Chapter 27 Income Inequality and Poverty

Facts Income Inequality Income Inequality million (14.3%) in poverty million (14.3%) in poverty 500,000 homeless 500,000 homeless George Lucas made $400 million George Lucas made $400 million Income distribution Income distribution Median family income $49777 Median family income $49777 Top 20% receive more than half of income Top 20% receive more than half of income Lorenz Curve – measures income distribution Lorenz Curve – measures income distribution Gini Coefficient measures degree of inequality = area between line and curve/ triangle Gini Coefficient measures degree of inequality = area between line and curve/ triangle

Causes of Income Inequality Ability differences Ability differences Work and Leisure choices Work and Leisure choices Education and training Education and training Productivity Productivity Discrimination in hiring, education, promotions and wages Discrimination in hiring, education, promotions and wages Differences in risk and tastes Differences in risk and tastes Distribution of wealth Distribution of wealth Inheritance Inheritance Market power Market power Luck and connections Luck and connections Age Age

Poverty Poverty – family’s basic needs are greater than the means to satisfy them Poverty – family’s basic needs are greater than the means to satisfy them Poverty Line = Food x 3 =$22,025(2008) Poverty Line = Food x 3 =$22,025(2008) Poverty Rate = % of families below poverty line = 14.3% Poverty Rate = % of families below poverty line = 14.3% Who are the poor? Who are the poor? Nonwhite Nonwhite Female headed families (single parent, large families) Female headed families (single parent, large families) Foreign born Foreign born Low education Low education Urban Urban South South Comparison Comparison Refrigerators (96%) Refrigerators (96%) TV (95%) TV (95%) Cars (77%) Cars (77%)

Income Maintenance Robin Hood Effect Social Insurance programs Social Insurance programs Social security Social security Unemployment Compensation Unemployment Compensation Medicare (elderly) Medicare (elderly) Public Assistance – provide peoples basic needs Public Assistance – provide peoples basic needs Welfare Welfare Goals - eliminate poverty and provide work incentives at a reasonable costs Goals - eliminate poverty and provide work incentives at a reasonable costs Programs Programs TANF – Temporary Aid to Needy Families (reform of 1996) TANF – Temporary Aid to Needy Families (reform of 1996) Nonwelfare programs Nonwelfare programs Supplemental Income (disabled, elderly or blind) Supplemental Income (disabled, elderly or blind) Day care centers Day care centers Earned Income tax credit – refund for low income families Earned Income tax credit – refund for low income families Medicaid Medicaid Food stamps Food stamps Housing programs Housing programs