Facts About Income Inequality The Lorenz Curve Causes

Facts About Income Inequality The Lorenz Curve Causes of Income Inequality Trends in Income Inequality 34 CHAPTER Equality versus Efficiency The Economics of Poverty The Income Maintenance System Welfare: Goals and Conflicts Key Terms Previous Slide End Show 34 - 1 Next Slide INCOME INEQUALITY AND POVERTY Copyright Mc. Graw-Hill/Irwin, 2005

FACTS ABOUT INCOME INEQUALITY 2001 U. S. Average Family Income $66, 863 Facts About Income Inequality The Lorenz Curve Causes of Income Inequality Trends in Income Inequality Equality versus Efficiency The Economics of Poverty The Income Maintenance System Welfare: Goals and Conflicts Key Terms Previous Slide End Show 34 - 2 Next Slide Distribution of U. S. Personal Income by Families, 2001 Percentage of All Personal Families in This Income Category Under $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 -$199, 999 $200, 000 and over Copyright Mc. Graw-Hill/Irwin, 2005 5. 3 4. 3 11. 9 15. 7 20. 8 13. 1 14. 6 3. 0 100. 0

FACTS ABOUT INCOME INEQUALITY Facts About Income Inequality The Lorenz Curve Causes of Income Inequality Trends in Income Inequality Equality versus Efficiency The Economics of Poverty The Income Maintenance System Welfare: Goals and Conflicts Key Terms Previous Slide End Show 34 - 3 Next Slide Distribution of Personal Income by Quintiles, 2001 Percentage of Upper Quintile Total Income Limit Lowest Second Third Fourth Highest Total 20% 20% 20% 4. 2 9. 7 15. 4 22. 9 47. 7 100. 0 $24, 000 41, 127 62, 500 94, 150 The Lorenz Curve graphically. . . Copyright Mc. Graw-Hill/Irwin, 2005

THE LORENZ CURVE 100 Facts About Income Inequality The Lorenz Curve 80 Trends in Income Inequality Equality versus Efficiency The Economics of Poverty The Income Maintenance System Welfare: Goals and Conflicts Percent of Income Causes of Income Inequality Perfect Equality 60 40 Key Terms Complete Inequality 20 Previous Slide End Show 34 - 4 Next Slide 0 20 40 60 Percent of Families Copyright Mc. Graw-Hill/Irwin, 2005 80 100

THE LORENZ CURVE 100 Lorenz Curve (actual distribution) Facts About Income Inequality The Lorenz Curve 80 Trends in Income Inequality Equality versus Efficiency The Economics of Poverty The Income Maintenance System Welfare: Goals and Conflicts Percent of Income Causes of Income Inequality Perfect Equality 60 Area between the lines shows the degree of income inequality 40 Key Terms Complete Inequality 20 Previous Slide End Show 34 - 5 Next Slide 0 20 40 60 Percent of Families Copyright Mc. Graw-Hill/Irwin, 2005 80 100

THE LORENZ CURVE 100 Lorenz Curve (actual Ginidistribution) Ratio Facts About Income Inequality The Lorenz Curve 80 Trends in Income Inequality Equality versus Efficiency The Economics of Poverty The Income Maintenance System Welfare: Goals and Conflicts Percent of Income Causes of Income Inequality Numerical Measure of Overall Perfect Equality Dispersion of Income Gini 60 Area Between Lorenz Curve and Diagonal Ratio= Total Area Below the Diagonal Area between the lines shows the degree of income inequality 40 Key Terms Complete Inequality 20 Previous Slide End Show 34 - 6 Next Slide 0 20 40 60 Percent of Families Copyright Mc. Graw-Hill/Irwin, 2005 80 100

THE LORENZ CURVE 100 The Lorenz Curve Causes of Income Inequality Trends in Income Inequality Equality versus Efficiency The Economics of Poverty The Income Maintenance System Welfare: Goals and Conflicts Key Terms Lorenz Curve (actual distribution) due to s n o i t a t i m i L Perfect Equality : y t i l i b o M e m o c n – I n o i s n e m i D e r m e i g T n o l r The e v o g n i n r u h c t e n m e o d i c v e In s i s d o i r e time p Complete 80 Percent of Income Facts About Income Inequality 60 Area between the lines shows the degree of income inequality 40 20 Previous Slide End Show 34 - 7 Inequality Next Slide 0 20 40 60 Percent of Families Copyright Mc. Graw-Hill/Irwin, 2005 80 100

THE LORENZ CURVE 100 Lorenz Curve (actual distribution) Facts About Income Inequality The Lorenz Curve 80 Trends in Income Inequality Equality versus Efficiency The Economics of Poverty The Income Maintenance System Welfare: Goals and Conflicts Percent of Income Causes of Income Inequality Perfect Equality Effect of government redistribution of cash and noncash transfers 60 Area between the lines shows the degree of income inequality 40 Key Terms Complete Inequality 20 Previous Slide End Show 34 - 8 Next Slide 0 20 40 60 Percent of Families Copyright Mc. Graw-Hill/Irwin, 2005 80 100

THE LORENZ CURVE 100 Lorenz Curve (actual distribution) Facts About Income Inequality The Lorenz Curve 80 Trends in Income Inequality Equality versus Efficiency The Economics of Poverty The Income Maintenance System Welfare: Goals and Conflicts Percent of Income Causes of Income Inequality Perfect Equality 60 Lorenz curve after taxes and transfers 40 Area between the lines shows the degree of income inequality Key Terms Complete Inequality 20 Previous Slide End Show 34 - 9 Next Slide 0 20 40 60 Percent of Families Copyright Mc. Graw-Hill/Irwin, 2005 80 100

CAUSES OF INCOME INEQUALITY Facts About Income Inequality The Lorenz Curve Causes of Income Inequality Trends in Income Inequality Equality versus Efficiency The Economics of Poverty The Income Maintenance System Welfare: Goals and Conflicts Key Terms Previous Slide End Show 34 - 10 Next Slide Ability Differences Education and Training Discrimination Preferences and Risks Unequal Distribution of Wealth Market Power Luck, Connections, and Misfortune Copyright Mc. Graw-Hill/Irwin, 2005

TRENDS IN INCOME INEQUALITY Facts About Income Inequality The Lorenz Curve Causes of Income Inequality Trends in Income Inequality Equality versus Efficiency The Economics of Poverty The Income Maintenance System Welfare: Goals and Conflicts Key Terms Previous Slide End Show 34 - 11 Next Slide 1929 - 1947 Significant reduction in income inequality 1947 - 1969 Less inequality but at a slower pace 1969 - 2001 More unequal since 1969 Copyright Mc. Graw-Hill/Irwin, 2005

GLOBAL PERSPECTIVE Facts About Income Inequality The Lorenz Curve Causes of Income Inequality Trends in Income Inequality Equality versus Efficiency The Economics of Poverty The Income Maintenance System Welfare: Goals and Conflicts Key Terms Previous Slide End Show 34 - 12 Next Slide 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 Copyright Mc. Graw-Hill/Irwin, 2005 Source: World Development Report, 2003

CAUSES OF GROWING INEQUALITY Facts About Income Inequality The Lorenz Curve Causes of Income Inequality Trends in Income Inequality Equality versus Efficiency The Economics of Poverty The Income Maintenance System Welfare: Goals and Conflicts Key Terms Previous Slide End Show 34 - 13 Next Slide Greater Demand for Highly Skilled Workers Demographic Changes International Trade • Immigration • Decline in Unionism Copyright Mc. Graw-Hill/Irwin, 2005

EQUALITY VERSUS EFFICIENCY Facts About Income Inequality The Case for Equality The Lorenz Curve Causes of Income Inequality Trends in Income Inequality Equality versus Efficiency The Economics of Poverty The Income Maintenance System Welfare: Goals and Conflicts End Show 34 - 14 The Case for Inequality Incentives and Efficiency Tradeoff Between Equality Key Terms Previous Slide Maximizing Total Utility Next Slide and Efficiency Copyright Mc. Graw-Hill/Irwin, 2005

THE ECONOMICS OF POVERTY Facts About Income Inequality The Lorenz Curve Causes of Income Inequality Trends in Income Inequality Equality versus Efficiency The Economics of Poverty The Income Maintenance System Welfare: Goals and Conflicts Key Terms Previous Slide End Show 34 - 15 Next Slide 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% Copyright Mc. Graw-Hill/Irwin, 2005

THE ECONOMICS OF POVERTY Facts About Income Inequality The Lorenz Curve Causes of Income Inequality Trends in Income Inequality Equality versus Efficiency The Economics of Poverty The Income Maintenance System Welfare: Goals and Conflicts Key Terms Previous Slide End Show 34 - 16 Next Slide Incidence of Poverty Rate Poverty Trends The “Invisible” Poor • Short-Periods of Time • Geographic Isolation • Politically Invisible – Are Easy to Ignore Copyright Mc. Graw-Hill/Irwin, 2005

PERCENTAGE IN POVERTY Facts About Income Inequality The Lorenz Curve Causes of Income Inequality Trends in Income Inequality Equality versus Efficiency The Economics of Poverty The Income Maintenance System Welfare: Goals and Conflicts Key Terms Previous Slide End Show 34 - 17 Next Slide 0 Married-couple families Persons 65 or over Whites Total population Children under 18 Foreign born (not citizens) Hispanics Blacks Female householders 10 20 2001 Data Copyright Mc. Graw-Hill/Irwin, 2005 30

THE INCOME-MAINTENANCE SYSTEM Facts About Income Inequality The Lorenz Curve Causes of Income Inequality Trends in Income Inequality Equality versus Efficiency The Economics of Poverty The Income Maintenance System Welfare: Goals and Conflicts Key Terms Previous Slide End Show 34 - 18 Next Slide Entitlement Programs 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) Copyright Mc. Graw-Hill/Irwin, 2005

THE INCOME-MAINTENANCE SYSTEM Facts About Income Inequality The Lorenz Curve Causes of Income Inequality Trends in Income Inequality Equality versus Efficiency The Economics of Poverty The Income Maintenance System Welfare: Goals and Conflicts Key Terms Previous Slide End Show 34 - 19 Next Slide Entitlement Programs 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) Copyright Mc. Graw-Hill/Irwin, 2005

WELFARE: GOALS AND CONFLICTS Facts About Income Inequality The Lorenz Curve Causes of Income Inequality Trends in Income Inequality Equality versus Efficiency The Economics of Poverty The Income Maintenance System Welfare: Goals and Conflicts Key Terms Previous Slide End Show 34 - 20 Next Slide Common Features • Minimum Annual Income • Benefit-Reduction Rate Conflicts Among Goals • Eliminating Poverty • Maintaining Work Incentives • Holding Down Costs Copyright Mc. Graw-Hill/Irwin, 2005

WELFARE: GOALS AND CONFLICTS Facts About Income Inequality The Lorenz Curve Causes of Income Inequality Trends in Income Inequality Equality versus Efficiency The Economics of Poverty The Income Maintenance System Welfare: Goals and Conflicts Key Terms Previous Slide End Show 34 - 21 Next Slide 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 Copyright Mc. Graw-Hill/Irwin, 2005

income inequality Lorenz curve Gini Ratio income mobility noncash transfers equality-efficiency tradeoff poverty rate entitlement programs social insurance programs OASDHI Medicare Copyright Mc. Graw-Hill/Irwin, 2005 unemployment compensation public assistance programs Supplemental Security Income (SSI) Temporary Assistance for Needy Families (TANF) food stamp program Medicaid earned-income tax credit (EITC) BACK END

Facts About Income Inequality The Lorenz Curve Next: Causes of Income Inequality Trends in Income Inequality Equality versus Efficiency The Economics of Poverty The Income Maintenance System Welfare: Goals and Conflicts Key Terms Previous Slide End Show 34 - 23 Next Slide Labor Market Institutions and Issues: Unionism, Discrimination, Immigration Chapter 35 Copyright Mc. Graw-Hill/Irwin, 2005