Income Inequality November 6, 2013 Ec 10 Trisha Shrum

Announcements Review Session Monday, 7:40pm-9:10pm, Room TBA Office Hours: – Today 1-3pm, Robinson 205 – Friday 1:30-3:30 (extended), Littauer basement lounge – Monday 4-6pm, Littauer basement conference room B Exam next Wednesday – Units IV-VI (Chapter 10-20)

Income Inequality

Measuring income inequality Trends over time Global Income Inequality Measuring poverty

Quintiles Definition: a population segment that contains exactly 20 percent, or one fifth of the population in question Easily digestible, standardized method of looking at income distribution

Quintiles: Household Income

Wealth Distribution

Lorenz Curve

Gini Coefficient Single number that measures income inequality Between 0 and 1 0 = Complete Income Equality (everyone has the same income) 1 = Complete Income Inequality (1 guy has it all, everyone else has nothing)

Lorenz Curve & Gini Coefficient Example What percent of total national income does 0% of the population receive?

Lorenz Curve & Gini Coefficient Example What percent of total national income does 20% of the population receive?

Quintiles: Household Income

Lorenz Curve & Gini Coefficient Example What percent of total national income does the poorest 20% of the population receive?

Quintiles: Household Income

Lorenz Curve & Gini Coefficient Example What percent of total national income does the poorest 40% of the population receive?

Quintiles: Household Income

Lorenz Curve & Gini Coefficient Example What percent of total national income does the poorest 60% of the population receive?

Quintiles: Household Income

Lorenz Curve & Gini Coefficient Example What percent of total national income does the poorest 80% of the population receive?

Lorenz Curve & Gini Coefficient Example What percent of total national income does the poorest 100% of the population receive?

Gini Coefficient =Area A / (Area A + Area B)

Lorenz Curve & Gini Coefficient Example Starting at 0% of the population… – What percent of total national income does 0% of the population receive? – 0% 20% Percentile – What percent of total national income does 20% of the population receive?

U.S. Gini Coefficient Over Time

What is driving increasing income inequality??

Income Inequality Around the World: Gini Coefficients

Income Before & After Taxes Source: Bureau of Labor Statistics (

Measuring Poverty Official government definition based on two calculations made in 1960s – First: calculated that a typical family spends 1/3 of income on food – Second: Expenditure for low-cost but nutrionally adequate diet calculated for different family sizes Multiply cost of food for family times 3 = poverty time Adjusted for changes in consumer prices One person: $10,590. Family of four: $21,203. Family of 8: $35,816

Critiques of Poverty Count Doesn't account for: – How far a person is below the poverty line poverty gap accounts for this: amount of money needed to bring a person up to the poverty line – Differences in cost of living – Benefits such as food stamps or health insurance. – Taxes paid Living standards depend on consumption, not income. Amartya Sen: differences in income requirements to achieve basic functioning. – Ex: If one person has a serious illness, requires a much greater level of income to achieve basic functioning

Wrap-Up Measurement: Gini Coefficient, Lorenz Curve, Poverty Line, Poverty Gap Global Trends: – Global Gini = 0.68 – US Gini = 0.41 Time Trends: – Income inequality: US: Decreased after Great Depression US: Increasing since 1970’s – Poverty Count High in 1960’s 11-15% since 1970’s

“Income inequality can be measured and compared using something called the Gini coefficient, a century-old formula that measures national economies on a scale from 0.00 to 0.50, with 0.50 being the most unequal.” -Max Fisher, The Atlantic, Sept 19, 2011.

“Income inequality can be measured and compared using something called the Gini coefficient, a century-old formula that measures national economies on a scale from 0.00 to 0.50, with 0.50 being the most unequal.” – Max Fisher, The Atlantic, Sept 19, Pop Quiz: Do Max Fisher and his editors need to (re)take Ec 10?