Introduction
Distribution of income is a core topic in economics that examines how a nation’s total income is divided among its citizens or factors of production. It can be studied in two main ways: functional distribution and personal distribution. These approaches focus on different aspects of income flow within an economy.
Definition of Functional Distribution
Functional distribution refers to the allocation of income among the four factors of production—land, labor, capital, and entrepreneurship—based on their respective contributions in the production process. The respective incomes are:
- Rent for land
- Wages for labor
- Interest for capital
- Profit for entrepreneurship
Functional distribution is a theoretical and analytical concept used to understand how income is generated and paid to each factor based on productivity and market conditions.
Definition of Personal Distribution
Personal distribution, also known as size distribution, deals with how income is distributed among individuals or households in a society, irrespective of the source. It answers questions like who gets how much and reflects income inequality.
Personal distribution focuses on total income earned by individuals from all sources—wages, rent, interest, profits, pensions, etc.—and is more relevant in studies of poverty, taxation, and social welfare.
Differences Between Functional and Personal Distribution
| Aspect | Functional Distribution | Personal Distribution |
|---|---|---|
| Focus | Distribution among factors of production | Distribution among individuals or households |
| Basis | Based on contribution to production | Based on total income received |
| Objective | Understand income generation by factor | Study inequality and welfare |
| Type | Theoretical | Empirical |
| Income Source | Specific (wage, rent, etc.) | All sources combined |
Conclusion
While functional distribution analyzes how income is created and paid to different economic functions, personal distribution evaluates who ultimately receives how much income. Both are vital for economic analysis—functional for understanding production roles, and personal for assessing social equity and policy needs.