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Chapter 32

Chapter 32. Income Inequality and Poverty. Poverty Rate (14.7%). The % of the population living in poverty. Poverty Rates Among Selected Population Groups,2004. 0 10 20 30. Female-Householders African-Americans Hispanics

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Chapter 32

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  1. Chapter 32 Income Inequality and Poverty

  2. Poverty Rate (14.7%) • The % of the population living in poverty

  3. Poverty Rates Among Selected Population Groups,2004 0 10 20 30 Female-Householders African-Americans Hispanics Foreign-Born (Not Citizens) Children Under 18 Women Total Population Men Whites Asian Persons 65 or Older Married-Couple Families Full-Time Workers 28.4 24.7 21.9 21.4 17.8 13.9 12.7 11.5 10.8 9.8 9.8 5.5 2.8

  4. Lorenz Curve • A curve showing the distribution of income in an economy. • **the farther the Lorenz Curve sags away from the diagonal, the > the income inequality

  5. 100 80 W 32.1 60 G 32.1 Percentage of Income 40 20 0 20 40 60 80 100 Percentage of Households The Lorenz Curve • Lorenz Curve e Lorenz Curve (Actual Distribution) Perfect Equality d A B c Complete Inequality b a f

  6. 100 80 60 Percentage of Income 40 20 0 20 40 60 80 100 Percentage of Households • Effect of Government Redistribution Lorenz Curve After Taxes and Transfers Lorenz Curve Before Taxes and Transfers Impact of Government Taxes and Transfers

  7. Area A Gini Ratio = Area A + Area B Gini Ratio • measure of the overall dispersion of income among households, families, or individuals • Divide the area between the diagonal line and the Lorenz Curve by the entire area below the diagonal line

  8. Gini Ratio • US is approximately .45 • The Gini coefficient for complete income equality is zero and for complete inequality is one

  9. 8.7 6.7 12.9 11.9 14.8 18.3 11.0 15.7 100.0 Facts About Income Inequality • Average Household Income $60,258- Among the Highest in the World Distribution of U.S. Income by Households (1) Personal Income Category (2) Percentage of All Households in this Category Under $10,000 $10,000 - $14,999 $15,000 - $24,999 $25,000 - $34,999 $35,000 - $49,999 $50,000 - $74,999 $75,000 - $99,999 $100,000 and Above Source: Bureau of the Census

  10. Facts About Income Inequality • Division Into 5 Equal Groups Distribution by Quintiles (2) Percentage of Total Income (3) Upper Income Limit (1) Quintile Lowest 20% Second 20% Third 20% Fourth 20% Highest 20% Total 3.4 8.7 14.7 22.2 50.1 100.0 $18,500 34,738 55,331 88,029 No Limit Source: Bureau of the Census

  11. Income Mobility • The extent to which income receivers move from one part of the income distribution to another over some period of time

  12. Non-cash Transfers • Specific goods or services rather than cash • Ex- Medicare, Medicaid, housing subsidies, school lunches, and food stamps

  13. Causes of Income Inequality • 1. Ability • 2. Education and Training • 3. Discrimination • 4. Preferences and Risks • 5. Unequal Distribution of Wealth • 6. Market Power • 7. Luck, Connections, and Misfortune

  14. Income Inequality Trend • Since the 1970’s income inequality has grown: • 1. Greater demand for highly skilled workers • 2. Demographic Changes (baby boomers) • 3. International Trade

  15. Equality-Efficiency Tradeoff • Greater income equality (through redistribution of income) comes at the opp. Cost of reduced production and income • Greater production and income come at the expense of less equality of income

  16. Entitlement Programs • Government programs that guarantee particular levels of transfer payments or noncash benefits to all that fit the programs’ criteria • 1. social insurance • 2. public assistance (welfare) • Ex- food stamps, Medicare, Medicaid, military retirement, VA benefits

  17. 1. Social Insurance Programs • Programs that replace earnings lost when people retire or are temporarily unemployed • viewed as earned rights not charity • Paid by workers and employers • Ex- SS, Unemployment compensation, and Medicare

  18. Social Security • Federal Pension Program funded by compulsory taxes on workers and employers • Retire at 65 (62 with reduced benefits) • In case of death, the benefits go to the survivors • ****avg. $995 per month pay-out 6.2% tax on most workers up to $106,000

  19. Medicare • Federal insurance program for those 65 and older or disabled • $303 billion in coverage paid in 2006 • Shrinking funds due to the “baby boomers” • Workers pay 1.45% of income

  20. Unemployment Compensation • Workers may receive benefit payments after being unemployed for a specified amount of time (varies by state) • Generally benefits are up to 33% of wages up to a given amount

  21. 2. Public Assistance Programs • (welfare) benefits to people who are unable to earn an income because of permanent handicaps or who have no or very low income and also have dependent children

  22. Supplemental Security Income (SSI) • Uniform nationwide minimum income for the aged, blind, and disabled who don’t qualify for SS • Average monthly payment was $579 in 2005

  23. Temporary Assistance for Needy Families (TANF) • Cash assistance to families with children and helps find work so people don’t become dependent on the system

  24. Food Stamps • Vouchers for low-income families to use to purchase food paid through EBTs (Electronic Benefit Transfer) debit cards • Aka. SNAP (Supplemental Nutritional Assist. Program

  25. Medicaid • Federal insurance program that provides medical benefits to those covered by SSI and TANF

  26. Earned Income Tax Credit • Reduces the Federal income tax paid by low-income families with or without children For 2011, earned income and AGI must be less than: $43,998 ($49,078 married filing jointly) with 3 or more qualifying children $40,964 ($46,044 married filing jointly) with 2 qualifying children; $36,052 ($41,132 married filing jointly) with 1 qualifying child; or $13,660 ($18,740 married filing jointly) with no qualifying children.

  27. Section 8 Housing • Government assistance for housing • Tenants pay up to 30% of their income on housing… the government provides vouchers for the rest • “Project-based”- live in specific projects • “Tenant-based”- choose where to live

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