1. Economics: Principles and Applications, 2e by Robert E
Economics: Principles and Applications, 2e by Robert E. Hall & Marc Lieberman

2. Chapter 12: Income Inequality

3. Compensating Differentials Differences in Ability
Why Do Wages Differ?
An Imaginary World
Compensating Differentials
Differences in Ability
Barriers to Entry
Union Wage Setting

4. Compensating Wage Differential
Why Do Wages Differ?
Compensating Wage Differential
A difference in wages that makes two jobs equally attractive to a worker.

5. Why Do Wages Differ?
Nonmonetary characteristics give rise to compensating wage differentials. Jobs considered intrinsically less attractive will tend to pay higher wages, other things equal.

6. Why Do Wages Differ?
Those with greater talent, intelligence, or perseverance will be more productive and generate more revenue for firms. Thus, firms will be willing to pay them a higher wage.

7. Why Do Wages Differ?
Through an increase in member wages and a decrease in nonmember wages, unions create a wage differential between union and nonunion markets.

8. Discrimination and Wages
Employer Prejudice
Employee and Customer Prejudice
Statistical Discrimination

9. Discrimination and Wages
Dealing with Discrimination
Discrimination and Wage Differentials

10. Discrimination and Wages
When a group of people have different opportunities because of personal characteristics that have nothing to do with their abilities.

11. Discrimination and Wages
When prejudice originates with employers, market forces work to discourage discrimination and reduce or eliminate any wage gap.

12. Discrimination and Wages
When prejudice originates with the firm’s employees or its customers, market forces encourage discrimination and can lead to a permanent wage gap.

13. Discrimination and Wages
Statistical Discrimination
When individuals are excluded from an activity based on the statistical probability of behavior in their group.

14. Measuring Income Inequality
The Poverty Rate
The Lorenz Curve
Problems with Inequality Measures

15. Measuring Income Inequality
Poverty Line
The income level below which a family is considered to be in poverty.

16. Measuring Income Inequality
Poverty Rate
The percent of families whose incomes fall below a certain minimum--the poverty line.

17. Measuring Income Inequality
Lorenz Curve
When households are arrayed according to their incomes, a line showing the cumulative percent of income received by each cumulative percent of households.

18. Measuring Income Inequality
Gini Coefficient
A measure of income inequality; the ratio of the area above a Lorenz curve and under the complete equality line to the area under the diagonal.

19. Measuring Income Inequality
Problems with Inequality Measures
Earned Income Versus
Available Income
Income Mobility
Careless Interpretations

20. Income Inequality, Fairness, & Economics
Inequality that results from choices that any of us can make is generally regarded as fair.