Chapter 7 Poverty and Discrimination: Why Are So Many Still Poor? Copyright © 2010 by the McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin

7-2 Poverty

7-3 What Is Poverty?

7-4 Criticisms of How Poverty Is Measured Omission of in-kind benefits Food budget multiplier Regional differences in the cost of living

7-5 Who Are the Poor? Temporary versus Hardcore poverty Family Structure Age Race and Ethnicity Regional differences

7-6 Household Income Inequality HouseholdsShare of Income Income Limit Mean Income Lowest Fifth3.4%$11,551 Second Fifth8.7% $20,291 $29,442 Third Fifth14.8%$39,100$49,968 Fourth Fifth23.4%$62,000$79,111 Highest Fifth49.7%$100,000$167,971 Median$50,233Mean$67,609 Source: U.S. Bureau of the Census

7-7 Trends in Household Income Inequality Share of Household Income by Quintile Households Lowest Fifth Second Fifth Third Fifth Fourth Fifth Highest Fifth

7-8 Economic Causes of the Increase in Inequality Decline in well-paying manufacturing jobs Decline in unionization rates Decline in real value of the minimum wage Tax cuts

7-9 Determinants of Resource Prices and Employment Labor–person-hours D D S S w0w0 w1w1 w2w2 q0q0 q1q1 q2q2 Capital Rental rate D D S S r0r0 K0K0 Rate

7-10 Determination of Individual or Family Income Income = w * L + r * K

7-11 Determinants of Income Distribution Income Differences due to Differences in Labor Resources and Their Use  Differences in Brawn and Brains  Differences in the Capital Workers have to Work with  Differences in taste for leisure  Differences in Marginal Revenue Across Firms Causes of Differences in Capital Resource Ownership  Inheritance  Luck  Propensities to Accumulate

7-12 The Effects of Discrimination on Income What is discrimination? Market discrimination Power to discriminate  Monopoly power in product market  Monopsony power in factor market  Exploitation Desire to discriminate  Prejudice

7-13 Evidence of Discrimination in Our Economy Legitimate Causes of Wage Differentials Wage Discrimination Employment Discrimination Occupational Discrimination

7-14 Government Attempts to Alleviate Poverty The Old Federal Welfare System  Income Support – AFDC and SSI  Health Care Support - Medicaid  Food and Nutrition Assistance – Food Stamps and School Lunch program  Housing Assistance – Subsidies and Vouchers  Other Social Services  Training and Employment

7-15 Problems with the Old Welfare System Work Incentives Family Structure Incentives Welfare Dependency

7-16 Adjusted Gross Income (AGI) - Exemptions - Deductions Taxable Income * tax rate Tax liability before credits - Credits Tax liability after credits How Tax Credits Work

7-17 Welfare Reform Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA) – 1996  “end welfare as we have known it” Income Support – TANF Medicaid Food Stamps SSI and Other Social Services

7-18 Earned Income Tax Credit Earnings Tax Credit $10,500$14,750$34,700 $4,200

7-19 Negative Income Tax $ Income $ Tax Liability Taxes Paid Subsidy Received G B Income tax

7-20 What Can Be Done About Discrimination? Reduce Tastes for Discrimination  Education  Legislation  Equal Pay Act of 1963  Civil Rights Act of 1964  Government Subsidies Reducing Market Imperfections Reduce Discrimination in Development of Human Capital Reduce Occupational Segregation

7-21 CharacteristicPoverty Rate All People12.5 Family Structure Married-Couple4.9 Female Householder, No Husband Present 28.3 Male Householder, No Wife Present13.6 Poverty by Family Structure 2007

7-22 CharacteristicPoverty Rate All People12.5 Age Under 18 years years years and older9.7 Poverty by Age 2007

7-23 CharacteristicPoverty Rate All People12.5 Race and Ethnicity White10.5 White, not Hispanic8.2 Black24.5 Asian10.2 Hispanic origin21.5 Poverty by Race and Ethnicity 2007

7-24 Poverty by Family Structure, Race and Ethnicity 2007 CharacteristicsPercent All Family Types All9.8 White5.9 Black22.1 Asian7.9 Hispanic19.7 Married Couples All3.2 White4.5 Black6.8 Asian6.6 Hispanic13.4 Female Householders, No Husband Present All28.3 White20.7 Black37.3 Asian16.1 Hispanic38.4 Male Householder, No Wife Present All13.6 White10.3 Black25.7 Asian7.6 Hispanic15.3

7-25 CharacteristicPoverty Rate All People12.5 Regional Differences Northeast11.4 Midwest11.1 South14.2 West12.0 Poverty by Region, 2007