads to the so-called normative economic theory, which aims to describe ideal (from the point of view of various worldview systems) models of social order. Positive economic theory studies already existing systems of relations. The unity and difference of positive and normative economic theories is most clearly manifested in the debate over the relationship between equality and efficiency. It is generally accepted that, by effectively allocating limited resources, the market makes “mistakes” in the distribution of income. This statement is based on the fact that economic efficiency is artificially detached from its social content.
State regulation of the economy is aimed at increasing the efficiency of social production, ensuring social justice and stability. The area of state regulation, which is called social, should satisfy all three of these goals. Most economists believe that inequality in the distribution of income or the division into rich and poor is a stable phenomenon, persisting even against the background of a significant increase in living standards. Can government intervention reduce stigmatizing poverty, and what price will have to be paid for it? Is the public choice based on the economic or political decision-making process? Theoretically, it is impossible to correctly determine how much of public income should be redistributed in favor of the poorest. Both economic and political decision-making processes do not guarantee the absence of miscalculations.
Economic solutions to this problem are based on the fact that the entire product produced in society can be represented as the sum of income from factors involved in its production. The functional distribution of income is the distribution of income between factors: labor, capital, natural resources and entrepreneurial abilities. As a result of the functional distribution of income, such primary incomes as wages, interest, rents and profits are formed. In the system of factors of production, the main relationship concerns capital, therefore, for simplicity, the functional distribution can be represented as the ratio between income from labor and from property.
The problem of the interaction of labor and capital is explicitly or implicitly central in any of the directions of economic theory. Alternative directions in economic theory differ in the interpretation of the final basis of income. The basis of differences in the explanation of the source of income are alternative theories of value. In accordance with the theory of labor value (A. Smith, D. Ricardo, K. Marx), the only source of value is living labor in material production, which creates new value. Marxist income theory is based on the theory of surplus value. The latter is understood as part of the new value created by the labor of hired workers and gratuitously appropriated by the capitalists. The labor theory of value, the ideas of which are formulated by the classics of political economy, was developed by Marx and used as the basis of the theory of exploitation and all related conclusions. The Marxist theory of surplus value uses the ratio between the shares of capital and labor in new value as a tool of analysis, calling it the norm of surplus value. Characteristically, this indicator is used to measure the degree of exploitation of labor by capital and depends on the length of the working day and labor productivity.
Modern economic theory also analyzes trends in the shares of income of capital and labor. The dominant explanation in modern economic theory of the sources and principles of income formation is based on the theory of factors and their marginal productivity. The theory of marginal productivity focuses on the analysis of functional relationships between different parts of income. Different branches of economic theory explain the sources of income in different ways, but they are unanimous in the fact that each production factor is associated with a certain income, which makes it possible to integrate different ideas. The interpretation of the main problems of the theory of income in modern conditions is significantly different from the ideas of the past. The growth of national welfare and the creation of systems of social regulation, if not remove, then significantly smooth out the problems of class confrontation. Nevertheless, the analysis of the ratio of the shares of labor and capital in total income is recognized as generally significant and is widely used in modern economic analysis.
The functional distribution of income reflects its real distribution among citizens in conditions where it is possible to unambiguously identify the social status of both the person of hired labor and the owner of material capital. In modern conditions, there is a blurring of social status, expressed in the fact that employees are simultaneously owners of capital, owning various types of securities, real estate, organizing a private business. If about 90% of the population is counted by national statistics as a person of hired labor and at the same time the share of owners (taking into account family members) reaches 50%, then there is a diversification of social status, which, if not removes, then significantly smoothes out the problem of class confrontation.
The functional distribution of income, as we see, does not reflect the incomes of families and individuals who may own different production factors. The total incomes of the population are formed from different sources and redistributed among families depending on their size and composition. Personal income distribution measures the distribution of income between families (it is agreed that the family can consist of 1 person).
With the development of a market economy, the differentiation of incomes in the material situation of the population increases. This is due to the increasing role of factors causing differences in incomes of the population, and the struggle of business entities to increase production efficiency. Those who have more property, receive higher wages, will be interested in increasing the efficiency of production, increasing incomes. Improving the efficiency of production by causing income inequality reproduces social injustice again and again.
Therefore, society must take into account the problems of social equality and justice. Social equality implies equality in relation not only to the means of production, equal opportunities for health care, education, but also in the receipt of social benefits by the individual in proportion to his labor contribution. Historical experience has shown that egalitarian distribution leads to equality in poverty. Therefore, in the context of the formation of a market economy, society should identify and stimulate human abilities, create conditions for each able-bodied citizen to determine his personal well-being. The state, invading the sphere of income distribution, should not seek their equalization. Equality does not mean an equal distribution of income, but their differentiation depending on the abilities of a person. At the same time, society must support social justice. The solution to this problem involves control over income and progressive taxation of large incomes, inheritances, the elimination of all types of privileges, the creation of a new taxation system.
In Western economic theory, there are four points of view on justice in the distribution and redistribution of income: egalitarian, Rawlsian, utilitarian, market.
The egalitarian approach means that there is no inequality in the distribution of income in society.
The Rawlsian approach assumes a fair income differentiation in which relative economic inequality is permissible only when it contributes to the achievement of a higher absolute standard of living for the poorest members of society.
The utilitarian approach is based on the fact that income should be distributed in proportion to the utility of their use by different people.
The market principle assumes a market distribution of income based on the correspondence of the income of each owner of the factor of production to the marginal product obtained from this factor.
The choice of approaches and principles of equitable distribution of income for each society is determined by the economic, political structure, and also depends on the historical and national characteristics of the development of society.
In our country, an egalitarian approach to income distribution has long prevailed. Therefore, the transition to market principles of distribution in the Republic of Belarus is implemented, among other things, through a combination of market and normative material well-being of the population and the implementation of specific measures for social protection.
The personal distribution of income of the population is characterized by significant unevenness, which can be measured on the basis of the Pareto-Lorentz-Gini methodology. At the beginning of the XX century, V. Pareto, on the basis of actual data on the distribution of income, formulated a law named after him. According to the “Pareto law”, there is an inverse relationship between the level of income and the number of their recipients, in other words, the personal distribution of income is consistently uneven, and the level of inequality in the distribution of income – the “Pareto coefficient” – is approximately the same in different countries. In the Pareto concept, income differentiation is considered as an unchanging and independent of social and political factors.
To determine the inequality in the incomes of certain groups of the population, the Lorentz curve is used, which characterizes the uneven distribution and shows the share in the national income that each group of the population occupies. To construct such a curve, the horizontal axis is the proportion of the total population with a certain level of income, and the vertical axis is the share of total income attributable to the corresponding part of the population (or part of the families). The combination of the shares of income and families in total income for different percentages of the population gives the Lorentz curve of OABCDE, which reflects the actual distribution of income received between individual groups of people (Fig. 10.4.). If there were absolute equality in the distribution of income in economic systems, for example, the poorest 20% of the population received 20% of the total income, 40% of the population – 40% of income, etc., all points would be located on a straight line of absolute equality – OE, built at an angle of 45 °.
The gap between the line of absolute equality and the line of actual distribution indicates the degree of income inequality. The more the Lorentz curve deviates from the line of absolute equality, the greater the inequality in the distribution of income of the population. Thus, the real distribution will not be characterized by a straight OE, but by an OABCDE curve. The shape of the Lorentz curve shows the degree of unevenness of income distribution. The steeper the curve curve and the farther it lags behind the absolute equality curve, the greater the inequality in the distribution of income and vice versa.
The degree of economic inequality in each country can be measured as the area between the Lorentz curve of this system and the line of absolute equality. So, if we calculate the area formed between the line OE and the curve OABCDE, and divide it by the area of the triangle OEF, we get an indicator that measures the level of inequality, called the Gini coefficient. The greater this ratio, the greater the inequality in the distribution of income. According to statistics, this indicator in Belarus in 1995 was 261, in 1996 – 0.254.
To assess income differentiation, an indicator such as the decile coefficient is also used, which shows the ratio between the average incomes of the 10% of the highest paid members of society and the average incomes of the 10% of the most affluent.
In different countries, the ratio between the degree of differentiation of income and wealth varies, but if the differentiation of income has changed little in recent years, then the differentiation of wealth, according to experts, is growing. This indirectly confirms the conclusion that the outstripping growth in the share of income from property is largely the result of inflationary redistribution.
Income differentiation is formed under the influence of various factors related to personal achievements or independent of them, having an economic, demographic, sociobiological or political nature. Among the reasons for the uneven distribution of income are: differences in abilities (physical and intellectual), differences in education and qualifications, diligence and motivation, professional initiative and risk appetite, origin, size and composition of the family, property ownership and market position, luck, luck and discrimination.
The whole variety of factors affecting the differentiation of income can be conditionally divided into dependent and independent of the personal efforts of income recipients. The boundary between these groups of factors may be more or less fluid: innate abilities and talent may not lead to income growth and may not find application, while modest abilities may be developed as a result of education and strong work motivation; ownership of property by inheritance can lead to both its multiplication and loss of property and income from it. Differentiation factors affect the degree of income inequality in different ways. In general, incomes are distributed more unevenly by property factors than by labor factors, but the ratio between these factors varies from country to country and at different times.
The provision of the population with the benefits of life depends on the value of real incomes; The degree of satisfaction of needs is estimated on the basis of a comparison of estimated and actual consumer budgets of families. The distribution of the population by income is based on the distinction between low-, medium- and high-income groups of families, each of which has its own rational consumer budget. Based on the analysis of the size and structure of expenditures of low-income groups of the population, the budget of the minimum material security and the boundaries of poverty are calculated.
Poverty is directly related to the uneven distribution of income and property. However, poverty cannot be precisely defined (as well as happiness and well-being). In its most general form, the identification of poverty is based on a comparison of a strictly defined set of needs and the possibilities of their satisfaction for certain groups of the population. Needs are assessed on the basis of the so-called consumer baskets, differentiated by income, age, professional and other characteristics. Minimum consumer budgets as the basis for identifying poverty, in turn, are differentiated and are calculated as budgets of the physiological minimum, at least the maintenance of health and decency, as budgets of minimum prosperity. The minimum income is those boundaries of family income beyond which the reproduction of socially acceptable living conditions is not ensured, on its basis the poverty threshold is determined and the subsistence minimum is calculated.
The level of the subsistence minimum depends on socio-economic factors and is more mobile than the poverty threshold. The poverty threshold, as experience shows, does not reflect the growth of consumption, increasing due to rising prices.
The poverty threshold is quantified on the basis of data on the cost of food, based on rational consumption rates and the share of food costs in family budgets. It is revealed that low-income families spend relatively more money on food than high-income ones; the proportion of the cost of food also depends on the size of the families: small families spend relatively more on food than larger families. There is a kind of “economy from the scale of the family” not only in relation to food expenses, but also in other consumer spending. The logic of the relationship between the cost of food and the poverty threshold is that if a low-income family spends 1/p of its budget on food, then the poverty threshold will be equal to the cost of food multiplied by n.
The problem of measuring poverty is ultimately based on the range of needs that are recognized as socially necessary. A distinction is made between absolute poverty and its alternative definitions, taking into account the moral damage from the perception of poverty.
Factual information on the poor shows that poverty is uneven among different groups of the population, young and old, family and single, employed and unemployed. The spread of poverty is different between the urban and rural population, in different territorial and natural-climatic regions, between different ethnic groups of the population. What is considered poverty in one country is regarded as a sufficient level of comfort in another.
In the analysis of poverty, the question of its sustainability is of great importance not only in society as a whole, but also for each family, for an individual. Studies show that poor families are heterogeneous in terms of stay in cramped living conditions. Conditionally, it is possible to distinguish chronic (stagnant) and current poverty. The criterion for distinguishing between these forms of poverty is related to the duration of poverty and the likelihood of moving to more income groups.
Differentiation of the causes of poverty leads to the need to distinguish between types of poverty in order to determine specific measures to eliminate or reduce it.
All factors of income differentiation, independent of personal efforts, act as a kind of barriers to increasing income status. State redistribution of income and social policy in general are designed to eliminate the effects of some barriers and neutralize or weaken the effects of others. By developing public education and health care systems, adopting laws protecting human rights, limiting discrimination on the basis of sex, age or ethnicity, the state promotes the formation of income as an objectively developing process.