Chapter 12   Income Distribution,Poverty, and Discrimination      • Key Concepts      • Summary      • Practice Quiz      ...
In this chapter, you will  learn to solve these   economic puzzles: What is the effect on labor  Could the rich become    ...
What is the general trendof Income Distribution?Since 1970, the percentage of income received by families in the lowest 20...
Division of the Total Annual Money      Income Among Families  % of Families      1980   1990   1997Lowest 5th           5...
What is Median Income? 50% of families earn less  than the median income  and 50% earn more                     5
Median Income of Families, 1994                                      Median       Characteristic                 IncomeAll...
What are some   arguments against   income inequality?• Wealthy can influence politics• Wealthy have more  opportunities• ...
What is an argumentfor income inequality?Income inequality gives people an incentive to become more productive            ...
What is the   Lorenz Curve?A graph of the actual cumulative distribution of income compared to a perfectly equal distribut...
100% Hypothetical Lorenz Curve                      Perfect80%                      Equality      % of income60%40%20%    ...
100%             Lorenz Curve 1929 & 1997                     Perfect Equality80%    % of income60%                   1997...
100%                 Lorenz Curve for Nations                      Perfect Equality80%    % of income60%                  ...
What is the      Poverty Line?The level of income below which a person or a family is considered to be poor               ...
Does the Poverty Line consider Cash Transfer Income?Yes; Social Security, unemployment compensation, and Aid to Families o...
What are   In-kind Transfers?Government payments in the form of goods and services, rather than cash                     15
Does the Poverty   Line consider In-    kind transfers?Receipts from government programs such as food stamps, Medicaid, an...
22%                              13%       13% 12% 13% 14% 14%1959 1970 1975 1980 1985 1990 1997                         17
% of U.S. Persons below Poverty Level         Characteristic                  %  Headed by married couple               5%...
What are examples ofCash Transfer Programs? • Social Security • Unemployment Compensation • Aid to Families with   Depende...
What are examples of In-kind Transfer Programs?    • Food stamps    • Medicaid    • Housing Assistance                    20
What are majorcriticisms of Welfare? • Work disincentives • Inefficiencies • Inequities                  21
What are examples of Reform Proposals?• Negative income tax• Workfare                  22
What is a Negative    Income Tax?A plan under which families below a certain break-even level of income would receive cash...
$10                    Negative Income Tax                       Positive Tax $5    Tax Liability  0$-5                   ...
What is Workfare?Recipients of government programs have to work to receive the benefits                   25
Can Discrimination effect  People’s wage rate? Certain groups can receive  more or less income if  there is discrimination...
How does Comparable Worth effect wages?Employees who work for the same employer must be paid the same wages when their job...
Key Concepts           28
Key Concepts• What is Median Income?• What are some arguments against income  inequality?• What is an argument for income ...
Key Concepts cont.• What are examples of Cash Transfer  Programs?• What are examples of In-kind Transfer  Programs?• What ...
Summary          31
The Lorenz curve is a measure ofinequality of income. Since 1947, theshare of money income for each fifthof families ranke...
100% Hypothetical Lorenz Curve                      Perfect80%                      Equality      % of income60%40%20%    ...
The poverty line is a level of cashincome below which a family isclassified as poor. The poverty incomethreshold is three ...
In-kind transfers are paymentsto the poor in the form of goods andservices, rather than cash.Calculation of the poverty li...
Government cash transferscounted in the poverty line includepayments from Social Security,unemployment compensation, and A...
Welfare criticisms include threemajor arguments: (1) Welfare reducesthe incentive to work for the poor andtaxpayers. (2) W...
The negative income tax is a planto set an income guarantee for allfamilies. As a low-income familyearns income, governmen...
$10                    Negative Income Tax                       Positive Tax $5    Tax Liability  0$-5                   ...
Comparable worth is the theorythat workers in jobs determined to beof equal value by means of point totalsshould be paid e...
Chapter 12 Quiz   ©2000 South-Western College Publishing   41
1. In 1997, the wealthiest 5 percent of all U.S.  families earned what percentage of total  annual money income among fami...
Division of the Total Annual Money      Income Among Families  % of Families      1980   1990   1997Lowest 5th           5...
2. A figure that measures the relationship  between the cumulative percentage of  money income on the vertical axis and th...
100%                   The Lorenz Curve                     Perfect Equality80%    % of income60%                  Inequal...
100%                      Exhibit 11                         Lorenz Curve          Y80%    % of income   Perfect Equality ...
3. As shown in Exhibit 11, the perfect  equality line is drawn between points   a. W and Y along the curve.   b. X and Z. ...
4. As shown in Exhibit 11, 20 percent of  families earned a cumulative share of  about _______ percent of income.   a. 5. ...
5. As shown in Exhibit 11, 40 percent of  families earned a cumulative share of  about _______ percent of income.   a. 5. ...
6. Since 1929, the overall income distribution  in the United States has become   a. much more unequal.   b. much less une...
100%             Lorenz Curve 1929 & 1997                     Perfect Equality80%    % of income60%                  19974...
7. Comparing the family income distributions  of the United States, Russia, and Brazil, the  conclusion is that income is ...
100%                 Lorenz Curve for Nations                      Perfect Equality80%    % of income60%                  ...
8. In order to establish the poverty line that  divides poor and nonpoor families, the  government   a. multiplies the cos...
9. The poverty line   a. is defined as one-half average family     income.   b. includes in-kind transfers.   c. includes ...
10. Which of the following is an in-kind  transfer?   a. Social Security payments.   b. Unemployment compensation.   c. Fo...
11. Which of the following is a cash assistance  (not an in-kind transfer) program?   a. Aid to Families with Dependent Ch...
12. The negative income tax (NIT) is a plan  under which families   a. above a level of income pay no tax.   b. pay the sa...
$10                    Negative Income Tax                       Positive Tax $5    Tax Liability  0$-5                   ...
13. Which of the following might decrease  the supply curve of labor?   a. Discrimination against blacks.   b. Discriminat...
Internet ExercisesClick on the picture of the book, choose updates by chapter for the latest internet exercises           ...
END      62
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12 income distribution, poverty, and discrimination

  1. 1. Chapter 12 Income Distribution,Poverty, and Discrimination • Key Concepts • Summary • Practice Quiz • Internet Exercises ©2000 South-Western College Publishing 1
  2. 2. In this chapter, you will learn to solve these economic puzzles: What is the effect on labor Could the rich become How can of negative a laws that markets 1980’s and richer in the solve the income tax groups protect women from jobs other income deemed “too mess”? “welfare better off? also become strenuous” or “too dangerous”? 2
  3. 3. What is the general trendof Income Distribution?Since 1970, the percentage of income received by families in the lowest 20% has fallen, while the percentage received by families in the 20% highest income groups have risen 3
  4. 4. Division of the Total Annual Money Income Among Families % of Families 1980 1990 1997Lowest 5th 5.1% 4.6% 4.2%Second-lowest 5th 11.5 10.8 9.9Middle 5th 17.5 16.6 15.7Second-highest 5th 24.3 23.8 23.0Highest 5th 41.6 44.3 47.2Highest 5% 15.3 17.4 20.7 4
  5. 5. What is Median Income? 50% of families earn less than the median income and 50% earn more 5
  6. 6. Median Income of Families, 1994 Median Characteristic IncomeAll families $44,568Headed by a male $32,960Headed by a female $21,023With head aged 25-34 $39,979With head aged 65 and over $30,660Headed by a high school grad $40,040Person with a bachelor’s degree $67,230 6
  7. 7. What are some arguments against income inequality?• Wealthy can influence politics• Wealthy have more opportunities• Wealthy can afford better health care 7
  8. 8. What is an argumentfor income inequality?Income inequality gives people an incentive to become more productive 8
  9. 9. What is the Lorenz Curve?A graph of the actual cumulative distribution of income compared to a perfectly equal distribution of income 9
  10. 10. 100% Hypothetical Lorenz Curve Perfect80% Equality % of income60%40%20% Actual Income % of families 20% 40% 60% 80% 100% 10
  11. 11. 100% Lorenz Curve 1929 & 1997 Perfect Equality80% % of income60% 199740%20% 1929 % of families 20% 40% 60% 80% 100% 11
  12. 12. 100% Lorenz Curve for Nations Perfect Equality80% % of income60% Russia40%20% Brazil U. % of families S. 20% 40% 60% 80% 100% 12
  13. 13. What is the Poverty Line?The level of income below which a person or a family is considered to be poor 13
  14. 14. Does the Poverty Line consider Cash Transfer Income?Yes; Social Security, unemployment compensation, and Aid to Families of Dependent Children are considered 14
  15. 15. What are In-kind Transfers?Government payments in the form of goods and services, rather than cash 15
  16. 16. Does the Poverty Line consider In- kind transfers?Receipts from government programs such as food stamps, Medicaid, and housing are not included 16
  17. 17. 22% 13% 13% 12% 13% 14% 14%1959 1970 1975 1980 1985 1990 1997 17
  18. 18. % of U.S. Persons below Poverty Level Characteristic % Headed by married couple 5% Headed by a male, no wife 13% Headed by a female, no husband 32% No high school diploma 24% High school diploma, no college 10% Bachelor’s degree or more 2% 18
  19. 19. What are examples ofCash Transfer Programs? • Social Security • Unemployment Compensation • Aid to Families with Dependent Children 19
  20. 20. What are examples of In-kind Transfer Programs? • Food stamps • Medicaid • Housing Assistance 20
  21. 21. What are majorcriticisms of Welfare? • Work disincentives • Inefficiencies • Inequities 21
  22. 22. What are examples of Reform Proposals?• Negative income tax• Workfare 22
  23. 23. What is a Negative Income Tax?A plan under which families below a certain break-even level of income would receive cash payments that decrease as their income increases 23
  24. 24. $10 Negative Income Tax Positive Tax $5 Tax Liability 0$-5 Negative Tax$-20 Family Income $10 $20 $30 $40 $50 24
  25. 25. What is Workfare?Recipients of government programs have to work to receive the benefits 25
  26. 26. Can Discrimination effect People’s wage rate? Certain groups can receive more or less income if there is discrimination in the labor market 26
  27. 27. How does Comparable Worth effect wages?Employees who work for the same employer must be paid the same wages when their jobs, even if different, require similar levels of education, etc. 27
  28. 28. Key Concepts 28
  29. 29. Key Concepts• What is Median Income?• What are some arguments against income inequality?• What is an argument for income inequality?• What is the Lorenz Curve?• What is the Poverty Line?• What are In-kind Transfers?• Does the Poverty Line consider In-kind transfers? 29
  30. 30. Key Concepts cont.• What are examples of Cash Transfer Programs?• What are examples of In-kind Transfer Programs?• What is a Negative Income Tax?• What is Workfare?• Can Discrimination effect People’s wage rate?• How does Comparable Worth effect wages? 30
  31. 31. Summary 31
  32. 32. The Lorenz curve is a measure ofinequality of income. Since 1947, theshare of money income for each fifthof families ranked according to theirincome has been stable. Also, thedegree of income inequality amongfamilies in the United States haschanged little since 1929. During the1980’s, the richest families didbecome richer; however, the medianincome of all groups increased. 32
  33. 33. 100% Hypothetical Lorenz Curve Perfect80% Equality % of income60%40%20% Actual Income % of families 20% 40% 60% 80% 100% 33
  34. 34. The poverty line is a level of cashincome below which a family isclassified as poor. The poverty incomethreshold is three times the cost of aminimal diet for a family. Today, about12 percent of the U.S. population isofficially classified as poor. 34
  35. 35. In-kind transfers are paymentsto the poor in the form of goods andservices, rather than cash.Calculation of the poverty linecounts cash income. On the otherhand, in-kind transfers, such as foodstamps, Medicaid, and housing, donot count as income for familiesclassified as officially poor. 35
  36. 36. Government cash transferscounted in the poverty line includepayments from Social Security,unemployment compensation, and Aidto Families with Dependent Children. 36
  37. 37. Welfare criticisms include threemajor arguments: (1) Welfare reducesthe incentive to work for the poor andtaxpayers. (2) Welfare is inefficientbecause much of the money coversadministrative costs, rather thanproviding benefits for the poor. (3)Because many antipoverty programsare controlled by the state, welfarebenefits vary widely. 37
  38. 38. The negative income tax is a planto set an income guarantee for allfamilies. As a low-income familyearns income, government payments(negative income tax) are phased out.After reaching a break-even income,families become taxpayers instead ofbeing on the welfare rolls. 38
  39. 39. $10 Negative Income Tax Positive Tax $5 Tax Liability 0$-5 Negative Tax$-20 Family Income $10 $20 $30 $40 $50 39
  40. 40. Comparable worth is the theorythat workers in jobs determined to beof equal value by means of point totalsshould be paid equally. Instead ofallowing labor markets to set wages,independent consultants award pointsto different jobs on the basis of suchcriteria as knowledge, experience, andworking conditions 40
  41. 41. Chapter 12 Quiz ©2000 South-Western College Publishing 41
  42. 42. 1. In 1997, the wealthiest 5 percent of all U.S. families earned what percentage of total annual money income among families? a. More than 20 percent. b. Less than 10 percent. c. More than 25 percent. d. More than 50 percent. A. 42
  43. 43. Division of the Total Annual Money Income Among Families % of Families 1980 1990 1997Lowest 5th 5.1% 4.6% 4.2%Second-lowest 5th 11.5 10.8 9.9Middle 5th 17.5 16.6 15.7Second-highest 5th 24.3 23.8 23.0Highest 5th 41.6 44.3 47.2Highest 5% 15.3 17.4 20.7 43
  44. 44. 2. A figure that measures the relationship between the cumulative percentage of money income on the vertical axis and the cumulative percentage of families on the horizontal axis is called the a. family-income curve. b. Washington curve. c. Lorenz curve. d. Gini curve. C. 44
  45. 45. 100% The Lorenz Curve Perfect Equality80% % of income60% Inequality40%20% % of families 20% 40% 60% 80% 100% 45
  46. 46. 100% Exhibit 11 Lorenz Curve Y80% % of income Perfect Equality X60%40% Z20% W Cumulative % of families 20% 40% 60% 80% 100% 46
  47. 47. 3. As shown in Exhibit 11, the perfect equality line is drawn between points a. W and Y along the curve. b. X and Z. c. W and Y along the straight line. d. W and X. C. 47
  48. 48. 4. As shown in Exhibit 11, 20 percent of families earned a cumulative share of about _______ percent of income. a. 5. b. 10. c. 30. d. 50. A. 48
  49. 49. 5. As shown in Exhibit 11, 40 percent of families earned a cumulative share of about _______ percent of income. a. 5. b. 15. c. 30. d. 40. B. 49
  50. 50. 6. Since 1929, the overall income distribution in the United States has become a. much more unequal. b. much less unequal. c. slightly more unequal. d. slightly more equal. D. 50
  51. 51. 100% Lorenz Curve 1929 & 1997 Perfect Equality80% % of income60% 199740%20% 1929 % of families 20% 40% 60% 80% 100% 51
  52. 52. 7. Comparing the family income distributions of the United States, Russia, and Brazil, the conclusion is that income is distributed a. most equally in Brazil. b. most equally in the United States. c. about the same in all three countries. d. most equally in Russia. D. 52
  53. 53. 100% Lorenz Curve for Nations Perfect Equality80% % of income60% Russia40%20% Brazil U. % of families S. 20% 40% 60% 80% 100% 53
  54. 54. 8. In order to establish the poverty line that divides poor and nonpoor families, the government a. multiplies the cost of a minimal diet by 3. b. multiplies the cost of a minimal diet by 5. c. adds 50 percent to cost of a minimal diet. d. adds 100 percent to cost of a minimal diet. A. Absolute poverty can be defined in dollars to purchase some minimum amount of goods and services essential to meeting a person or family’s basic needs. 54
  55. 55. 9. The poverty line a. is defined as one-half average family income. b. includes in-kind transfers. c. includes Medicaid benefits. d. has been attacked for overstating poverty. D. The poverty line does not include noncash transfers, such as food stamps and Medicaid. 55
  56. 56. 10. Which of the following is an in-kind transfer? a. Social Security payments. b. Unemployment compensation. c. Food stamps. d. Welfare payments.C. Social Security payments, unemployment compensation and welfare payments are cash transfer payments included in the poverty line. 56
  57. 57. 11. Which of the following is a cash assistance (not an in-kind transfer) program? a. Aid to Families with Dependent Children. b. Medicare. c. Medicaid. d. Food stamps. A. Medicare and Medicaid provide medical care services and food stamps are used for food. AFDC provides cash that can be used to purchase goods and services chosen by recipient. 57
  58. 58. 12. The negative income tax (NIT) is a plan under which families a. above a level of income pay no tax. b. pay the same tax rate except for the poor. c. below a level of income pay no tax. d. below a level of income receive a cash payment. D. 58
  59. 59. $10 Negative Income Tax Positive Tax $5 Tax Liability 0$-5 Negative Tax$-20 Family Income $10 $20 $30 $40 $50 59
  60. 60. 13. Which of the following might decrease the supply curve of labor? a. Discrimination against blacks. b. Discrimination against women. c. Difficult licensing requirements. d. All of the above.D. Discrimination against blacks and women and different licensing requirements reduce the number of workers who are willing to work at various possible wage rates. 60
  61. 61. Internet ExercisesClick on the picture of the book, choose updates by chapter for the latest internet exercises 61
  62. 62. END 62
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