Economists distinguish between two principal measures of income

distribution personal or size, functional or distributive factor

share.

Personal or Size Distribution of income

Deals with individuals or households and the total incomes they

receive irrespective of how it was earned. For example if Mr. Aand
Mr. B both receive the same personal income, they are classified
together irrespective of the fact that Mr. Amay work 20 hours while
Mr. B simply collects his interest and rent on his investments. To
determine the size distribution of income, arrange all by ascending
personal income and divide the total population into successive
quintiles (five groups) or deciles (ten groups) according to ascending
income levels. The next step is to determine what proportion of the
total national income each income group receives.

Example

For example, table 2 shows a hypothetical but fairly typical

distribution of income for developing country. The individuals
in the table representing the entire population in the country
are arranged from the lowest to the highest with the total in
column two summing up to one hundred. Column three and
four are then grouped into quintiles and deciles respectively.
The first quintile represents the bottom 20% of the population
on the income scale and this group receives only 5 % of the
total national income. The second quintile receives 9 %
indicating that the last 40% receives 14 % whilst the top 20%
(the fifth quintile) of the population receives 51% of the total
income.

Table 2: Typical Size Distribution of Personal Income in

aDeveloping Country by Income Shares - Quintiles and Deciles

Individuals Personal Share of Total Income

Income
(money units) Quintiles Deciles

1 0,8
2 1,0 1,8
3 1,4
4 1,8 5 3,2
5 1,9
6 2,0 3,9
7 2,4
8 2,7 9 5,1
9 2,8
10 3,0 5,8
11 3,4
12 3,8 13 7,2
13 4,2
14 4,8 9,0
15 5,9
16 7,1 22 13,0
17 10,5
18 12,0 22,5
19 13,5
20 15,0 51 28,5
Total 100,0 100 100,0
(national
income

A common measure of income inequality that can be derived from

column three is the ratio of the incomes received by the top 20%
and the bottom 40% of the population which is sometimes also
referred to as the Kuznets ratio after Nobel Laureate Simon Kuznets
has been used as a measure of the degree of inequality between
high and low income groups in a country. In our example this
inequality ratio is 51 divided by 14 which equals to about 3.64.