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Market Failure: Income Inequality and Income Distribution. AP Economics Mr. Bordelon. Problem of Poverty.
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Although the U.S. is a rich country, income is not distributed equally across the population. This explains why such a rich country can still have a lot of people living in poverty.
This table shows the distribution of income in 2008 in the U.S.
Mean household income. Average income across all households.
Median household income. Income of household lying in the middle of the income distribution.
Economists use median household income as a more accurate indicator of the population as a whole because the average could be skewed by wealthier individuals. In this case, by some $18,000.
What you should notice right off that the top 20% of wage earners earns more than 71.5% of all the money in this country.
Comparing the top 5% and bottom 20%, the top 5% earn 21.5% of the total wealth, while the bottom 20% earn 3.4%.
From a guns and butter interpretive perspective, this kind of economic inequality makes economists nervous because it is a strong indicator of political and social instability.
At the same time, keeping an objective standard, economists would indicate that this distribution is neither bad, unfair, good or unjust. It is a presentation of the facts only.
Another perspective, looking at growth since 1947. Between 1947-1980, every quintile increased income growth by at least 2%.
From 1980-2008, the top quintile at least doubled or more their growth compared to the remaining 80%.
This is a longer term graph, showing the shares of total income to the top 10% from the end of the First World War to the end of the second Bush Administration. Disparities in recent years have matched those leading to the Great Depression.
Gini coefficient. Number used to indicate a country’s level of income inequality based on how unequally income is distributed across countries. 0 is pretty good, 1 is pretty bad. Highest levels of inequality are found mostly in Latin America and Africa, but the U.S., China, Iran and others are not far behind.
This table indicates that the poverty rate for all groups would have been much higher in the absence of progressive taxes and transfers in the U.S.
This table indicates that the income distribution would have been more unequal if U.S. taxes and transfers programs did not exist.