19 Some problems in measuring income distribution Life cycle income Family size and effort Underground economy Taxes and in-kind income
Income Distribution at One Point & Over Time a YearJohn's Age John's Income Stephanie's Age Stephanie's Income 1998 2008 2018 2028 2038 Total 18 yrs 28 38 48 58 $ 10,000 35,000 52,000 64,000 75,000 $236,000 28 yrs 38 48 58 68 $ 30,000 45,000 60,000 75,000 26,000 $236,000 Point here is that people can have the same lifetime income yet at any moment in time, there will be income differences.
32 Male-female wage gap: median salary of women about 75% that of men Part-time work more common among women At one time, less human capital accumulation by women Job choice and mobility issues Career interruptions Role differentiation, sexual division of labor
33 Issue of Comparable Worth Comparable worth--jobs that are judged comparable in terms of skills needed, etc, should be paid the same Very controversial, can different jobs in different industries be judged comparable?
34 Measuring poverty: relative or absolute measures? Problem with relative measures: there will always be a bottom 10 or 20%, or whatever % is chosen—that does not mean all those people are poor
37 Basic needs standard of Poverty threshold Developed in the 1960’s based on findings by department of agriculture For a family of 4, current poverty line is around $16,000 of income
Poverty in Different Groups, 1994 Group % of Group in Poverty TOTAL POPULATION BY RACE/ETHNIC GROUP White11.7 African American30.6 Hispanic30.7 BY REGION OF COUNTRY Northeast12.9 Midwest13.0 South16.1 West15.3
Poverty in Different Groups, 1994 Group % of Group in Poverty BY AGE Under 18 years old21.8 18-24 years old18.0 25-34 years old13.2 35-44 years old10.6 45-54 years old7.8 55-59 years old10.4 60-64 years old11.4 65 years old and older11.7 BY EDUCATION No high school diploma24.8 High school diploma, no college10.9 Some college, but less than bachelor’s degree7.8 Bachelor’s degree or more2.6
40 Our welfare “system” Combination of federal and state programs AFDC, food stamps, public housing, supplemental income programs, medicaid, etc. Criticized for high implicit tax rates
42 Negative income tax proposal, alternative to current welfare system Let I G = Guaranteed income t = negative income tax rate W= cash payment under NIT EI= family’s eared income W = I G - t (EI)
43 Example Let I G = 5,000 t =.5 (50%) Then if EI = 0, W = 5,000 -.5(0) or W = 5,000 Continue in this manner for other income levels
44 For EI = 1,000, W = 5,000 -.5(1000) = 4500 EI = 2,000, W = 5,000 -.5(2000) = 4000 At EI = 10,000, W = 5,000 -.5(10,000) = 0 Thus EI equals the break-even (B) level of income, no more welfare payment Note that B = I G /t
49 What is the Lorenze Curve? What is the Gini Coefficient? What are some reasons to justify Income Equality?What are some reasons to justify Income Equality? What are the cases for Income Inequality?What are the cases for Income Inequality? What is Median Income? How do we define Poverty? What is a Negative Income Tax?