1. Chapter Twenty
Sandeep Arakali
Susan Dong
4th hour

2. ~Mary Colum

3.  How much inequality is there in our
society?
 How many people live in poverty?
 What problems arise in measuring the
amount of inequality?
 How often do people move among income
classes?

4. Section One

6. The percentage of people and households that are earning in each
bracket.

7. 1950 1960 1970 1980 1990 2000 2004
$17,07
Overall Male $22,051 $28,100 $27,206 $28,439 $31,089 $30,513
6
Female $6,333 $6,815 $9,424 $10,683 $14,112 $17,619 $17,629
White/ $18,00
Male $23,219 $30,536 $28,939 $29,668 $32,684 $31,335
European 1
Female $7,044 $7,307 $9,546 $10,741 $14,459 $17,637 $17,648
Black/
African Male $9,775 $12,215 $17,513 $17,390 $18,034 $23,411 $22,740
American
Female $3,150 $4,524 $8,691 $9,944 $11,671 $17,420 $18,379
Asian Male NA NA NA NA $27,179 $33,820 $32,419
Female NA NA NA NA $15,536 $19,038 $20,618
Working Americans 15 years or older, adjusted for 2004 inflation

13. THE POVERTY RATE THE POVERTY LINE
 A commonly used gauge of  Set by the federal
the distribution of income government
 The percentage of the  Three times the cost of
population whose family providing an adequate diet
income falls below an  Adjusted every year to
absolute value (the poverty account for changes in the
line) level of prices
 Depends on family size

15. Section Two

16.  Through government programs and
various non-profit organizations, the poor
receive many nonmonetary items
 These could include food stamps, housing
vouchers and medical services
 If in-kind transfers were to be included in
income at their market value, the number
of those in poverty would be 10% lower

17.  The regular pattern of income variation is
called the life cycle
The Life Cycle
• A young worker has a low income
• Income rises as the worker gains maturity
and experience
• Income peaks at around age 50 and then
falls sharply when the worker retires at
around 65

18.  The standard of living in any year depends on
more than lifetime income rather than that specific
year’s income
 Young people borrow money to pay for school or a
new home
 Older people repay those loans when their
incomes rise
 Large income declines after retirement do not
affect the standard of living
 Inequality in the distribution of annual income, but
does not represent true inequality in living
standards

19. TRANSITORY INCOME PERMANENT INCOME
 An unexpected natural  The average income, based
disaster or other on the transitory incomes
uncontrollable force could  Smoothens out the bumps
cause prices of goods to rise within transitory income
or fall  A family’s ability to buy
 This contributes to varying goods and services depends
incomes for households largely on this
yearly

20.  The US is one of the countries most well-
known for the citizens’ abilities to be born
poor and die rich
 The opposite, of course, is just as likely to
occur
 Some mobility reflects transitory variation
in income, others reflect more persistent
changes in income

21.  Many of those who live below the poverty
line only do so for a temporary period
 In a 10 year period, 1 in 4 families fall
below the poverty line in at least 1 year.
 Fewer than 3% of families are poor for 8 or
more years
 The temporarily poor and the persistently
poor face different problems

22.  Ifa father earns 20% above his
generation’s average income, his son will
earn 8% above his own generation’s
average income
 In the US economy, four of five millionaires
are self-made

23. Section 3

24.  Utility: level of happiness
and satisfaction you
receive
 Utilitarians maximize
utility by taking money
from the rich and giving it
to the poor (law of
diminishing marginal
utility)
 DO NOT believe in equal
income for everyone
 “Leaky bucket” story John Stuart Mill: guy who
thought up of utilitarianism

25.  Liberals aim to bring
the poorest person in
society up to a certain
standard (maximum
criterion)
 Developed by John
Rawls and his “veil of
ignorance” theory
 Liberalism acts as
social insurance if you
become poor

26.  Libertarians believe
government should
enforce the laws but
NOT redistribute
income
 Inequality is okay
because income will
distribute itself naturally
based on people’s
abilities
 Trade is okay; stealing
is not

27. Section 4

28.  Minimum wage is a Wage S
legal limit on the
minimum salary any Min. Wage
worker can receive Salary
Increase
 Same as a binding price
floor for the labor
market
 Effect of minimum wage
is to decrease
employment but D
increase wages for
Q’
workers who keep their Jobs
Q Workers
jobs Lost

29. SUPPORTERS OPPONENTS
 Claim that minimum wage  Critics say that labor
helps the poor by increasing demand is more elastic
salary especially in the long run so
 Argue that demand for labor more jobs are lost
is inelastic so not that many  Also most minimum wage
jobs are lost when you workers are teens who don’t
impose a minimum wage really need the money so
minimum wage doesn’t
really help the poor

30.  Welfare refers to
government programs that
supplement the incomes of
the needy
 Welfare benefits have
declined since 1970s and
the law was revised in 1996
so people could not stay on
welfare forever
 You can’t qualify for welfare
just because you have a low
salary; you must have some
other need such as small
children or a disability

31. SUPPORTERS OPPONENTS
 Welfare helps the people in  Welfare drives people to
society living a difficult life become “needy” which in
and are unable to rise up turn breaks up families
such as working single  Encourages illegitimate
mothers births because of the
 Anti-poverty measure that welfare programs that exist
reduces homelessness due for single parents
to supplemented income  Worsens the problem it was
meant to cure

32.  High-income families
would pay a tax while
low-income families
would receive a
subsidy
 Example:
Taxes owed = (1/3 of income) –
$10,000
Poor family earning $21,000 a year
would receive subsidy of $3,000
Rich family earning $60,000 a year
would pay tax of $10,000

33. SUPPORTERS OPPONENTS
 Does not encourage  Lazy people are being
illegitimate births or break rewarded
up families like welfare  Does not alleviate poverty
programs due to a specific cause such
 Proof of need is not as illness, disability, or
absolutely necessary to unemployment
receive a subsidy
 Similar program is already in
place

34.  There are pros and cons to every solution
proposed by lawmakers to reduce poverty
 Supporters of anti-poverty legislation are
concerned about equality
 Opponents care about efficiency and claim
that anti-poverty measures reduce
incentive to work because they hurt the
rich and give to the poor