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AP Micro Income Inequality
- 1. 34 CHAPTER INCOME INEQUALITY AND POVERTY
- 2. FACTS ABOUT INCOMEINEQUALITY 2001 U.S. Average Family Income $66,863 Distribution of U.S. Personal Income by Families, 2001 Percentage of All Personal Families in This Income Category Category Under $10,000 5.3 $10,000 - $14,999 4.3 $15,000 - $24,999 11.3 $25,000 - $34,999 11.9 $35,000 - $49,999 15.7 $50,000 - $74,999 20.8 $75,000 - $99,999 13.1 $100,000-$199,999 14.6 $200,000 and over 3.0 100.0
- 3. FACTS ABOUT INCOMEINEQUALITY Distribution of Personal Income by Quintiles, 2001 Percentage of Upper Quintile Total Income Income Limit Lowest 20% 4.2 $24,000 Second 20% 9.7 Third 20% 15.4 41,127 Fourth 20% 22.9 Highest 20% 47.7 62,500 Total 100.0 94,150 The Lorenz Curve graphically...
- 4. THE LORENZ CURVE 100 80 Perfect Equality Percent of Income 60 40 20 Complete Inequality 0 20 40 60 80 100 Percent of Families
- 5. THE LORENZ CURVE 100 Lorenz Curve (actual distribution) 80 Perfect Equality Percent of Income 60 40 Area between the lines shows the degree of income inequality 20 Complete Inequality 0 20 40 60 80 100 Percent of Families
- 6. THE LORENZ CURVE 100 Lorenz Curve Gini Ratio (actual distribution) 80 Numerical Measure of Overall Perfect Equality Dispersion of Income Percent of Income Gini 60 Area Between Lorenz Curve and Diagonal Ratio = Total Area Below the Diagonal 40 Area between the lines shows the degree of income inequality 20 Complete Inequality 0 20 40 60 80 100 Percent of Families
- 7. THE LORENZ CURVE 100 Lorenz Curve (actual distribution) 80 Perfect Equality Percent of Income 60 40 Area between the lines shows the degree of income inequality 20 Complete Inequality 0 20 40 60 80 100 Percent of Families
- 8. THE LORENZ CURVE 100 Lorenz Curve (actual distribution) 80 Perfect Equality Effect of government Percent of Income 60 redistribution of cash and noncash transfers 40 Area between the lines shows the degree of income inequality 20 Complete Inequality 0 20 40 60 80 100 Percent of Families
- 9. THE LORENZ CURVE 100 Lorenz Curve (actual distribution) 80 Perfect Equality Percent of Income 60 Lorenz curve after taxes and Area between 40 transfers the lines shows the degree of income inequality 20 Complete Inequality 0 20 40 60 80 100 Percent of Families
- 10. CAUSES OF INCOMEINEQUALITY Ability Differences Education and Training Discrimination Preferences and Risks Unequal Distribution of Wealth Market Power Luck, Connections, and Misfortune
- 11. TRENDS IN INCOMEINEQUALITY 1929 - 1947 Significant reduction in income inequality 1947 - 1969 Less inequality but at a slower pace 1969 - 2001 More unequal since 1969
- 12. GLOBAL PERSPECTIVE Percentage of Total Income Received By Top One-Tenth of Income Receivers, Selected Nations 0 10 20 30 40 50 Brazil Guatemala South Africa Mexico United States France Italy Sweden Source: World Development Report, 2003
- 13. CAUSES OF GROWINGINEQUALITY Greater Demand for Highly Skilled Workers Demographic Changes International Trade •Immigration •Decline in Unionism
- 14. EQUALITY VERSUS EFFICIENCY TheCase for Equality Maximizing Total Utility The Case for Inequality Incentives and Efficiency Tradeoff Between Equality and Efficiency
- 15. THE ECONOMICS OFPOVERTY Poverty Defined – 2001 Single $ 9,039 Family of 4 18,104 Family of 6 24,195 Poverty Rates in the U.S Blacks 22.7% Hispanics 21.4% Whites 9.9%
- 16. THE ECONOMICS OFPOVERTY Incidence of Poverty Poverty Rate Poverty Trends The “Invisible” Poor •Short-Periods of Time •Geographic Isolation •Politically Invisible – Are Easy to Ignore
- 17. PERCENTAGE IN POVERTY 0 10 20 30 Married-couple families Persons 65 or over Whites Total population Children under 18 Foreign born (not citizens) Hispanics Blacks Female householders 2001 Data
- 18. THE INCOME-MAINTENANCE SYSTEM EntitlementPrograms Social Insurance Programs, 2002 OASDHI $432 Billion ($386 Billion in 1999) Medicare $219 Billion ($210 Billion in 1999) Unemployment Compensation $32 Billion ($20 Billion in 1999)
- 19. THE INCOME-MAINTENANCE SYSTEM EntitlementPrograms Public Assistance Programs, 2002 Supplemental Security Income (SSI) $35 Billion ($29 Billion in 1999) Temporary Assistance for Needy Families $14 Billion ($23 Billion in 1999) Food stamps $20 Billion ($20 Billion in 1999) Medicaid $207 Billion ($124 Billion in 1999) Earned-Income Tax Credit (EITC) $55 Billion ($30 Billion in 1999)
- 20. WELFARE: GOALS ANDCONFLICTS Common Features •Minimum Annual Income •Benefit-Reduction Rate Conflicts Among Goals •Eliminating Poverty •Maintaining Work Incentives •Holding Down Costs
- 21. WELFARE: GOALS ANDCONFLICTS 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
- 22. income inequality unemployment compensation Lorenz curve public assistance programs Gini Ratio Supplemental Security Income income mobility (SSI) noncash transfers equality-efficiency tradeoff Temporary Assistance for poverty rate Needy Families (TANF) entitlement programs food stamp program social insurance programs Medicaid OASDHI earned-income tax credit Medicare (EITC) Copyright McGraw-Hill/Irwin, 2005 BACK END
- 23. Next: Labor Market Institutions andIssues: Unionism, Discrimination, Immigration Chapter 35