It is slightly more challenging to assess the impact of demand and supply factors on the distribution of income and wealth. In very general terms, we can say that anything that will lead to lower rates of unemployment will help to improve the distribution of income. This is because more people will be receiving factor income.
Economists also keep a close eye on the rate of inflation when assessing the goal of income distribution. Although higher rates of inflation will not directly affect a measurable type of income, it will have a significant effect on the living standards of people on low incomes. As such, demand factors which cause an increase in the rate of inflation should also be assessed closely.
We can see that the Australian economy has experienced generally decreasing rates of unemployment AND low rates of inflation for the last decade. At the same time the distribution of income has actually become marginally better. Many people would still maintain that the distribution is far from equitable, but as measured by the Gini co-efficient we can certainly say that there has been some improvement in equity. This is especially true since 2000.
It is also reasonable to say that certain government policy decisions will have a direct impact on the distribution of income and wealth. This will be discussed in the section on policy approach.
You can examine the demand side factors which have affected the rate of unemployment by clicking here.
You can examine the demand side factors that have affected Australia’s rate of inflation by clicking here