AP Economics Mr. Bernstein Module 78: Income Distribution and Income Inequality December 2015

AP Economics Mr. Bernstein Poverty First arbitrary definition attempted in 1960’s Rises and falls with changes in economy No trend line – poverty higher in 2009 than 1973 Not spread evenly across population demographics Caused by anything creating a barrier to full-time job with decent pay Education or training opportunities Language Discrimination Bad Luck Consequences for Health, Learning 2

AP Economics Mr. Bernstein Poverty 3

AP Economics Mr. Bernstein Income Inequality: Quintile Analysis 4

AP Economics Mr. Bernstein Income Inequality: Gini Coefficient Developed by Corrado Gini in 1912 Gini Coefficient = 0, income is distributed equally, as in column 3 Gini Coefficient = 1, all income goes to one person (!) 5

AP Economics Mr. Bernstein Income Inequality: Gini Coefficient 6

AP Economics Mr. Bernstein Income Inequality: Gini Coefficient 7

AP Economics Mr. Bernstein Economic Insecurity and Antipoverty Programs To avoid families falling into poverty, welfare state provides temporary assistance programs Means-tested programs Criteria determines eligibility for benefits (ie income) Social Security, Unemployment Insurance Progressive Taxes + Welfare System Redistributes income (reduces Gini Coefficient) 8

AP Economics Mr. Bernstein The Debate Over Income Redistribution Is this a legitimate role of the government? Higher taxes to fund programs create DWL Means-tested programs and “The Notch” Example: Single Mom earns $5,000 in benefits if income $15,000 If she currently earns $14,900, will she work overtime and earn an additional $1,000? Phase-out levels reduce Notch effects Are disincentives larger than consequences of poverty? Economics can help calculate numbers but it often winds up being a question of values and philosophy (Normative) 9