1. Copyright©2004 South-Western Mod 78 Income Inequality and Poverty

2. Copyright © 2004 South-Western THE MEASUREMENT OF INEQUALITY Imagine that you... lined up all of the families in the economy according to their annual income. divided the families into five equal groups (bottom fifth, second fifth, etc.)

3. Copyright © 2004 South-Western U.S. Income Inequality If income were equally distributed across all families…then, each one-fifth of families would receive one-fifth (20 percent) of total income. BUT…that is not what we have!

4. Copyright © 2004 South-Western Income inequality in the United States Income group Average 2013 income % of total income if distributed equally 2013 % of total income Bottom quintile $20, 90020%3.8% Second quintile $40, 18720%9.3% Third quintile$65,50120%15.1% Fourth quintile$105,91020%23% Top quintile$196,00020%48.8%

5. Copyright © 2004 South-Western The Measurement of Inequality U.S. income inequality Using quintiles to analyze income distribution Unequal Distribution of income Bottom fifth: <4% of all income Top fifth: nearly 50% of all income The Gini coefficient 0 = completely equal distribution 1 = all income goes to 1 person 2013 U.S. Gini coefficent =.481 5

6. Copyright © 2004 South-Western Lorentz Curve

7. Copyright © 2004 South-Western U.S. Income Inequality From 1935-1970, the distribution of income gradually became more equal. 1970-2014: more unequal distribution

8. Copyright © 2004 South-Western U.S. Income Inequality Reasons for Recent Increases in Income Inequality Reduced demand for low skill labor Increases in international trade with low-wage countries Changes in technology

9. Copyright © 2004 South-Western How many people live in poverty? The poverty rate is the percentage of the population whose family income falls below an absolute level called the poverty line. 2013 Poverty rate=14.5%

10. Copyright © 2004 South-Western The poverty rate The poverty rate shows the percentage of the population with incomes below an absolute level called the poverty line.

11. Copyright © 2004 South-Western Problems in Measuring Inequality Three Facts About Poverty Poverty is correlated with race. Poverty is correlated with age. Poverty is correlated with family composition.

12. Copyright © 2004 South-Western Who is Poor? 2013 Data GroupPoverty Rate All Persons 14.5% White, not Hispanic 9.6% Black 27.2% Hispanic 23.5% Asian/Pacific Islander 10.5% Children 19.9% Elderly 9.5% Married-couple families 5.8% Single female families 30.6%

13. Copyright © 2004 South-Western Poverty Measures The Poverty Line (2014) The poverty line is an absolute level of income set by the federal government for each family size below which a family is deemed to be in poverty. Household SizeFederal Poverty Threshold 1 person$11,670 2 people$15,730 3 people$19,790 4 people$23,850