Economic Policy Visualization

Income · Scales

Dr. Matthias Schnetzer

May 8, 2023

Income inequality in economic policy

  • UN SDG 10.1: “By 2030, progressively achieve and sustain income growth of the bottom 40 per cent of the population at a rate higher than the national average.”
  • Economists focus on the economic origins and implications of inequality rather than the social and ecological context.
  • In neoclassical economics, income inequality arises from differences in marginal productivity and might stimulate economic growth due to differential savings rates, investment, and incentives for effort (Josifidis/Supic, 2018).
  • In (Post-)Keynesian economics, income inequality is the result of institutional settings, power relations, etc. Inequality harms economic growth in most of these models due to detrimental effects on aggregate demand (Kurz/Salvadori, 2010).

Functional distribution

Income accounts in the System of National Accounts show primary (from production) and secondary (from redistribution) income flows. It is also the base for functional distribution:

Gross domestic product (GDP) at market prices
\(+\) Primary incomes receivable from the rest of world
\(-\) Primary incomes payable to the rest of world

\(=\) Gross national income (GNI) at market prices
\(-\) Consumption of fixed capital

\(=\) Net national income at market prices
\(-\) Taxes on products
\(+\) Subsidies on products

\(=\) Net national income at factor cost



← Rest of World


← Depreciation


← Government

← Production factors

Income accounts for Austria, 2021

Wage share = Compensation of Employees / Net national income at factor cost

The wage share in Austria

Functional income distribution in Continental Europe

Functional distribution in Anglosaxon countries

Factors influencing the wage share

  • Labour market
    • Organization (e.g. collective bargaining, workers councils)
    • Leverage (e.g. unemployment rate, strength of unions)
  • Product markets
    • Globalization
    • Technological change
  • Politics
    • Influence of capital income earners

Historical development of global personal inequality: 3 views

Simon Kuznets

Thomas Piketty

Branko Milanovic

Global inequality 1820-2020

Decomposition of global inequality

Disposable net income in Europe

Scales

Axes

Continuous

ggplot(aes(x = life_expectancy, y = poverty_rate)) +
  geom_point() +
  scale_x_continuous(limits = c(40, 100),
                     breaks = seq(40, 100, 20),
                     labels = scales::number_format(suffix = "years")) +
  scale_y_continuous(labels = scales::percent)

Dates

ggplot(aes(x = year, y = poverty_rate)) +
  geom_line() +
  scale_x_date(limits = c(as.Date("2020-01-01"), as.Date("2024-01-01")),
                breaks = date_breaks = "2 years",
                labels = date_labels = "%Y")

Others

scale_x_log10(), scale_x_reverse(), scale_x_sqrt(), …

Colors

Manual

ggplot(aes(x = year, y = poverty_rate, color = country)) +
  geom_line() +
  scale_color_manual(values = c("red", "blue", "green"))

Gradient

ggplot(aes(x = gdp, y = life_expectancy, color = poverty_rate)) +
  geom_point() +
  scale_color_gradient(low = "green", high = "red", na.value = "gray80")

Brewer

ggplot(aes(x = year, y = poverty_rate, fill = country)) +
  geom_area() +
  scale_fill_brewer(palette = "Set1")

Others

scale_color_binned(), scale_color_distiller(), scale_color_grey(), …

Shape, size and alpha

tribble(~x, ~y, ~significance, ~gdp, ~continent,
        0.5, 0.5, "yes", 140, "Asia",
        1.0, 0.5, "yes", 100, "Africa",
        1.5, 0.5, "no",  250, "Europe") |> 
  ggplot(aes(x = x, y = y)) +
  geom_point(aes(alpha = significance, size = gdp, shape = continent)) +
  scale_alpha_discrete(range = c(0.5, 1), guide = guide_none()) +
  scale_size_continuous(range = c(5, 12), guide = guide_none()) +
  scale_shape_manual(values = c(17, 19, 15),
                     guide = guide_legend(title = "Continent", 
                                          override.aes = list(size = 5))) +
  theme_minimal()

Guides

ggplot(aes(x = life_expectancy, y = poverty_rate, color = continent)) +
  geom_point() +
  scale_color_viridis_d(guide = guide_legend(title.position = "top",
                                             title.theme = element_text(size = 2),  
                                             title.hjust = 0, title.vjust = 0.5,
                                             label.position = "bottom",
                                             label.hjust = 0, label.vjust = 0.5,
                                             keywidth = 2, keyheight = 2,
                                             direction = "horizontal",
                                             override.aes = list(size = 4),
                                             nrow = 1, ncol = 4,
                                             byrow = FALSE, reverse = FALSE, ...))


Scale type Default guide type
continuous scales for colour/fill aesthetics colourbar
binned scales for colour/fill aesthetics coloursteps
position scales (continuous, binned and discrete) axis
discrete scales (except position scales) legend
binned scales (except position/colour/fill scales) bins

Bibliography

PI 5620 Advanced Economic Policy | Summer term 2023

Chancel, Lucas/Piketty, Thomas/Saez, Emmanuel/Zucman, Gabriel (2022). World inequality report 2022. World Inequality Lab.
Josifidis, Kosta/Supic, Novica (2018). Institutionalist versus neoclassical view on income distribution and economic progress: The OECD panel evidence. Panoeconomicus, 65(3), 319–337. DOI: 10.2298/pan1803319j
Kurz, Heinz D./Salvadori, Neri (2010). The post-keynesian theories of growth and distribution: A survey. In Setterfield, Mark (Ed.), Handbook of alternative theories of economic growth. Edward Elgar Publishing. DOI: 10.4337/9781849805582.00010
Stockhammer, Engelbert (2015). Determinants of the wage share: A panel analysis of advanced and developing economies. British Journal of Industrial Relations, 55(1), 3–33. DOI: 10.1111/bjir.12165