1. Introduction to Economics: Social Issues and Economic Thinking Wendy A. Stock PowerPoint Prepared by Z. Pan CHAPTER 20 POVERTY AND THE DISTRIBUTION OF INCOME Copyright © 2013 John Wiley & Sons, Inc. / Photo Credit: Vstock LLC/Getty Images, Inc.

2.  Describe the distribution of income in the U.S. and the global distribution of income  Explain various measures of income inequality  Describe various measures of poverty  Summarize the issues surrounding global poverty and inequality  Describe some of the primary causes of poverty  Describe the impacts of various poverty policies Copyright © 2013 John Wiley & Sons, Inc. 2 AFTER STUDYING THIS CHAPTER, YOU SHOULD BE ABLE TO:

3.  In 2010, over 43 million of the 328 million people in the United States were living in poverty, the highest level of poverty in over a decade.  That same year, 12 of the 25 richest people in the world lived in the U.S.  The issue is more serious than we think Copyright © 2013 John Wiley & Sons, Inc. 3 THE ISSUE OF POVERTY

4. Copyright © 2013 John Wiley & Sons, Inc. 4 PERCEPTION VS. REALITY AND IDEALITY

5.  An Income Distribution shows the levels of income in an economy and the percentage of individuals or households earning those income levels. Copyright © 2013 John Wiley & Sons, Inc. 5 INCOME DISTRIBUTION

6. Copyright © 2013 John Wiley & Sons, Inc. 6 U.S. INCOME DISTRIBUTION

7. Copyright © 2013 John Wiley & Sons, Inc. 7 U.S. INCOME DISTRIBUTION

8.  Being in the top fifth of households, it takes an average of $171,000 per year in the United States.  Being in the top 2 percent of households, it takes $250,000 per year. Copyright © 2013 John Wiley & Sons, Inc. 8 WHAT IS BEING RICH?

9.  The share of total income earned by households in the top quintile was 43 percent in 1969 and 50 percent in 2009.  Over the same period, the share of income earned by the bottom quintile fell from 4 percent to 3 percent.  The share of income earned by those in the second quintile also fell, from 11 to 9 percent. Copyright © 2013 John Wiley & Sons, Inc. 9 THE RICH GETTING RICHER, THE POOR GETTING POORER?

10. Copyright © 2013 John Wiley & Sons, Inc. 10 GLOBAL INCOME DISTRIBUTION

11.  Income Ratio compares the incomes of those in the upper end of an income distribution to the incomes of those in the lower end of the income distribution. e.g. 80:20 ratio 80:20 ratio = $100,000/$25,000 = 4 Copyright © 2013 John Wiley & Sons, Inc. 11 MEASURING INCOME INEQUALITY

12. Copyright © 2013 John Wiley & Sons, Inc. 12 U.S. INCOME RATIOS

13.  Income Ratio compares the incomes of those in the upper end of an income distribution to the incomes of those in the lower end of the income distribution.  Gini Coefficient measures income inequality on a scale from 0 to 1, with higher values indicating more income inequality. Copyright © 2013 John Wiley & Sons, Inc. 13 MEASURING INCOME INEQUALITY

14. Copyright © 2013 John Wiley & Sons, Inc. 14 INTERNATIONAL GINI COEFFICIENTS

15. Copyright © 2013 John Wiley & Sons, Inc. 15 INTERNATIONAL GINI COEFFICIENTS

16. Copyright © 2013 John Wiley & Sons, Inc. 16 WORLD INEQUALITY OVER TIME

17.  Poverty Line (Poverty Threshold) is the income or consumption level below which a person is considered to be in poverty.  Poverty thresholds vary by time, place, and family size.  Poverty Rate is the percentage of people with incomes below the poverty line. Copyright © 2013 John Wiley & Sons, Inc. 17 MEASURING POVERTY

18. Copyright © 2013 John Wiley & Sons, Inc. 18 MEASURING POVERTY: U.S.

19. Copyright © 2013 John Wiley & Sons, Inc. 19 MEASURING POVERTY: U.S.

20. Copyright © 2013 John Wiley & Sons, Inc. 20 MEASURING POVERTY: WORLD

21.  Absolute Poverty uses a measure of fixed income or consumption level rather than an underlying income distribution to set the poverty line.  Relative Poverty uses a measure of position in the income distribution to determine the poverty line. Copyright © 2013 John Wiley & Sons, Inc. 21 RELATIVE VERSUS ABSOLUTE POVERTY

22.  Individual-level Causes:  Productivity  Restricted Opportunities  Incentives and Preferences  Structural Causes:  Economic downturns  Resource Availability and Resource Use  Governmental Institutions  Disease Copyright © 2013 John Wiley & Sons, Inc. 22 CAUSES OF POVERTY

23.  Direct Payments:  Temporary Assistance to Needy Families (TANF)  Supplemental Security Income (SSI)  Food, Health, and Housing and Education Programs: (Food stamps, WIC, Medicaid, SCHIP, Head Start, Pell Grant)  Tax Policy and Regulation (EITC)  CARE, Oxfam International, Kiva, MDG Copyright © 2013 John Wiley & Sons, Inc. 23 POVERTY POLICY

24. QUESTIONS/DISCUSSIONS Copyright © 2013 John Wiley & Sons, Inc. 24 1.What is the 80:20 ratio? What are the implications for income inequality when the 80:20 ratio increases within a country? 2.How do poverty rates differ across demographic and education groups in the Unites States? What are some possible sources of these differences?

25. Copyright © 2013 John Wiley & Sons, Inc. 25 KEY CONCEPTS Income distribution Income ratio Gini coefficient Poverty line Poverty rate Absolute measure of poverty Relative measure of poverty