Introduction to Economics: Social Issues and Economic Thinking Wendy A. Stock PowerPoint Prepared by Z. Pan CHAPTER 20 POVERTY AND THE DISTRIBUTION OF INCOME Copyright © 2013 John Wiley & Sons, Inc. / Photo Credit: Vstock LLC/Getty Images, Inc.
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 Summarize the issues surrounding global poverty and inequality Describe some of the primary causes of poverty Describe the impacts of various poverty policies Copyright © 2013 John Wiley & Sons, Inc. 2 AFTER STUDYING THIS CHAPTER, YOU SHOULD BE ABLE TO:
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 & Sons, Inc. 3 THE ISSUE OF POVERTY
Copyright © 2013 John Wiley & Sons, Inc. 4 PERCEPTION VS. REALITY AND IDEALITY
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 & Sons, Inc. 5 INCOME DISTRIBUTION
Copyright © 2013 John Wiley & Sons, Inc. 6 U.S. INCOME DISTRIBUTION
Copyright © 2013 John Wiley & Sons, Inc. 7 U.S. INCOME DISTRIBUTION
Being in the top fifth of households, it takes an average of $171,000 per year in the United States. Being in the top 2 percent of households, it takes $250,000 per year. Copyright © 2013 John Wiley & Sons, Inc. 8 WHAT IS BEING RICH?
The share of total income earned by households in the top quintile was 43 percent in 1969 and 50 percent in Over the same period, the share of income earned by the bottom quintile fell from 4 percent to 3 percent. The share of income earned by those in the second quintile also fell, from 11 to 9 percent. Copyright © 2013 John Wiley & Sons, Inc. 9 THE RICH GETTING RICHER, THE POOR GETTING POORER?
Copyright © 2013 John Wiley & Sons, Inc. 10 GLOBAL INCOME DISTRIBUTION
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 = 4 Copyright © 2013 John Wiley & Sons, Inc. 11 MEASURING INCOME INEQUALITY
Copyright © 2013 John Wiley & Sons, Inc. 12 U.S. INCOME RATIOS
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 0 to 1, with higher values indicating more income inequality. Copyright © 2013 John Wiley & Sons, Inc. 13 MEASURING INCOME INEQUALITY
Copyright © 2013 John Wiley & Sons, Inc. 14 INTERNATIONAL GINI COEFFICIENTS
Copyright © 2013 John Wiley & Sons, Inc. 15 INTERNATIONAL GINI COEFFICIENTS
Copyright © 2013 John Wiley & Sons, Inc. 16 WORLD INEQUALITY OVER TIME
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 & Sons, Inc. 17 MEASURING POVERTY
Copyright © 2013 John Wiley & Sons, Inc. 18 MEASURING POVERTY: U.S.
Copyright © 2013 John Wiley & Sons, Inc. 19 MEASURING POVERTY: U.S.
Copyright © 2013 John Wiley & Sons, Inc. 20 MEASURING POVERTY: WORLD
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 & Sons, Inc. 21 RELATIVE VERSUS ABSOLUTE POVERTY
Individual-level Causes: Productivity Restricted Opportunities Incentives and Preferences Structural Causes: Economic downturns Resource Availability and Resource Use Governmental Institutions Disease Copyright © 2013 John Wiley & Sons, Inc. 22 CAUSES OF POVERTY
Direct Payments: Temporary Assistance to Needy Families (TANF) Supplemental Security Income (SSI) Food, Health, and Housing and Education Programs: (Food stamps, WIC, Medicaid, SCHIP, Head Start, Pell Grant) Tax Policy and Regulation (EITC) CARE, Oxfam International, Kiva, MDG Copyright © 2013 John Wiley & Sons, Inc. 23 POVERTY POLICY
QUESTIONS/DISCUSSIONS Copyright © 2013 John Wiley & Sons, Inc What is the 80:20 ratio? What are the implications for income inequality when the 80:20 ratio increases within a country? 2.How do poverty rates differ across demographic and education groups in the Unites States? What are some possible sources of these differences?
Copyright © 2013 John Wiley & Sons, Inc. 25 KEY CONCEPTS Income distribution Income ratio Gini coefficient Poverty line Poverty rate Absolute measure of poverty Relative measure of poverty