In a market economy, income is largely determined by earnings, which are determined by the productivity of one's resources. The issue with distributing revenue based on productivity is that some individuals have limited resources to sell. People with mental or physical impairments, inadequate education, prejudice, bad luck, or the duties of caring for tiny children, as well as the elderly, may be less productive and unable to make a livelihood.

As a starting point, analyze the economic distribution of income and how it has evolved through time, concentrating on the home as the economic unit. We may analyze the proportion of total income obtained by each quintile after categorizing US families based on income into five groups of similar size, or quintiles. Since 1980, such a split that families in the lowest, or poorest, the fifth of the population earned just 4.3 percent of the income in 1980, while households in the highest, or richest, fifth received 43.7 percent. The United States Census Bureau calculates income after cash transfers.

Income disparities across families are caused in part by variations in the number of employees in each family. As a result, one reason household earnings vary is the number of working household members. For example, just one in every seven homes in the bottom 20% of the income bracket had a full-time, year-round worker. Consider the relationship between median income and the number of employees.

When earnings are sorted from lowest to highest, the median income of all households in the middle income. In any given year, half of the households earn more than the median income, while the other half earn less. The median income for two-earner families is 91% greater than for single-earner households.

Income varies for the same reasons that labor wages vary, such as disparities in education, skill, job experience, and so on. Those with higher education earn more on average at all ages. As previously stated, people with a professional degree earn at least five times more than those with only a high school education. Age has a significant impact on earnings. Workers gain significant job experience, are promoted, and earn more as they advance in their careers.

Earnings differences depending on age and education show a regular income life cycle pattern. In fact, most income disparities across households reflect the regular operation of resource markets, in which employees are compensated based on their performance.

Indeed, one study of economic mobility discovered that more than three-quarters of those in the poorest 20% in one year moved into the top 40% for at least one year during the next 16 years.

Despite this economic mobility across time, we can still distinguish between affluent and poor households at any given moment. A high-income home is often made up of a well-educated couple with both spouses working. A low-income home typically consists of one individual living alone or of a family headed by a single parent who is young, female, uneducated, and unemployed. Low earnings are a source of public worry, particularly when children are involved, as we will see in the next section.