1. 1 Labor Market Introductory Standard Analysis Introductory Standard Analysis Supply of labor Demand for labor Wages – real and nominal Market clears – wage flexibility The Evolution of Labor Markets Length of work day Age Restrictions Working Conditions Labor Movement International Labor

2. 2 Labor Market Segmented Market High Wage – High Skills Complex & Varied manipulation of Materials & Symbols Low Wage – Low skills Simple & repetitive manipulation of Materials & Symbols Discrimination Race Gender Age

3. 3 For Whom

4. 4 Income Flow of income Consumption and saving Wealth Stock of past income Income earning Measuring Income and its distribution How to measure income Real Nominal

5. 5 Distribution of Income Quintile Distribution (20 percent increments) 1998 Income % total Cumulative % Quintile family Income total Family Income Lowest 20% 3.6 3.6 Second 20% 9.0 12.6 Third 20% 15.0 27.6 Fourth 20% 23.2 50.8 Highest 20% 49.2 100.0 1970 Lowest 20% 5.9 5.9 Second 20% 11.0 16.9 Third 20% 17.3 34.2 Fourth 20% 23.0 57.2 Highest 20% 42.8 100.0

6. 6 Income Distribution 1970 - 2002 Quintile Distribution (20 percent increments) 1970 2002 Income % total Cumulative % Quintile family Income total Family Income Lowest 20% 5.9 3.5 5.9 3.5 Second 20%11.0 8.8 16.9 12.3 Third 20% 17.3 14.8 34.2 27.1 Fourth 20% 23.0 23.3 57.2 50.4 Highest 20% 42.8 49.7100.0 100.0

7. 7 Lorenz Curve of U.S. Income, 2003 A B Income Quintile Percentage of Total Family Income Cumulative Percentage of Total Family Income Lowest fifth Second fifth Third fifth Fourth fifth Highest fifth 3.4 % 8.712.1 14.8 26.9 23.4 50.3 49.8100.0 40 Cumulative percentage of income 100 80 60 20 0 406080100 Percentage of Population Lorenz Curve Income by Quintiles (fifths)

8. 8 Lorenz Curve & Gini Coefficient Lorenz Curve Gini Coefficient A 40 Cumulative percentage of income 100 80 60 20 0 406080100 Percentage of Population B A A + B

9. 9 Gini between 0 and 1 The bigger the Gini the less equal the distribution of income Examples A = 50 B = 60 Then Gini = 50 / 110 A = 80 B = 30 Then Gini = 80 /110 Gini Coeficient =.454 =.727 A A + B

10. 10 20 40 60 80 100 Percent Wealth Percent Families 90 80 70 60 50 40 30 20 10 Distribution of Wealth Bottom 5 th = -0.2 Second 5 th = 0.2 Third 5 th = 2.7 Fourth 5 th = 13.2 Top 5 th = 84.1

11. 11 Theories of Income Distribution Productivity Productivity Talent Talent Skills Skills Contribution Contribution Ambition Ambition Class Class Simple class theory Simple class theory Marx-class struggle Marx-class struggle Two classes Two classes Haves and have nots -- Haves and have nots -- Modern class theory Modern class theory Veblen Veblen Leisure Class Leisure Class Leisure and Industrial employments Leisure and Industrial employments Honorable (exploit) Honorable (exploit) Drudgery (industrial ) Drudgery (industrial ) Emulation Emulation

12. 12 Theories of Distribution Status Theory Status Theory Income is related to status Income is related to status Relation to values of society Relation to values of society Social Cohesion theory Social Cohesion theory Enduring tension Enduring tension Good for individual Good for individual Good for society Good for society Rent Seeking Rent Seeking What is rent What is rent

13. 13 Redistribution of Income Programs Programs Transfers Transfers Social Security Social Security Why Why How How Public Assistance Public Assistance AFDC –TANF AFDC –TANF Food Stamps Food Stamps Medicaid Medicaid General Assistance General Assistance SSI SSI