ABSTRACT
This chapter uses the factor market theory to explain differences in income among people-the personal distribution of income, considering the personal distribution in a pure market economy. It explains the distribution of income at a particular point in time, not how it evolves over time. There are great differences in the labor earnings of people and households. This is explained by wage differentials and differences in the number of work hours supplied to the labor market. The chapter addresses address both issues. In the type of economy modeled in the chapter, it is to be expected that wages and the return to capital, land, and entrepreneurship will differ. The chapter discusses the reasons for differences in labor earnings largely reflect matters of taste and choice. Individual attitudes toward getting dirty on the job, risk, social status, willingness to undergo expensive training, and the number of hours they are willing to work all contribute to differences in labor earnings.
