Chapter 20 - Poverty and the distribution of income. After completing this unit, you should be able to: Describe the distribution of income in the U.S. and the global distribution of income, explain various measures of income inequality, describe various measures of poverty,…
Introduction to Economics: Social Issues and Economic Thinking Wendy A Stock Chapter 20 Poverty and the Distribution of Income Copyright © 2013 John Wiley & Sons, Inc / Photo Credit: Vstock LLC/Getty Images, Inc PowerPoint Prepared by Z Pan After studying this chapter, you should be able to: Ø Ø Ø Describe the distribution of income in the U.S and the global distribution of income Explain various measures of income inequality Ø Ø Ø Summarize the issues surrounding global poverty and inequality Describe some of the primary causes of poverty Describe the impacts of various poverty policies Describe various measures of poverty Copyright © 2013 John Wiley & Sons, Inc The issue of poverty Ø Ø Ø In 2010, over 43 million of the 328 million people in the United States were living in poverty, the highest level of poverty in over a decade That same year, 12 of the 25 richest people in the world lived in the U.S The issue is more serious than we think Copyright © 2013 John Wiley Perception vs reality and ideality Copyright © 2013 John Wiley Income Distribution Ø An Income Distribution shows the levels of income in an economy and the percentage of individuals or households earning those income levels Copyright © 2013 John Wiley U.S Income Distribution Copyright © 2013 John Wiley U.S Income Distribution Copyright © 2013 John Wiley WHAT IS being rich? Ø Ø Being in the top fifth of households, it takes an average of $171,000 per year in the United States Being in the top percent of households, it takes $250,000 per year Copyright © 2013 John Wiley The rich getting richer, the poor getting poorer? Ø Ø Ø The share of total income earned by households in the top quintile was 43 percent in 1969 and 50 percent in 2009 Over the same period, the share of income earned by the bottom quintile fell from percent to percent The share of income earned by those in the second quintile also fell, from 11 to percent Copyright © 2013 John Wiley Global Income Distribution Copyright © 2013 John Wiley 10 MEASURING INCOME INEQUALITY Ø Income Ratio compares the incomes of those in the upper end of an income distribution to the incomes of those in the lower end of the income distribution e.g 80:20 ratio 80:20 ratio = $100,000/$25,000 = Copyright © 2013 John Wiley 11 U.S income ratios Copyright © 2013 John Wiley 12 MEASURING INCOME INEQUALITY Ø Ø Income Ratio compares the incomes of those in the upper end of an income distribution to the incomes of those in the lower end of the income distribution Gini Coefficient measures income inequality on a scale from to 1, with higher values indicating more income inequality Copyright © 2013 John Wiley 13 International gini coefficients Copyright © 2013 John Wiley 14 International gini coefficients Copyright © 2013 John Wiley 15 World Inequality Over Time Copyright © 2013 John Wiley 16 MEASURING POVERTY Ø Ø Ø Poverty Line (Poverty Threshold) is the income or consumption level below which a person is considered to be in poverty Poverty thresholds vary by time, place, and family size Poverty Rate is the percentage of people with incomes below the poverty line Copyright © 2013 John Wiley 17 MEASURING POVERTY: U.S Copyright © 2013 John Wiley 18 MEASURING POVERTY: U.S Copyright © 2013 John Wiley 19 MEASURING POVERTY: World Copyright © 2013 John Wiley 20 Relative versus Absolute Poverty Ø Ø Absolute Poverty uses a measure of fixed income or consumption level rather than an underlying income distribution to set the poverty line Relative Poverty uses a measure of position in the income distribution to determine the poverty line Copyright © 2013 John Wiley 21 CAUSES OF POVERTY Ø Ø Individual-level Causes: Ø Productivity Ø Restricted Opportunities Ø Incentives and Preferences Structural Causes: Ø Economic downturns Ø Resource Availability and Resource Use Ø Governmental Institutions Ø ©Disease Copyright 2013 John Wiley 22 POVERTY POLICY Ø Ø Direct Payments: Ø Temporary Assistance to Needy Families (TANF) Ø Supplemental Security Income (SSI) Food, Health, and Housing and Education Programs: (Food stamps, WIC, Medicaid, SCHIP, Head Start, Pell Grant) Ø Tax Policy and Regulation (EITC) Ø CARE, Oxfam International, Kiva, MDG Copyright © 2013 John Wiley 23 Questions/Discussions What is the 80:20 ratio? What are the implications for income inequality when the 80:20 ratio increases within a country? How poverty rates differ across demographic and education groups in the Unites States? What are some possible sources of these differences? Copyright â 2013 John Wiley 24 Key Concepts ã • • • • • • Income distribution Income ratio Gini coefficient Poverty line Poverty rate Absolute measure of poverty Relative measure of poverty Copyright © 2013 John Wiley 25 ... by households in the top quintile was 43 percent in 1969 and 50 percent in 200 9 Over the same period, the share of income earned by the bottom quintile fell from percent to percent The share... distribution to the incomes of those in the lower end of the income distribution e.g 80 :20 ratio 80 :20 ratio = $100,000/$25,000 = Copyright © 201 3 John Wiley 11 U.S income ratios Copyright © 201 3 John... levels Copyright © 201 3 John Wiley U.S Income Distribution Copyright © 201 3 John Wiley U.S Income Distribution Copyright © 201 3 John Wiley WHAT IS being rich? Ø Ø Being in the top fifth of households,