1. CONTEMPORARY ECONOMICS© Thomson South-Western 3.4Providing a Safety Net  Determine why incomes differ across households, and identify the main source of poverty in the United States.  Describe government programs that provide a safety net for poor people. Objectives

2. CONTEMPORARY ECONOMICS© Thomson South-Western 3.4Providing a Safety Net  median income  social insurance  income-assistance programs Key Terms

3. CONTEMPORARY ECONOMICS© Thomson South-Western 3.4 Providing a Safety Net SLIDE 3 Income and Poverty In a market economy, income depends primarily on earnings, which depend on the value of each person’s contribution to production.

4. CONTEMPORARY ECONOMICS© Thomson South-Western 3.4 Providing a Safety Net SLIDE 4 Why Household Incomes Differ The median income of households is the middle income when incomes are ranked from lowest to highest. The main reason household incomes differ is that the number of household members who are working differs. Household income differs for all the reasons that labor earnings differ.

5. CONTEMPORARY ECONOMICS© Thomson South-Western 3.4 Providing a Safety Net SLIDE 5 Official Poverty Rate The federal government determines the official poverty level and adjusts this benchmark over time to account for inflation. The U.S. official poverty level of income is many times greater than the average income for most of the world’s population.

6. CONTEMPORARY ECONOMICS© Thomson South-Western 3.4 Providing a Safety Net SLIDE 6 Number and Percentage of U.S. Population in Poverty: 1959–2004 Figure 3.4

7. CONTEMPORARY ECONOMICS© Thomson South-Western 3.4 Providing a Safety Net SLIDE 7 Poverty and Marital Status Poverty rates among female-headed families are five to six times greater than rates among married couples. Poverty rates among female-headed families are two to three times greater than those for male- headed families. Since the mid-1990s poverty rates have trended down for all types of families, before rising slightly in the recession year of 2001.

8. CONTEMPORARY ECONOMICS© Thomson South-Western 3.4 Providing a Safety Net SLIDE 8 U.S. Poverty Rates and Types of Households Figure 3.5

9. CONTEMPORARY ECONOMICS© Thomson South-Western 3.4 Providing a Safety Net SLIDE 9 Programs to Help the Poor Social insurance Income-assistance programs Earned-income tax credit Welfare reform

10. CONTEMPORARY ECONOMICS© Thomson South-Western 3.4 Providing a Safety Net SLIDE 10 Social Insurance Social insurance programs are designed to help make up for the lost income of people who worked but are now Retired Temporarily unemployed Unable to work because of disability or work- related injury

11. CONTEMPORARY ECONOMICS© Thomson South-Western 3.4 Providing a Safety Net SLIDE 11 Social Insurance Programs Social Security Medicare Unemployment insurance Worker’s compensation

12. CONTEMPORARY ECONOMICS© Thomson South-Western 3.4 Providing a Safety Net SLIDE 12 Income-Assistance Programs Income-assistance programs provide money and in-kind assistance to poor people. Cash transfer programs In-kind transfer programs

13. CONTEMPORARY ECONOMICS© Thomson South-Western 3.4 Providing a Safety Net SLIDE 13 Earned-Income Tax Credit Supplements wages of the working poor Increases income and offers incentives for people to work

14. CONTEMPORARY ECONOMICS© Thomson South-Western 3.4 Providing a Safety Net SLIDE 14 Welfare Reform Temporary Assistance for Needy Families (TANF) Welfare reform has reduced welfare rolls and increased employment.

15. CONTEMPORARY ECONOMICS© Thomson South-Western 3.4 Providing a Safety Net SLIDE 15 Income Redistribution as a Percentage of All Federal Outlays: 1960–2007 Figure 3.6