What is fair distribution of income and wealth?

The term “income” summarizes all income that the natural and legal persons of an economy receive at regular intervals. A household’s asset includes all tangible and intangible goods that are of value to the owner. A fair distribution of income and wealth can only be achieved in an economy if certain aspects are taken into account.

In this lesson we explain to you what a fair distribution of income and wealth means for an economy. You will find out what a fair distribution of income and wealth is. We introduce you to the four relevant principles of a fair distribution of income and wealth and list the measures that the state provides for a fairer distribution of income and wealth. To deepen your knowledge, you can answer a few exercise questions after the article.

Synonym: social distribution of assets

What is a fair distribution of income and wealth?

The Italian economist Vilfredo Frederico Pareto (1848 to 1923) examined the distribution of wealth in Italy in 1896. He found that 20% of private households owned around 80% of the wealth of the entire Italian economy. Then as now, nobody felt that this was fair.

Income distribution according to the Pareto principle

In particular, the state – which has a certain duty of care towards its citizens – must clarify how it imagines a fair distribution of income and wealth and how this can be implemented in the national economy.

These questions can be asked:

  • Is it fair when all citizens have enough to live on?
  • Or is it fair when the one who does the most has the greatest income?
  • Can it be in the interests of the government if nobody cares for the poor and needy?
  • Who ensures that these people get their share of a fair distribution of income and wealth?

The relevant principles of a fair distribution of income and wealth

In general, every economy differentiates between fair and unjust distribution of income and wealth based on four principles.

fair distribution of income and wealth

These principles are:

  • Performance principle
  • Needs principle
  • Principle of equality
  • Status principle

Performance principle

According to polyhobbies, the performance principle is linked to the work performance of natural and legal persons in an economy. The principle is based on the fact that every economy depends on citizens providing services for themselves and others. Everyone should achieve the performance that corresponds to their abilities.

Without the baker we would not have bread rolls in the morning, without the doctor diseases could not be treated and without the lawyer we would not be able to enforce our claims in a legal dispute.

The performers should be rewarded for their services. The achievement principle pursues the idea that those who do more deserve more.

Example: performance principle

Five mechanics are employed in a car repair shop. They have the same level of training and do the same jobs. Because their activities do not differ from one another, they all provide the same service, which is remunerated with the same wages.

A workshop manager has taken over the management of the car workshop. He is responsible for ensuring that no mistakes happen in the work of his employees. The employer rewards this performance with a higher salary.

Needs principle

When considering a fair distribution of income and assets, however, the principle of needs must not be disregarded. The need principle aims at satisfying basic needs. Basic needs include: B. the desire for food, clothing or sleep.

Basic needs are an absolute necessity for a dignified life. It is therefore the duty of the state to enable a dignified life for everyone who is unable to do so themselves.

Principle of equality

The principle of equality assumes that all members of a society are equal. Every citizen of an economy should be given a way to the opportunities that he or she would like to seize at his own discretion. The principle of equality relates in particular to education and career choice. But in other areas of society too, it is considered discrimination if people are not treated equally.

Status principle

The status principle is based on the different levels of society. In particular, the higher social classes should adapt to the level of lower social classes in order to achieve a fairer distribution of income and wealth. This could e.g. B. can be achieved by richer people sharing part of their wealth with poorer citizens.

Approaches for a fair distribution of income and wealth

If a state observes the four principles of a fair distribution of income and wealth, it can, to a certain extent, achieve a fairer treatment of the various income and wealth classes.

This could lead to the following result:

Performance must be worthwhile. That is why those who do more should also achieve a higher income than the other members of an economy. Nevertheless, those who can no longer afford must also be included in the process of a fair distribution of income and wealth. Those who are sick receive continued wages or sick pay. Those who are unemployed receive support from the Employment Agency. Those who are homeless can use social facilities.

A fairer distribution of income and wealth is also achieved by taxing higher incomes. The additional income is used by the state to run public institutions.

 

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