# Income Differential

*The Great Soviet Encyclopedia*(1979). It might be outdated or ideologically biased.

## Income Differential

one of the most important socioeconomic indicators describing the degree of uneven distribution of material and cultural goods between the members of a society.

The quantities or shares in which a social product is distributed between groups of the population and the very principle of distribution are determined by the dominant production relations. In a capitalist society income differential expresses the relationships of exploitation and class inequality and is related primarily to the different sources of income among the representatives of antagonistic classes— that is, wages, on the one hand, and profit from capital (“unearned income”), on the other. As one manifestation of the universal law of capitalism accumulation, the income differential of the population reflects diametrically opposite dynamic trends in the share of the workers and the share of the capitalists in national wealth. Official bourgeois statistics, as a rule, do not provide a complete picture of the existing differential: the statistics operate on so-called consumer income, which fails to encompass the entire amount of capitalist profits. But even from these incomplete sources the income differential is relatively high in a majority of capitalist nations. Thus, according to data from the US Department of Commerce in 1967, 12.5 percent of the families in America (not considering single persons) received an annual income of less than $3,000. These families, on the lowest level of material security, received just 2.6 percent of the total income of the population. At the same time, the well-off families with an annual income of $15,000 and more per family and representing approximately the same proportion in total number of families accounted for 25 percent of the total income of the population.

Income distribution is also marked by extreme inequality in Great Britain. The data published by the Ministry of Labor indicate that in the 1960’s one-tenth of all income was acquired by 2.4 percent of the families with an income over £60 a week, while an equal number of families with a weekly income of up to £4 received only about 0.4 percent of the total income. In Denmark and Sweden in the same year, the poorest 10 percent of the families received 1.3-1.7 percent of the income, while the top 10 percent received 27-34 percent. In France the lowest 10 percent of the population received 0.5 percent of the income, while the upper 10 percent recieved 36.8 percent; in West Germany the figures, respectively, were 2.1 percent and 41.4 percent, over 23 percent of the income being acquired by the richest families, which constitute just 1.25 percent of the total number of families *(Incomes in Postwar Europe: A Study of Policies, Growth, and Distribution*. United Nations Economic Commission for Europe. Geneva, 1967, ch. 6, p. 15).

In a socialist society, where labor is the basis for the distribution of material and cultural goods, both the essence and the dimensions of income differential in the population are otherwise. In the USSR the population’s income is made up of wages paid manual and office workers, payment for kolkhoz labor, income from private subsidiary plots, and payments distributed by social agencies (pensions, students’ grants, various allowances), in addition to the free services offered the population at the expense of social consumption funds.

Since earned income is the main source of social welfare of the overwhelming majority of the population of the USSR and other socialist countries, the very basis of the existence of extremely great differences in income is eliminated. However, the relations of production in socialism give rise to a certain inequality, inevitable at this stage, in the economic status of the workers—that is, there is an income and consumption differential. This differential, which does not have a class character, is caused by differences in payment for labor and by the varying composition and size of the families of the workers. The wage differential (wages constituting the basic portion of income for manual and office workers), as well as the differential in the earnings of kolkhoz members, can be explained by the variety in the nature and amount of labor contributed by the workers to social production.

Wages entering the family budget assume the form of family income; the amount of this income is greatly influenced by demographic factors (the ratio in the family of working members to dependents, the number of children and their age, the presence of scholarship students and old-age pensioners). As a result, income differential may differ quantitatively from wage differential and a worker’s share in consumption may not be the same as what he has recieved under the system of allocation according to labor. Because of this, the task has arisen of eliminating the influence upon income differential of factors not related to labor and to the services of people to society. In this instance the chief role is played by public consumption agencies, the funds of which are channeled primarily into material aid and support for those who are unable to work.

The most complete picture of the existing ratios in wages and income is provided by statistical distribution series for manual and office workers in terms of the amount of wages and in terms of the amount of aggregate or per capita income for families. Statistical agencies periodically conduct special surveys to obtain such series. Data on the population’s income for the Union republics (economic grouping of families according to per capita income) are also provided by the budget statistics. The distribution series and the statistical characteristics calculated on their basis reflect the entire complex of differences in the amount of the examined feature. If a completely uniform statistical aggregate is to be examined (for example, workers of the same skill and working under the same conditions), then it is possible to measure the spread of their earnings by using indexes for the deviation from the mean (the dispersion, standard deviation, or coefficient of variation). But these indexes are expedient only in instances when the variation of the feature has a more or less random character. If the differences between the individual elements of the aggregate are internally caused and regular and the task is one of establishing the magnitude of these differences (that is, the problem is in the differentiation of the feature and not simply in the variability), then it is necessary to use other means of measurement. Thus, having constructed family groups in terms of income growth, one must take for comparison an income level at which 25 percent of the families receive less and a level at which 25 percent of the families receive more, and calculate the ratio of these levels (analogously, one can take as the basis the 10-percentile and 5-percentile groups, with relatively low and relatively high incomes). Such indexes are called quantile (quartile, decile, and so forth) coefficients.

There are also indexes that measure income differential by the degree of income concentration; these indexes show what share of the income is concentrated in the hands of one or another group of the population with a given number and proportional weight. Consequently, the place of each group is characterized by two variables: the share of the total number and the share of acquired income. The greater the stratification and economic inequality among the members of a society, the larger the share of wealth concentrated in the hands of a few and the greater the difference between the share of the total number and the share of acquired income. The ratio between the two is an indicator of uneven distribution and can be represented graphically (by the so-called Lorenz curve).

Various mathematical functions are employed in the statistical analysis of the distribution series of wages and income. At the end of the 19th century the formula proposed by the Italian statistician V. Pareto was used widely. The Pareto equation, a step function, was raised by bourgeois economists to the rank of an “eternal law,” valid for all countries and all times. However, the Pareto formula is altogether inapplicable for a socialist society. It does not correspond to the factual data and it contradicts the very nature of distribution under socialism, which excludes the extremes of poverty and wealth. In the opinion of a number of authors who have conducted corresponding research in the USSR and other socialist countries, a normal logarithmic function is most suitable for a mathematical description of the distribution of wages and income under socialist conditions. According to this hypothesis, the distribution of the logarithms of the criterion takes the form of a normal Gauss curve. On a conventional scale such a distribution assumes the characteristic shape of a curve with a moderate right-hand bias.

Wage differential and income differential tend to be reduced under socialist conditions. This reduction in the differential is a natural process, caused by the gradual reduction in the qualitative variability of labor that accompanies technical progress. The wage and income policy of the Soviet state is also directed toward this reduction: there are periodic revisions of the minimum wage rates and a reduction in the tax rates; financial aid has been introduced for children in large families; there has been an increase in the length of regular paid vacations; improvements have been made in the pension coverage for the elderly, invalids, and families that have lost their provider; and the size of scholarships has been increased. The measures carried out with public consumption funds involve primarily the least well-off strata, and this, in turn, helps to eliminate the differences in income of the various working groups.

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