2 Chapter Objectives Income inequality in the U.S. Sources of income inequalityIncome inequality since 1970Economic arguments regarding income inequalityPoverty measurement and incidenceThe U.S. income-maintenance programLabor market discrimination20-2
3 Facts About Income Inequality Average household income$66,570 in 2006Among highest in the worldDistribution by quintilesIncome mobilityPeople change quintilesGovernment redistributionTaxes and transfers20-3
4 Facts About Income Inequality Distribution by Quintiles, 2006(2)Percentage ofTotal Income(3)UpperIncome Limit(1)QuintileLowest 20%Second 20%Third 20%Fourth 20%Highest 20%Total3.48.614.522.950.5100.0$20,03537,77460,00097,032No LimitSource: Bureau of the Census20-4
5 Income Inequality Lorenz Curve and Gini Ratio Area A Gini Ratio = 20406080100eLorenz Curve(Actual Distribution)Percentage of HouseholdsPercentage of IncomePerfect EqualitydABcCompleteInequalitybafGini Ratio =Area AArea A + Area B20-5
6 Government Redistribution 20406080100Percentage of HouseholdsPercentage of IncomeLorenz CurveAfter Taxes andTransfersLorenz CurveBefore Taxes andTransfersImpact of Government Taxes and Transfers20-6
7 Causes of Income Inequality AbilityEducation and trainingDiscriminationPreferences and risksUnequal distribution of wealthMarket powerLuck, connections, and misfortune20-7
8 Income Inequality Over Time Rising income inequality since 1970Causes of growing inequalityGreater demand for highly skilled workersDemographic changesInternational trade, immigration, and decline in unionism20-8
9 Income InequalityPercentage Total Income Received by Top One-Tenth of Receivers, Selected Nations 2007ColumbiaBrazilSouth AfricaGuatemalaMexicoUnited StatesItalyJapanSwedenGermanySource: United Nations, Human Development Report, 2007/200820-9
10 The Economics of Poverty Definition of poverty 2006Single person < $9,800Family of 4 < $20,000Family of 6 < $26,80036.5 million AmericansPoverty rate 12.3%20-10
11 Incidence of PovertyPoverty Rates Among Selected Population Groups, 2006Female HouseholdersAfrican AmericansHispanicsForeign-Born (Not Citizens)Children Under 18WomenTotal PopulationAsiansWhitesMenPersons 65 or OverMarried-Couple FamiliesFull-Time Workers20-11Source: Bureau of the Census,
15 2008: United States Poverty Map Darker Shades = Higher Poverty Rate
16 World Poverty Rates0-10%10-20%20-30%30-40%40-50%50-60%>60%
17 ANTI-POVERTY PROGRAMS Old Age, Survivors, Disability and Health Insurance Act (Social Security Act): Federal social insurance program that provides monthly benefits to qualified retirees, their dependents, their survivors, and, in some cases, disabled workers.Medicare: Assists senior citizens with medical payments.Unemployment Compensation: Pays people who have lost their jobs and are looking for new employment.
18 ANTI-POVERTY PROGRAMS Supplemental Security Income (SSI) SSI makes monthly payments to people who have low income and few resources and are: Age 65 or older; Blind; or Disabled.Temporary Assistance for Needy Families: This is what is typically referred to as “welfare.”Food-stamp programMedicaid: This programs provides assistance with medical payments to families that fall beneath the poverty threshold.Earned-income Tax Credit (EITC): This program provides a tax credit for earned income, as an incentive to go to work.
19 Conflicts Among Goals Eliminating Poverty Maintaining Work Incentives Could we totally eliminate poverty? How?If so, what might happen to our economy?Maintaining Work IncentivesBeing on welfare should not be pleasant.You should want to return to work a.s.a.p.Holding Down CostsThe money you use to fund welfare is coming out of the pockets of the taxpayers.