1. Poverty and Redistribution 18 Copyright ©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

2. LEARNING OUTCOMES 2 Copyright ©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. MICRO5 | CH18 1Identify reasons why incomes differ across households, and why the income gap has increased 2Summarize what has happened to the incidence of poverty since 1960, and determine when and why the greatest progress was made in reducing poverty 3Describe a primary source of poverty among families in the United States 4Outline some unintended consequences of efforts to reduce poverty 5Describe how the 1996 federal welfare reforms affected the number of people on welfare

3. 3 Copyright ©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. MICRO5 | CH18 Income Distribution by Quintiles Distribution of income U.S. households are ranked on the basis of income Five groups of equal size or quintiles Percentage of income received in 1980 Lowest fifth of the population -Received 4.3 percent of the income Highest fifth of the population -Received 43.7 percent of the income

4. 4 Copyright ©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. MICRO5 | CH18 Income Distribution by Quintiles (continued 1) Income is measured: After cash transfer payments are received Before taxes are paid Before in-kind transfers are received -Food vouchers -Medicare, Medicaid -Public housing -Employer-provided benefits

5. 5 Exhibit Copyright ©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. MICRO5 | CH18 1Share of Aggregate Household Income by Quintile, 1980-2013

6. 6 Copyright ©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. MICRO5 | CH18 Income Distribution by Quintiles (continued 2) Richest fifth of the population Increase in the share of income Received 51 percent of income in 2013 -Mainly because of the growth of two-earner households Poorest fifth of the population Decrease in the share of income Growth of single-parent households

7. 7 Copyright ©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. MICRO5 | CH18 The Lorenz Curve Percentage of total income received by any given percentage of households when incomes are arrayed from smallest to largest Equal distribution line: Shows an equal distribution of income among households Is a straight line with a slope equal to one

8. 8 Exhibit Copyright ©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. MICRO5 | CH18 2 Lorenz Curves Show That Income Was Less Evenly Distributed Across U.S. Households in 2013 Than in 1980 The Lorenz curve is a convenient way of showing the percentage of total income received by any given percentage of households when incomes are arrayed from smallest to largest. For example, point a shows that in 1980, the bottom 80 percent of households received 56.3 percent of all income. Point b shows that in 2013, the share of all income going to the bottom 80 percent of households was lower than in 1980. If income were evenly distributed across households, the Lorenz curve would be a straight line.

9. 9 Copyright ©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. MICRO5 | CH18 Why Incomes Differ Median income Middle income when incomes are ranked from lowest to highest In any given year, half the households are above the median income and half are below it

10. 10 Copyright ©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. MICRO5 | CH18 Why Incomes Differ (continued 1) Income differences occur because: Number of household members who are working differ -Median income of households with two earners is about 90 percent higher than for households with one earner Education, ability, job experience differ among workers Worker productivity differs

11. 11 Copyright ©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. MICRO5 | CH18 Why Incomes Differ (continued 2) High-income household Well-educated couple Both spouses are employed Low-income household One person living alone Family headed by a single-parent -Female, young, poorly educated, and not in the labor market

12. 12 Copyright ©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. MICRO5 | CH18 A College Education Pays More Median wage: Middle wage when wages are ranked from lowest to highest In the last 20 years Median wage for people with only high-school diplomas has decreased by 6 percent Median wage for people who have college degrees has increased by 12 percent Wage gap has widened due to: Industry deregulation, declining unionization, and freer international trade and migration

13. 13 Copyright ©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. MICRO5 | CH18 A College Education Pays More (continued) New computer-based information technologies and computer-controlled machinery -Reduced the demand for workers with low skills Supply of less-educated workers increased more than the supply of more educated workers -Increased the rewards of education Marriage trends

14. 14 Copyright ©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. MICRO5 | CH18 Problems with Distribution Benchmarks No objective standard for evaluating income distributions Money income neglects the effects of taxes and in-kind transfers -Measured after cash transfers but before taxes Household size differs across quintiles Includes only reported income Narrow definition of income

15. 15 Copyright ©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. MICRO5 | CH18 Redistribution Programs U.S. official poverty level Benchmark level of income computed by the federal government to track poverty over time Initially based on three times the cost of a nutritionally adequate diet Poverty definition is based on pretax money income -Includes cash transfers -Excludes the value of noncash transfers such as food vouchers, Medicaid, Medicare, subsidized housing, and employer-provided health insurance

16. 16 Copyright ©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. MICRO5 | CH18 Redistribution Programs (continued) Recessions Increased poverty Poverty rate was 14.5 percent in 2013 U.S. poverty level for a family of four in 2015 was $16.61 per person per day 40 percent of the world’s population lives on $2 a day or less

17. 17 Exhibit Copyright ©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. MICRO5 | CH18 3Number and Percentage of U.S. Population in Poverty Since 1959

18. 18 Copyright ©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. MICRO5 | CH18 Programs to Help the Poor Aim to promote a healthy economy through: Greater job opportunities Lower unemployment rate Antipoverty programs fall into two broad categories: Social insurance Income assistance

19. 19 Exhibit Copyright ©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. MICRO5 | CH18 4U.S. Poverty Rates and Unemployment Rates Are Related Over Time

20. 20 Copyright ©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. MICRO5 | CH18 Social Insurance Government programs designed to help make up for lost income of people who worked but are now: Retired Unemployed Unable to work because of disability or work- related injury Major program is Social Security

21. 21 Copyright ©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. MICRO5 | CH18 Social Insurance (continued 1) Social Security Supplements retirement income of those with a record of contributing to the program during their working years Largest government redistribution program Medicare Social insurance program that provides health insurance for short-term medical care -To older Americans, aged 65 years and above, regardless of income

22. 22 Copyright ©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. MICRO5 | CH18 Social Insurance (continued 2) Unemployment insurance Supports those who have lost jobs Workers’ compensation Supports workers injured on the job Social insurance system Deducts insurance premiums from workers’ pay Protects some families from poverty, particularly the elderly Aimed at those with a work history

23. 23 Copyright ©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. MICRO5 | CH18 Social Insurance (continued 3) Redistributes income: -From rich to poor -From young to old Current Social Security beneficiaries Receive far more in benefits than they ever paid into the program

24. 24 Copyright ©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. MICRO5 | CH18 Income Assistance Income assistance programs Welfare programs that provide money and in- kind assistance to the poor Benefits do not depend on prior contributions Means-tested program Individual’s income and assets must not exceed specified levels

25. 25 Copyright ©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. MICRO5 | CH18 Income Assistance (continued 1) There are two primary cash transfer programs: Temporary Assistance for Needy Families Supplemental Security Income Temporary Assistance for Needy Families (TANF) Provides cash to poor families with dependent children Funded largely by the federal government but run by the states

26. 26 Copyright ©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. MICRO5 | CH18 Income Assistance (continued 2) Supplemental Security Income (SSI): Provides cash to the elderly poor and the disabled Includes people addicted to drugs and alcohol, children with learning disabilities, and the homeless Provides an uniform federal payment that is supplemented by transfers that vary across states

27. 27 Copyright ©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. MICRO5 | CH18 Income Assistance (continued 3) Some other cash transfer programs General Assistance aid -Provided to the poor who do not qualify for TANF or SSI Earned-income tax credit -Supplements wages of the working poor

28. 28 Copyright ©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. MICRO5 | CH18 Income Assistance (continued 4) In-kind transfer programs Medicaid -Provides medical care for poor people -Most costly and largest welfare program Supplemental Nutrition Assistance Program (SNAP) -Offers low-income households vouchers redeemable for food -Benefit levels vary inversely with household income

29. 29 Copyright ©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. MICRO5 | CH18 Income Assistance (continued 5) Support for housing -Direct assistance for rental payments and subsidized low-income housing Day care School breakfasts and lunches Extra food for pregnant women Energy assistance Education and training such as Head Start

30. 30 Table Copyright ©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. MICRO5 | CH18 5Federal Redistribution Outlays Each Year by Category, 1962–2015

31. 31 Copyright ©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. MICRO5 | CH18 Who Are the Poor? Poverty among the elderly declined Due to a growth in spending for Social Security and Medicare Elderly have become a powerful political force Explains the reduction of poverty in this age group

32. 32 Exhibit Copyright ©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. MICRO5 | CH18 6U.S. Poverty Rates by Age Since 1959

33. 33 Copyright ©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. MICRO5 | CH18 Who Are the Poor? (continued 1) Feminization of poverty Poverty rates among families headed by females are much higher than rates among other families Poverty rates among female-headed households have trended down since the 1990s Growth in the number of people in female- headed households Percentage of births to unmarried mothers is five times greater today than in the 1960s 88 percent of teenagers who gave birth in 2010 were unmarried

34. 34 Exhibit Copyright ©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. MICRO5 | CH18 7Poverty Rates Are Much Higher for Families Headed by Females than for Married-Couple Families

35. 35 Exhibit Copyright ©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. MICRO5 | CH18 8Percent of Population Living in Poverty by State in 2013

36. 36 Copyright ©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. MICRO5 | CH18 Who Are the Poor? (continued 2) Racial discrimination may increase poverty among minorities Discrimination may occur in: School funding Housing Employment Career advancement Wage gap can be caused by Job discrimination and the quality of schooling

37. 37 Copyright ©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. MICRO5 | CH18 Who Are the Poor? (continued 3) Equal Employment Opportunity Commission Established by the Civil Rights Act of 1964 Monitors cases involving: -Unequal pay for equal work -Unequal access to promotion Affirmative action plans Numerical hiring, promotion, and training goals Ensure that firms do not discriminate in hiring on the basis of race, sex, religion, or national origin

38. 38 Copyright ©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. MICRO5 | CH18 Some Unintended Consequences of Income Assistance High marginal tax rate on earned income Discourages employment and self-sufficiency Welfare benefits can exceed income from full- time employment Long-term dependency on welfare: Deteriorates labor skills Reduces expected income Cycle of dependency Programs subject to fraud, abuse, clerical errors

39. 39 Copyright ©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. MICRO5 | CH18 Welfare Reforms “Workfare” component for welfare recipients Head of the household had to participate in education and training programs, search for work, etc. 1996 legislation replaced Aid to Families with Dependent Children (AFDC) with TANF TANF gave states more control over their welfare programs

40. 40 Copyright ©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. MICRO5 | CH18 Welfare Reforms (continued) Concerns about welfare dependency include: Time limit on cash transfers Work participation rates imposed by the federal government which require states to move a certain percentage of people from welfare to work

41. 41 Copyright ©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. MICRO5 | CH18 Welfare Rolls Have Declined Welfare reforms: Increased employment among mothers who head families Increased welfare spending per recipient Increased state investments in work-related services such as job placement, transportation, and child care Added earned-income tax credits to help low- income workers

42. 42 Exhibit Copyright ©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. MICRO5 | CH18 9Welfare Recipients as a Percentage of the U.S. Population Declined Sharply after 1996 Welfare Reforms

43. KEY TERMS 43 Copyright ©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. MICRO5 | CH18 Lorenz curve Median income Median wage U.S. official poverty level Social insurance Social Security Medicare Income assistance programs Means-tested program Temporary Assistance for Needy Families (TANF) Supplemental Security Income (SSI) Earned-income tax credit Medicaid SNAP

44. SUMMARY 44 Copyright ©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. MICRO5 | CH18 Income differences across households stem in part from differences in the number of workers in each household and from differences in education, productivity, etc. Biggest decline in poverty occurred before 1970 due to the social welfare programs of the government Feminization of poverty has been a noticeable trend since 1990s Efforts to reduce poverty can discourage employment and self-sufficiency Welfare rolls have declined since 1996

45. 45 MICRO5 | CH18 Copyright ©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.