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AP Micro Income Inequality

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AP Micro Income Inequality

1. 1. 34CHAPTERINCOME INEQUALITY AND POVERTY
2. 2. FACTS ABOUT INCOME INEQUALITY2001 U.S. Average Family Income \$66,863Distribution 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. 3. FACTS ABOUT INCOME INEQUALITYDistribution of Personal Income by Quintiles, 2001 Percentage of Upper Quintile Total Income Income LimitLowest 20% 4.2 \$24,000Second 20% 9.7Third 20% 15.4 41,127Fourth 20% 22.9Highest 20% 47.7 62,500Total 100.0 94,150 The Lorenz Curve graphically...
4. 4. THE LORENZ CURVE 100 80 Perfect EqualityPercent of Income 60 40 20 Complete Inequality 0 20 40 60 80 100 Percent of Families
5. 5. THE LORENZ CURVE 100 Lorenz Curve (actual distribution) 80 Perfect EqualityPercent 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. 6. THE LORENZ CURVE 100 Lorenz Curve Gini Ratio (actual distribution) 80 Numerical Measure of Overall Perfect Equality Dispersion of Income Percent of IncomeGini 60 Area Between Lorenz Curve and DiagonalRatio = 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. 7. THE LORENZ CURVE 100 Lorenz Curve (actual distribution) 80 Perfect EqualityPercent 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. 8. THE LORENZ CURVE 100 Lorenz Curve (actual distribution) 80 Perfect Equality Effect of governmentPercent 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. 9. THE LORENZ CURVE 100 Lorenz Curve (actual distribution) 80 Perfect EqualityPercent 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. 10. CAUSES OF INCOME INEQUALITYAbility DifferencesEducation and TrainingDiscriminationPreferences and RisksUnequal Distribution of WealthMarket PowerLuck, Connections, and Misfortune
11. 11. TRENDS IN INCOME INEQUALITY1929 - 1947 Significant reduction in income inequality1947 - 1969 Less inequality but at a slower pace1969 - 2001 More unequal since 1969
12. 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 MexicoUnited States France Italy Sweden Source: World Development Report, 2003
13. 13. CAUSES OF GROWING INEQUALITYGreater Demand for Highly Skilled WorkersDemographic ChangesInternational Trade •Immigration •Decline in Unionism
14. 14. EQUALITY VERSUS EFFICIENCYThe Case for Equality Maximizing Total UtilityThe Case for Inequality Incentives and EfficiencyTradeoff Between Equality and Efficiency
15. 15. THE ECONOMICS OF POVERTYPoverty Defined – 2001 Single \$ 9,039 Family of 4 18,104 Family of 6 24,195Poverty Rates in the U.S Blacks 22.7% Hispanics 21.4% Whites 9.9%
16. 16. THE ECONOMICS OF POVERTYIncidence of PovertyPoverty RatePoverty TrendsThe “Invisible” Poor •Short-Periods of Time •Geographic Isolation •Politically Invisible – Are Easy to Ignore
17. 17. PERCENTAGE IN POVERTY 0 10 20 30 Married-couple families Persons 65 or over Whites Total population Children under 18Foreign born (not citizens) Hispanics Blacks Female householders 2001 Data
18. 18. THE INCOME-MAINTENANCE SYSTEMEntitlement ProgramsSocial Insurance Programs, 2002OASDHI \$432 Billion (\$386 Billion in 1999)Medicare \$219 Billion (\$210 Billion in 1999)Unemployment Compensation \$32 Billion (\$20 Billion in 1999)
19. 19. THE INCOME-MAINTENANCE SYSTEMEntitlement ProgramsPublic Assistance Programs, 2002Supplemental 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. 20. WELFARE: GOALS AND CONFLICTSCommon Features •Minimum Annual Income •Benefit-Reduction RateConflicts Among Goals •Eliminating Poverty •Maintaining Work Incentives •Holding Down Costs
21. 21. WELFARE: GOALS AND CONFLICTSWelfare ReformGrowing Government DependencePersonal Responsibility Act 1996Temporary 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. 22. income inequality unemployment compensationLorenz curve public assistance programsGini Ratio Supplemental Security Incomeincome mobility (SSI)noncash transfersequality-efficiency tradeoff Temporary Assistance forpoverty rate Needy Families (TANF)entitlement programs food stamp programsocial insurance programs MedicaidOASDHI earned-income tax creditMedicare (EITC) Copyright McGraw-Hill/Irwin, 2005 BACK END
23. 23. Next:Labor Market Institutionsand Issues:Unionism, Discrimination,Immigration Chapter 35