34 - 1 copyright mcgraw-hill/irwin, 2005 facts about income inequality the lorenz curve causes of...
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34 - 1Copyright McGraw-Hill/Irwin, 2005
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
PreviousSlide
NextSlide
EndEndShowShow
INCOME INEQUALITYAND POVERTY
34C H A P T E R
34 - 2Copyright McGraw-Hill/Irwin, 2005
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
PreviousSlide
NextSlide
EndEndShowShow
Distribution of U.S. Personal Income by Families, 2001
Personal Income Category
Percentage of All Families 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-$199,999$200,000 and over
5.3 4.3 11.3 11.9 15.7 20.8 13.1
14.6 3.0
100.0
FACTS ABOUT INCOME INEQUALITY2001 U.S. Average Family Income $66,863
34 - 3Copyright McGraw-Hill/Irwin, 2005
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
PreviousSlide
NextSlide
EndEndShowShow
The Lorenz Curvegraphically...
Distribution of Personal Income by Quintiles, 2001Percentage of Total Income
UpperIncome Limit
$24,000 41,127 62,500 94,150
4.2 9.7 15.4 22.9 47.7100.0
FACTS ABOUT INCOME INEQUALITY
Quintile
Lowest 20%Second 20%Third 20%Fourth 20%Highest 20%Total
34 - 4Copyright McGraw-Hill/Irwin, 2005
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
PreviousSlide
NextSlide
EndEndShowShow
20 40 60 80 100
100
80
60
40
20
0
Percent of Families
Per
cen
t o
f In
com
e Perfect Equality
CompleteInequality
THE LORENZ CURVE
34 - 5Copyright McGraw-Hill/Irwin, 2005
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
PreviousSlide
NextSlide
EndEndShowShow
20 40 60 80 100
100
80
60
40
20
0
Percent of Families
Per
cen
t o
f In
com
e Perfect Equality
CompleteInequality
Lorenz Curve (actual distribution)
Area betweenthe lines shows
the degree ofincome inequality
THE LORENZ CURVE
34 - 6Copyright McGraw-Hill/Irwin, 2005
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
PreviousSlide
NextSlide
EndEndShowShow
20 40 60 80 100
100
80
60
40
20
0
Percent of Families
Per
cen
t o
f In
com
e Perfect Equality
CompleteInequality
Lorenz Curve (actual distribution)
Area betweenthe lines shows
the degree ofincome inequality
THE LORENZ CURVE
Gini RatioNumerical Measure of Overall
Dispersion of Income
Area Between Lorenz Curve and Diagonal Total Area Below the Diagonal
GiniRatio=
34 - 7Copyright McGraw-Hill/Irwin, 2005
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
PreviousSlide
NextSlide
EndEndShowShow
20 40 60 80 100
100
80
60
40
20
0
Percent of Families
Per
cen
t o
f In
com
e Perfect Equality
CompleteInequality
Lorenz Curve (actual distribution)
Area betweenthe lines shows
the degree ofincome inequality
THE LORENZ CURVE
Limitations due to
Income Mobility:
The Time Dimension –
Income churning over longer
time periods is evident
34 - 8Copyright McGraw-Hill/Irwin, 2005
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
PreviousSlide
NextSlide
EndEndShowShow
20 40 60 80 100
100
80
60
40
20
0
Percent of Families
Per
cen
t o
f In
com
e Perfect Equality
CompleteInequality
Lorenz Curve (actual distribution)
Area betweenthe lines shows
the degree ofincome inequality
THE LORENZ CURVE
Effect of governmentredistribution of cashand noncash transfers
34 - 9Copyright McGraw-Hill/Irwin, 2005
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
PreviousSlide
NextSlide
EndEndShowShow
20 40 60 80 100
100
80
60
40
20
0
Percent of Families
Per
cen
t o
f In
com
e Perfect Equality
CompleteInequality
Lorenz Curve (actual distribution)
Area betweenthe lines shows
the degree ofincome inequality
THE LORENZ CURVE
Lorenz curveafter taxes and
transfers
34 - 10Copyright McGraw-Hill/Irwin, 2005
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
PreviousSlide
NextSlide
EndEndShowShow
Ability DifferencesEducation and TrainingDiscriminationPreferences and RisksUnequal Distribution of
WealthMarket PowerLuck, Connections, and
Misfortune
CAUSES OF INCOME INEQUALITY
34 - 11Copyright McGraw-Hill/Irwin, 2005
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
PreviousSlide
NextSlide
EndEndShowShow
TRENDS IN INCOME INEQUALITY
1929 - 1947Significant reduction in income inequality
1947 - 1969Less inequality but at a slower pace
1969 - 2001More unequal since 1969
34 - 12Copyright McGraw-Hill/Irwin, 2005
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
PreviousSlide
NextSlide
EndEndShowShow
BrazilGuatemala
South AfricaMexico
United StatesFrance
ItalySweden
0 10 20 30 40 50
GLOBAL PERSPECTIVEPercentage of Total Income ReceivedBy Top One-Tenth of Income Receivers,Selected Nations
Source: World Development Report, 2003
34 - 13Copyright McGraw-Hill/Irwin, 2005
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
PreviousSlide
NextSlide
EndEndShowShow
Greater Demand for
Highly Skilled Workers
Demographic Changes
International Trade •Immigration•Decline in Unionism
CAUSES OF GROWING INEQUALITY
34 - 14Copyright McGraw-Hill/Irwin, 2005
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
PreviousSlide
NextSlide
EndEndShowShow
EQUALITY VERSUS EFFICIENCY
The Case for Equality
Maximizing Total Utility
The Case for Inequality
Incentives and Efficiency
Tradeoff Between Equality
and Efficiency
34 - 15Copyright McGraw-Hill/Irwin, 2005
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
PreviousSlide
NextSlide
EndEndShowShow
THE ECONOMICS OF POVERTY
Poverty Defined – 2001Single $ 9,039Family of 4 18,104Family of 6 24,195
Poverty Rates in the U.SBlacks 22.7%Hispanics 21.4%Whites 9.9%
34 - 16Copyright McGraw-Hill/Irwin, 2005
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
PreviousSlide
NextSlide
EndEndShowShow
THE ECONOMICS OF POVERTY
Incidence of PovertyPoverty RatePoverty TrendsThe “Invisible” Poor
•Short-Periods of Time•Geographic Isolation•Politically Invisible – Are Easy to Ignore
34 - 17Copyright McGraw-Hill/Irwin, 2005
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
PreviousSlide
NextSlide
EndEndShowShow
0 10 20 30
Married-couple familiesPersons 65 or over
WhitesTotal population
Children under 18Foreign born (not citizens)
HispanicsBlacks
Female householders
PERCENTAGE IN POVERTY
2001 Data
34 - 18Copyright McGraw-Hill/Irwin, 2005
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
PreviousSlide
NextSlide
EndEndShowShow
THE INCOME-MAINTENANCE SYSTEM
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)
Entitlement Programs
34 - 19Copyright McGraw-Hill/Irwin, 2005
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
PreviousSlide
NextSlide
EndEndShowShow
THE INCOME-MAINTENANCE SYSTEM
Public Assistance Programs, 2002Supplemental 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)
Entitlement Programs
34 - 20Copyright McGraw-Hill/Irwin, 2005
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
PreviousSlide
NextSlide
EndEndShowShow
Common Features•Minimum Annual Income
•Benefit-Reduction RateConflicts Among Goals
•Eliminating Poverty•Maintaining Work Incentives
•Holding Down Costs
WELFARE: GOALS AND CONFLICTS
34 - 21Copyright McGraw-Hill/Irwin, 2005
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
PreviousSlide
NextSlide
EndEndShowShow
Welfare ReformGrowing Government DependencePersonal Responsibility Act 1996Temporary 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
WELFARE: GOALS AND CONFLICTS
income inequalityLorenz curveGini Ratioincome mobilitynoncash transfersequality-efficiency tradeoff poverty rateentitlement programssocial insurance programsOASDHIMedicare
unemployment compensation
public assistance programs
Supplemental Security Income (SSI)
Temporary Assistance for Needy Families (TANF)
food stamp program
Medicaid
earned-income tax credit (EITC)
ENDBACKCopyright McGraw-Hill/Irwin, 2005
34 - 23Copyright McGraw-Hill/Irwin, 2005
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
PreviousSlide
NextSlide
EndEndShowShow
Next:
Labor Market Institutionsand Issues: Unionism, Discrimination, Immigration
Chapter 35