Unit 1
Unit 2
The Distribution of Income and Wealth
Analysing the impact of supply side factors on income distribution is one of the more challenging tasks that will be required of you in Unit 1. You will recall that the impact of supply side factors on unemployment is not direct – it is only when we are examining the impact of lower production costs that we are able to see an immediate impact on employment levels.
It follows, therefore, that the impact on unemployment is also complicated. For example, let’s look at the way in which two different supply side factors might affect the distribution of income in Australia.
You can see from this analysis that the exact impact of supply side conditions on income distribution is challenging! It is worth taking the time to consider this from one other perspective.
Although you have not studied economic policy yet (that will happen in Unit 4), you might know that the government is able to influence both aggregate demand and aggregate supply. When changes are made to interest rates, the RBA (on behalf of the government) is trying to influence aggregate demand.
Policies designed to influence supply side conditions are often grouped together under the heading microeconomic reform. These are policies designed to affect the productive capacity of one industry or sector of the economy. When policies like this are implemented it is possible that some people will lose their jobs in the short term, and this is why they are so controversial.
For example, when Telstra was privatised between 1996 and 2005, over 30,000 people lost their jobs in the short term. While it is true to say that the sector is now more efficient (as evidenced by the lower price that we pay for telephone calls), it is also true to say that the short term impact on equity was unfavourable.
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