1. Reading: Schiller, Chapter 1: Views of Inequality and Poverty
Introduction
Reading: Schiller, Chapter 1: Views of Inequality and Poverty

2. Today’s Topics Hot issues Analytical framework for causes of poverty
How poverty is related to inequality
The complexities of measuring well-being

3. Hot Issues What is economic inequality? What is economic justice?
What is poverty?
Are there really poor Americans?
If so, are they deserving of our assistance?
What form should assistance take and who should provide it?
Is there an optimal level of redistribution? Are we providing too much or too little assistance?

4. Analytical Framework for Identifying the Causes of Poverty
Flawed Character
Personal characteristics responsible for poverty
Human Capital theory supports this perspective
Individuals can enhance with labor market value with investments in education and training
Effects supply side of labor market

5. Representation of Supply in the Labor Market
Upward sloping supply curve represents workers willing to work at each wage rate.
Within a single market (eg. accountants), workers are ranked by their reservation wages.
Reservation wages are positively correlated with ability and skills
Wages
Workers

6. Analytical Framework for Identifying the Causes of Poverty
Restricted Opportunity
Obstacles restrict opportunities for earnings
Effects demand side of the labor market

7. Representation of Supply and Demand in the Labor Market
Upward sloping supply curve represents workers willing to work at each wage rate.
Downward sloping demand curve represents number of jobs available at each wage rate.
Wages D
Workers

8. Analytical Framework for Identifying the Causes of Poverty
Big Brother
Government policies induce undesirable but rational behaviors that keep people poor
Work disincentives
Encourage births outside of marriage
Encourage family breakup
Effects supply side of the market

9. Analytical Framework for Identifying the Causes of Poverty
Caveats
Schiller’s “Causes” are not mutually exclusive. Avoid the mistake of choosing sides
Not everyone employs Schiller’s framework
How policymakers perceive the causes of poverty influences the design of policies
Flawed Character--supply side policies to change personal characteristics
Restricted Opportunities--demand side policies to increase employment and earnings
Big Brother--eliminate government programs

10. How is poverty related to economic inequality?
The poor take their place in the lower extremes of the distribution of income and wealth
Poverty and inequality share causal factors

11. Complexities of Measuring Well-being
Should well-being be measured in material terms alone? Can money buy happiness? What other dimensions should be considered? Should we focus the social as well as the material dimensions of well-being?
If we agree upon a single material measure of poverty, how should this measure be defined? Should we focus on income or wealth?

12. Complexities of Measuring Well-being
Once we agree upon a measure, what is the relevant time period for assessing inequality and poverty? A month? A year? 5 years? Over a life time?
Should our measure include the value of publicly provided goods and services?