Income distribution

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This graphic shows the distribution of gross annual household income. The building's thirty exposed floors are easily divided into quintiles; each income quintile is thereby represented by six floors. Each floor represents the tenth of a third (3.33%) of households in the US and each section of 10 floors represent roughly one third of American society. The floors above the top black line represent those households with incomes of or exceeding $100,000. The floors below the bottom black line, however, represent those households that fell below the poverty threshold. In order to live on the top floor of the American income strata, a household's annual gross income needs to exceed $200,000.

In economics, income distribution is how a nation’s total economy is distributed amongst its population. ^[1].Income distribution has always been a central concern of economic theory and economic policy. Classical economists such as Adam Smith, Thomas Malthus and David Ricardo were mainly concerned with factor income distribution, that is, the distribution of income between the main factors of production, land, labour and capital.

Modern economists have also addressed this issue, but have been more concerned with the distribution of income across individuals and households. Important theoretical and policy concerns include the relationship between income inequality and economic growth.

The distribution of income within a community may be represented by the Lorenz curve. The Lorenz curve is closely associated with measures of income inequality, such as the Gini coefficient.

[edit] Income distribution in the United States

Main article: Household income in the United States

In the United States, income is distributed somewhat inequally, with those in the top two quintiles earning more than the bottom 60% combined. Yet, the distribution of income is not nearly as polarized as in many developing countries with most of America's earned income resting in the hands of the middle class.

10%
Aggregate U.S. household income distribution, 2007^[2] edit
Percentage of total US household income earned by income group
3.1%	less than $20,000 -- 19.04% of all households
8.1%		$20,000 to $37,500 -- 19.45% of all households
13.8%				$37,500 to $60,000 -- 19.44% of all households
22.3% -- $60,000 to $95,000					20.00% of all households
40.8% -- $95,000 to $250,000 -- 20.15% of all households
11.9%			$250,000 or more - 1.92% of all households

In the United States, there were two eras of income inequality. The first one is started from 1890-1940, in which the inequality declined. One of the reasons that the inequality declined during that period is the World War I and World War II. The demand of the unskilled labor increased which decreasing the income for the skilled labor. The amount that individuals (usually high educated people) earned on the right tail of the income distribution fell. The second one is started from the 1940-2000, in which the inequality rose. The reason of it is that the demand for the skilled labor grew faster than the supply. Therefore, the high educated people had a rapid growth on their income. They earned more than the low income individuals and as a result, the income inequality went up.