Functional and Personal Distribution

This John Bates Clark theory of the distribution of income illustrates what economists call the "functional distribution of income." Economists distinguish two concepts of the distribution of income:

The functional distribution of income: The functional distribution of income is the distribution between groups in society who own different factors of production, i.e. the proportion of income going to employees, landowners, and owners of capital respectively.
The personal distribution of income: The personal distribution of income is the distribution of income among individuals, families or households, regardless of what factors of production they own.

Of course, the personal distribution depends partly on the functional distribution, but it also depends on who owns what. In other words, the words of British radical economist Joan Robinson, the functional distribution tells us the distribution of income among the factors of production, but the personal distribution depends on the distribution of the "factors among the chaps."

This is important if we are concerned about inequality in the distribution of income. Generally, income from land and capital is much less equally distributed than income from labor. In the idealized John Bates Clark world, income from labor would be absolutely equally distributed among those who work the same hours, because labor is assumed to be homogenous. But that's a simplifying assumption. In the real world, people who have better skills or stronger bodies may be able to earn a higher wage. This makes for some inequality in labor income. But the ownership of land and capital is much more unequally distributed than the capacity to earn wages, so income from property is much more unequally distributed among persons.