Poverty and the Distribution of Income Chapter 14, Section 4

“Cover Story” (pg. 394) A large number of people live in poverty despite efforts of programs designed to decrease that population

Distribution of Income (pg. 395, Figure 14.7) Incomes of households are ranked from highest to lowest and divided into quintiles (fifths) Figure A – quintile data for 1980 and 2001 Does not include food stamps, medicaid, or subsidized housing

Distribution of Income (continued) Panel B – Lorenz curve: shows how much actual distribution of income varies from an equal distribution If households received exactly the same amount of income the Lorenz curve would be diagonal, but it isn’t diagonal because household income in not the same

Reasons for Income Inequality Education Some people have higher incomes because they have more education Wealth Distribution of wealth more unequal than distribution of income Discrimination “glass ceiling” Women and minority groups driven into other labor markets where oversupply drives down wages

Reasons for Income Inequality (continued) Ability Professional athletes and performers have certain natural abilities Monopoly Power American Medical Association

Poverty Poverty guidelines are annual dollar amounts used to evaluate the money income that families and unrelated individuals receive 2003, poverty was defined as an income of less than $18,400 for a family of 4

People in Poverty (pg. 397, Figure 14.8) Nearly 35 million people (12.4 %) live in poverty 1/3 are white, 1/4 are African American, and 36 % are children (26% of the population)

The Growing Income Gap Structural changes in the economy as industry changes from good production to service production Growing gap between well-educated and poorly educated workers Decline of unions Changing structure of the American Family

Antipoverty Programs Income assistance General assistance Provide direct cash assistance to those in need Supplemental Security Income (SSI) General assistance Food stamps government issued coupons that can be redeemed for food Medicaid Social Service Programs Child abuse prevention, foster care, family planning, child welfare, job training and day care Tax Credits Earned Income Tax Credits (EITC): first applied to federal taxes and then low-income workers can take remainder in cash

Antipoverty Programs (continued) Enterprise zones Areas where companies can locate free of some federal, state and local tax laws and other operating restrictions Workfare programs Requires recipients to exchange some of their labor for benefits Negative income tax Proposed type of tax that would make cash payments to certain groups below the poverty line Individual Tax Liability: Taxes = (25% of income) - $8,000

Per Capita Personal Income by State (pg. 399, Figure 14.9) In what range was the per capita income in the state of Oklahoma (OK) in 2002? What is the average annual growth percentage of real per capita personal income in the state of Colorado (CO)?