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34 - 1 Copyright McGraw-Hill/Irwin, 2002 Facts About Income Inequality The Lorenz Curve Causes of Income Inequality Trends in Income Inequality Equality.

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Presentation on theme: "34 - 1 Copyright McGraw-Hill/Irwin, 2002 Facts About Income Inequality The Lorenz Curve Causes of Income Inequality Trends in Income Inequality Equality."— Presentation transcript:

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2 34 - 1 Copyright McGraw-Hill/Irwin, 2002 Facts About Income Inequality The Lorenz Curve Causes of Income Inequality Trends in Income Inequality Equality versus Efficiency The Economics of Poverty The Income Maintenance System Welfare: Goals and Conflicts Key Terms Previous Slide Next Slide End Show INCOME INEQUALITY AND POVERTY 34 C H A P T E R

3 34 - 2 Copyright McGraw-Hill/Irwin, 2002 Facts About Income Inequality The Lorenz Curve Causes of Income Inequality Trends in Income Inequality Equality versus Efficiency The Economics of Poverty The Income Maintenance System Welfare: Goals and Conflicts Key Terms Previous Slide Next Slide End Show Distribution of U.S. Personal Income by Families, 1999 Personal Income Category Percentage of All Families in This Category Under $10,000 $10,000 - $14,999 $15,000 - $24,999 $25,000 - $34,999 $35,000 - $49,999 $50,000 - $74,999 $75,000 - $99,999 $100,000 and over 5.7 4.8 12.0 11.9 16.5 21.2 12.7 15.2 100.0 FACTS ABOUT INCOME INEQUALITY 1999 U.S. Average Family Income $62,636

4 34 - 3 Copyright McGraw-Hill/Irwin, 2002 Facts About Income Inequality The Lorenz Curve Causes of Income Inequality Trends in Income Inequality Equality versus Efficiency The Economics of Poverty The Income Maintenance System Welfare: Goals and Conflicts Key Terms Previous Slide Next Slide End Show The Lorenz Curve graphically... Distribution of Personal Income by Quintiles, 1999 Percentage of Total Income Upper Income Limit $22,826 39,600 59,400 88,082 4.3 9.9 15.6 23.0 47.2 100.0 FACTS ABOUT INCOME INEQUALITY Quintile Lowest 20% Second 20% Third 20% Fourth 20% Highest 20% Total

5 34 - 4 Copyright McGraw-Hill/Irwin, 2002 Facts About Income Inequality The Lorenz Curve Causes of Income Inequality Trends in Income Inequality Equality versus Efficiency The Economics of Poverty The Income Maintenance System Welfare: Goals and Conflicts Key Terms Previous Slide Next Slide End Show 20 40 60 80 100 100 80 60 40 20 0 Percent of Families Percent of Income Perfect Equality Complete Inequality THE LORENZ CURVE

6 34 - 5 Copyright McGraw-Hill/Irwin, 2002 Facts About Income Inequality The Lorenz Curve Causes of Income Inequality Trends in Income Inequality Equality versus Efficiency The Economics of Poverty The Income Maintenance System Welfare: Goals and Conflicts Key Terms Previous Slide Next Slide End Show 20 40 60 80 100 100 80 60 40 20 0 Percent of Families Percent of Income Perfect Equality Complete Inequality Lorenz Curve (actual distribution) Area between the lines shows the degree of income inequality THE LORENZ CURVE

7 34 - 6 Copyright McGraw-Hill/Irwin, 2002 Facts About Income Inequality The Lorenz Curve Causes of Income Inequality Trends in Income Inequality Equality versus Efficiency The Economics of Poverty The Income Maintenance System Welfare: Goals and Conflicts Key Terms Previous Slide Next Slide End Show 20 40 60 80 100 100 80 60 40 20 0 Percent of Families Percent of Income Perfect Equality Complete Inequality Lorenz Curve (actual distribution) Area between the lines shows the degree of income inequality THE LORENZ CURVE Limitations due to Income Mobility: The Time Dimension – Income churning over longer time periods is evident

8 34 - 7 Copyright McGraw-Hill/Irwin, 2002 Facts About Income Inequality The Lorenz Curve Causes of Income Inequality Trends in Income Inequality Equality versus Efficiency The Economics of Poverty The Income Maintenance System Welfare: Goals and Conflicts Key Terms Previous Slide Next Slide End Show 20 40 60 80 100 100 80 60 40 20 0 Percent of Families Percent of Income Perfect Equality Complete Inequality Lorenz Curve (actual distribution) Area between the lines shows the degree of income inequality THE LORENZ CURVE Effect of government redistribution of cash and noncash transfers

9 34 - 8 Copyright McGraw-Hill/Irwin, 2002 Facts About Income Inequality The Lorenz Curve Causes of Income Inequality Trends in Income Inequality Equality versus Efficiency The Economics of Poverty The Income Maintenance System Welfare: Goals and Conflicts Key Terms Previous Slide Next Slide End Show 20 40 60 80 100 100 80 60 40 20 0 Percent of Families Percent of Income Perfect Equality Complete Inequality Lorenz Curve (actual distribution) Area between the lines shows the degree of income inequality THE LORENZ CURVE Lorenz curve after taxes and transfers

10 34 - 9 Copyright McGraw-Hill/Irwin, 2002 Facts About Income Inequality The Lorenz Curve Causes of Income Inequality Trends in Income Inequality Equality versus Efficiency The Economics of Poverty The Income Maintenance System Welfare: Goals and Conflicts Key Terms Previous Slide Next Slide End Show Ability Differences Education and Training Discrimination Preferences and Risks Unequal Distribution of Wealth Market Power Luck, Connections, and Misfortune CAUSES OF INCOME INEQUALITY

11 34 - 10 Copyright McGraw-Hill/Irwin, 2002 Facts About Income Inequality The Lorenz Curve Causes of Income Inequality Trends in Income Inequality Equality versus Efficiency The Economics of Poverty The Income Maintenance System Welfare: Goals and Conflicts Key Terms Previous Slide Next Slide End Show TRENDS IN INCOME INEQUALITY 1929 - 1947 Significant reduction in income inequality 1947 - 1969 Less inequality but at a slower pace 1969 - 1999 More unequal since 1969

12 34 - 11 Copyright McGraw-Hill/Irwin, 2002 Facts About Income Inequality The Lorenz Curve Causes of Income Inequality Trends in Income Inequality Equality versus Efficiency The Economics of Poverty The Income Maintenance System Welfare: Goals and Conflicts Key Terms Previous Slide Next Slide End Show South Africa Brazil Guatemala Mexico United States France Italy Norway 30 40 50 60 70 GLOBAL PERSPECTIVE Percentage of Total Income Received By Top One-Fifth of Income Receivers, Selected Nations Source: World Development Report, 2000

13 34 - 12 Copyright McGraw-Hill/Irwin, 2002 Facts About Income Inequality The Lorenz Curve Causes of Income Inequality Trends in Income Inequality Equality versus Efficiency The Economics of Poverty The Income Maintenance System Welfare: Goals and Conflicts Key Terms Previous Slide Next Slide End Show Greater Demand for Highly Skilled Workers Demographic Changes International Trade Immigration Decline in Unionism CAUSES OF GROWING INEQUALITY

14 34 - 13 Copyright McGraw-Hill/Irwin, 2002 Facts About Income Inequality The Lorenz Curve Causes of Income Inequality Trends in Income Inequality Equality versus Efficiency The Economics of Poverty The Income Maintenance System Welfare: Goals and Conflicts Key Terms Previous Slide Next Slide End Show EQUALITY VERSUS EFFICIENCY The Case for Equality Maximizing Total Utility The Case for Inequality Incentives and Efficiency Tradeoff Between Equality and Efficiency

15 34 - 14 Copyright McGraw-Hill/Irwin, 2002 Facts About Income Inequality The Lorenz Curve Causes of Income Inequality Trends in Income Inequality Equality versus Efficiency The Economics of Poverty The Income Maintenance System Welfare: Goals and Conflicts Key Terms Previous Slide Next Slide End Show THE ECONOMICS OF POVERTY Poverty Defined – 1999 Single $ 8, 501 Family of 4 17,029 Family of 6 22,727 11.8% in U.S. Live in Poverty 32.3 Million People

16 34 - 15 Copyright McGraw-Hill/Irwin, 2002 Facts About Income Inequality The Lorenz Curve Causes of Income Inequality Trends in Income Inequality Equality versus Efficiency The Economics of Poverty The Income Maintenance System Welfare: Goals and Conflicts Key Terms Previous Slide Next Slide End Show THE ECONOMICS OF POVERTY Incidence of Poverty Poverty Rate Poverty Trends The “Invisible” Poor Short-Periods of Time Geographic Isolation Politically Invisible – Are Easy to Ignore

17 34 - 16 Copyright McGraw-Hill/Irwin, 2002 Facts About Income Inequality The Lorenz Curve Causes of Income Inequality Trends in Income Inequality Equality versus Efficiency The Economics of Poverty The Income Maintenance System Welfare: Goals and Conflicts Key Terms Previous Slide Next Slide End Show 0 10 20 30 40 50 Married-couple families Persons 65 or over Whites Total population Children under 18 Foreign-born (not citizens) Hispanics Blacks Female-headed families PERCENTAGE IN POVERTY 1999 Data

18 34 - 17 Copyright McGraw-Hill/Irwin, 2002 Facts About Income Inequality The Lorenz Curve Causes of Income Inequality Trends in Income Inequality Equality versus Efficiency The Economics of Poverty The Income Maintenance System Welfare: Goals and Conflicts Key Terms Previous Slide Next Slide End Show THE INCOME-MAINTENANCE SYSTEM Social Insurance Programs OASDHI $386 Billion Medicare $210 Billion Unemployment Compensation $20 Billion Entitlement Programs

19 34 - 18 Copyright McGraw-Hill/Irwin, 2002 Facts About Income Inequality The Lorenz Curve Causes of Income Inequality Trends in Income Inequality Equality versus Efficiency The Economics of Poverty The Income Maintenance System Welfare: Goals and Conflicts Key Terms Previous Slide Next Slide End Show THE INCOME-MAINTENANCE SYSTEM Public Assistance Programs Supplemental Security Income (SSI) $29 Billion Temporary Assistance for Needy Families $23 Billion Food-stamp program $20 Billion Medicaid $124 Billion Earned-income Tax Credit (EITC) $30 Billion Entitlement Programs

20 34 - 19 Copyright McGraw-Hill/Irwin, 2002 Facts About Income Inequality The Lorenz Curve Causes of Income Inequality Trends in Income Inequality Equality versus Efficiency The Economics of Poverty The Income Maintenance System Welfare: Goals and Conflicts Key Terms Previous Slide Next Slide End Show Common Features Minimum Annual Income Benefit-Reduction Rate Conflicts Among Goals Eliminating Poverty Maintaining Work Incentives Holding Down Costs WELFARE: GOALS AND CONFLICTS

21 34 - 20 Copyright McGraw-Hill/Irwin, 2002 Facts About Income Inequality The Lorenz Curve Causes of Income Inequality Trends in Income Inequality Equality versus Efficiency The Economics of Poverty The Income Maintenance System Welfare: Goals and Conflicts Key Terms Previous Slide Next Slide End Show Welfare Reform Growing Government Dependence Personal Responsibility Act 1996 Temporary Assistance to Needy Families 5 Year Lifetime Limit Must Work After 2 Years Reduced Food-Stamp Eligibility Tightened Some Definitions 5 Year Waiting Period on New Legal Immigrants WELFARE: GOALS AND CONFLICTS

22 34 - 21 Copyright McGraw-Hill/Irwin, 2002 Facts About Income Inequality The Lorenz Curve Causes of Income Inequality Trends in Income Inequality Equality versus Efficiency The Economics of Poverty The Income Maintenance System Welfare: Goals and Conflicts Key Terms Previous Slide Next Slide End Show Welfare Reform Growing Government Dependence Personal Responsibility Act 1996 Temporary Assistance to Needy Families 5 Year Lifetime Limit Must Work After 2 Years Reduced Food-Stamp Eligibility Tightened Some Definitions 5 Year Waiting Period on New Legal Immigrants WELFARE: GOALS AND CONFLICTS Chapter Conclusions

23 income inequality Lorenz curve income mobility noncash transfers tradeoff between equality and efficiency poverty rate entitlement programs social insurance programs OASDHI Medicare unemployment compensation public assistance programs Supplemental Security Income (SSI) Temporary Assistance for Needy Families (TANF) food-stamp program Medicaid earned-income tax credit (EITC) ENDBACK Copyright McGraw-Hill/Irwin 2002

24 34 - 23 Copyright McGraw-Hill/Irwin, 2002 Facts About Income Inequality The Lorenz Curve Causes of Income Inequality Trends in Income Inequality Equality versus Efficiency The Economics of Poverty The Income Maintenance System Welfare: Goals and Conflicts Key Terms Previous Slide Next Slide End Show Next: Labor Market Issues Chapter 35

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