1. Chapter 12 Income Distribution, Poverty, and Discrimination
Lecture Slides
Economics for Today Irvin B. Tucker
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2. What is the purpose of this chapter?
To analyze the distribution of income, poverty, and wage discrimination.
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3. What has happened to the distribution of income recently?
The richest families have become a little richer and others a little poorer
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4. © 2011 South-Western, a part of Cengage Learning
Exhibit 1 Division of Total Annual Money Income Among Families, 2008
Percentage of Families
Highest 5%
21%
Highest fifth 48
Second-highest fifth 23 15
Middle fifth 10
Second-lowest fifth 4
Lowest fifth
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5. Exhibit 2 Median Income of Families 2008
Characteristics
Median Income
All Families
$61,521
Families headed by male
43,571
30,129
Families headed by female
Families with head aged years
52,845
Families headed by high school graduate
49,414
100,000
Families headed by at least bachelors degree 5
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6. Exhibit 3 Real Median Family Income, 1980-200863 61
Real Median 59
Family Income
(thousands of 2008 dollars per year) 57 55 53
2000
1980
1985
1990
1995
2005
2010
Year
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7. Exhibit 4 A Hypothetical Lorenz Curve 40 60 80 100 20
Perfect Equality Line 80 E 60
Cumulative Percentage of Money Income D C 40
Lorenz Curve (actual income distribution) 20 B A 40 60 80
100 20
Cumulative Percentage of Families
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8. © 2011 South-Western, a part of Cengage Learning
What is a Lorenz Curve?
A graph of the actual cumulative distribution of income compared to a perfectly equal cumulative distribution of income
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9. What does the Lorenz Curve show?
It has shifted only slightly inward, and therefore closer to the perfect equality line between 1929 and 2007
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10. Cumulative Percentage of Money Income
Exhibit 5 Lorenz Curves for Family Income Distribution in the U.S., 1929 and 2008
100
Perfect Equality Line 80 60
Cumulative Percentage of Money Income
2008 40
1929 20 40 60 80
100 20
Cumulative Percentage of Families
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11. © 2011 South-Western, a part of Cengage Learning
Exhibit 5 Lorenz Curves for Family Income Distribution in the U.S., 1929 and 2008
1929
2008
Percentage of Families
Percentage Share
Cumulative Share
Percentage Share
Cumulative Share
Lowest fifth % % % %
Second-lowest fifth
Middle fifth
Second-lowest fifth
Highest fifth
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12. Exhibit 6 Lorenz Curve for Selected Countries
100
Perfect Equality Line 80 60
Cumulative Percentage of Money Income
Czech Republic 40
Brazil 20
United States 40 60 80
100 20
Cumulative Percentage of Families
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13. © 2011 South-Western, a part of Cengage Learning
What is poverty?
Poverty can be defined in absolute terms or relative terms
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14. What is poverty in absolute terms?
A dollar figure that represents some level of income per year required to purchase some minimum amount of goods and services to meet basic needs
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15. What is poverty in relative terms?
A level of income that places a person or family in the lowest, say, 20 percent of all persons or families receiving income
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16. What is the poverty line?
The level of income below which a person or family is considered to be poor.
It is based on the cost of a minimal diet multiplied by three because low-income families spend about one-third of their income on food.
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17. © 2011 South-Western, a part of Cengage Learning
Exhibit 7(a)
Official Poverty Rates for all Persons
14%
14%
14%
13%
13%
13%
12%
11%
1970
1975
1980
1985
1990
1995
2000
2008
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18. © 2011 South-Western, a part of Cengage Learning
Exhibit 7(b)
Official Poverty Rates for African Americans
34%
33%
32%
31%
31%
29%
25%
22%
1970
1975
1980
1985
1990
1995
2000
2008
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19. © 2011 South-Western, a part of Cengage Learning
Exhibit 7(c)
Official Poverty Rates for Whites
10%
10%
10%
11%
11%
11% 9%
11%
1970
1975
1980
1985
1990
1995
2000
2008
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20. Percentage below the Poverty Line
Exhibit 8 Characteristics of U.S. Persons and Families Below the 2008 Poverty Level
Percentage below the Poverty Line
Characteristics
Region
South %
West
Northeast
Midwest
Type of Family
Headed by married couple
Headed by male, no wife
Headed by female, no husband
Education of Household Head
No high school diploma
High school diploma, no college
Bachelor’s degrees or more
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21. © 2011 South-Western, a part of Cengage Learning
Federal antipoverty programs are classified into two broad types of entitlements:
Cash assistance
In-kind transfers
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22. What are examples of cash transfer programs?
Social Security
Unemployment compensation
Temporary assistance to needy families (TANF)
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23. What are in-kind transfers?
Government payments in the form of goods and services, rather than cash
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24. What are some examples of in-kind transfers?
Medicare
Medicaid
Food stamps
Housing assistance
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25. What are some criticisms of welfare?
Work disincentives
Inefficiencies
Inequities
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26. What are some reform proposals?
Negative income tax
Workfare
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27. What is a negative income tax (NIT)?
A plan under which families below a certain break-even level of income would receive cash payments that decrease as their incomes increase
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28. Exhibit 9 A Negative Income Tax Plan10 5
Positive Tax
Tax Liability (thousands of dollars per year)
Negative Tax
- 5
-10
Family Income (thousands of dollars per year)
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29. © 2011 South-Western, a part of Cengage Learning
What is workfare?
To keep their benefits, welfare recipients must perform some work activities within two years of receiving welfare or risk losing benefits
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30. How does discrimination affect wages?
Discrimination in the workplace can cause the equilibrium wage to be lower for the group that is being discriminated against
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31. Exhibit 10(a) Market without discrimination
Market Supply
420
350
Wage Rate per day
280
245
210
140 70
Market Demand 4 8 12 14 20 24 28 16
Quantity of Labor
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(Thousands of workers per day)

32. © 2011 South-Western, a part of Cengage Learning
Exhibit 10(b) Market with discrimination
420
White Supply
350
Black supply
White Wage
280 .
Wage Rate per day
210
White demand
Black Wage
140
Black Demand 70 2 4 6 8 10 12
Quantity of Labor
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(thousands of workers per day)

33. What is comparable worth?
The principle that employees who work for the same employer must be paid the same wage when their jobs, even if different, require similar levels of education, training, experience, and responsibility
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34. END