The Demand for Information and the Distribution of Income.
STANFORD UNIV CA INST FOR MATHEMATICAL STUDIES IN THE SOCIAL SCIENCES
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The income of an individual is the sum of income derived from the sale of labor and income derived from the return on wealth. The increment of wealth in any period is the excess of total income over consumption. Therefore, the inequality of income among the members of a population depends at a moment of time on the inequality in labor income, the inequality in property income, and the covariance between them. However, the inequality in the holdings of wealth is to some extent derived from the inequality in past labor income. This paper takes the inequality in labor income as a fact. However, it is well known that the inequality in property income is considerably greater proportionately. It would be natural to assume that saving excess of income over consumption is proportional to income. In that case, if it is assumed that labor income comes first, the inequality in wealth should be equal to the inequality in income. Wealth and income are closely related, in that those with high incomes tend to be those with large accomulations of property. But the relation is far from linear. It is well known that the proportion of wealth held by the high income recipients is much higher proportion of income that they receive.
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