Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed.
PART 6 The Economics of Labor Markets
Chapter 20 of 36 Income Inequality and Poverty
Section 7 of 20
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Evaluations of income distribution often give an incomplete view of inequality because these three are not considered:
1· in-kind transfers
2· economic life cycle
3· transitory versus permanent income
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3· Transitory (not permanent) versus permanent income
Incomes vary over people's lives because of
· predictable life cycle variation
· random and transitory forces
Transitory:
For example, if this year there is frost damage to oranges in Florida, it
· causes Florida orange growers’ incomes to fall temporarily
· drives up orange prices nationwide
· causes California orange growers’ incomes to rise temporarily
However, next year the situation could reverse.
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Permanent:
A family's ability to buy goods depends mainly on its more predictable permanent income, which is its normal, or average, income.
To measure living standards inequality, distribution of permanent income is more relevant than distribution of annual income.
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Transitory versus permanent income.
Genesis:
Transitory and permanent income are key concepts from economist Milton Friedman's permanent income hypothesis, which states consumer spending is based on long-term, expected income rather than short-term income fluctuations.
The main difference lies in how consumers perceive income changes and, consequently, how those changes affect their spending habits.
See Table C for details.
… …
see Table C for details
shōsai wa omote C o sanshō
詳細は表Cを参照
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