1. Chapter 20 Income Inequality, Poverty, and Discrimination
McGraw-Hill/Irwin
Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

2. Chapter Objectives Income inequality in the U.S.
Sources of income inequality
Income inequality since 1970
Economic arguments regarding income inequality
Poverty measurement and incidence
The U.S. income-maintenance program
Labor market discrimination
20-2

3. Facts About Income Inequality
Average household income
$66,570 in 2006
Among highest in the world
Distribution by quintiles
Income mobility
People change quintiles
Government redistribution
Taxes and transfers
20-3

4. Facts About Income Inequality
Distribution by Quintiles, 2006
(2)
Percentage of
Total Income
(3)
Upper
Income Limit
(1)
Quintile
Lowest 20%
Second 20%
Third 20%
Fourth 20%
Highest 20%
Total
3.4
8.6
14.5
22.9
50.5
100.0
$20,035
37,774
60,000
97,032
No Limit
Source: Bureau of the Census
20-4

5. Income Inequality Lorenz Curve and Gini Ratio Area A Gini Ratio =20 40 60 80
100 e
Lorenz Curve
(Actual Distribution)
Percentage of Households
Percentage of Income
Perfect Equality d A B c
Complete
Inequality b a f
Gini Ratio =
Area A
Area A + Area B
20-5

6. Government Redistribution20 40 60 80
100
Percentage of Households
Percentage of Income
Lorenz Curve
After Taxes and
Transfers
Lorenz Curve
Before Taxes and
Transfers
Impact of Government Taxes and Transfers
20-6

7. Causes of Income Inequality
Ability
Education and training
Discrimination
Preferences and risks
Unequal distribution of wealth
Market power
Luck, connections, and misfortune
20-7

8. Income Inequality Over Time
Rising income inequality since 1970
Causes of growing inequality
Greater demand for highly skilled workers
Demographic changes
International trade, immigration, and decline in unionism
20-8

9. Income Inequality
Percentage Total Income Received by Top One-Tenth of Receivers, Selected Nations 2007
Columbia
Brazil
South Africa
Guatemala
Mexico
United States
Italy
Japan
Sweden
Germany
Source: United Nations, Human Development Report, 2007/2008
20-9

10. The Economics of Poverty
Definition of poverty 2006
Single person < $9,800
Family of 4 < $20,000
Family of 6 < $26,800
36.5 million Americans
Poverty rate 12.3%
20-10

11. Incidence of Poverty
Poverty Rates Among Selected Population Groups, 2006
Female Householders
African Americans
Hispanics
Foreign-Born (Not Citizens)
Children Under 18
Women
Total Population
Asians
Whites
Men
Persons 65 or Over
Married-Couple Families
Full-Time Workers
20-11
Source: Bureau of the Census,

13. The Economics of Poverty
Poverty rate trends
Significant decline
Why?
Stable in 11-13% range since
Rises with recession
Recent increase
20-13

14. Poverty: A Historical Look

15. 2008: United States Poverty Map Darker Shades = Higher Poverty Rate

16. World Poverty Rates
0-10%
10-20%
20-30%
30-40%
40-50%
50-60%
>60%

17. ANTI-POVERTY PROGRAMS
Old Age, Survivors, Disability and Health Insurance Act (Social Security Act): Federal social insurance program that provides monthly benefits to qualified retirees, their dependents, their survivors, and, in some cases, disabled workers.
Medicare: Assists senior citizens with medical payments.
Unemployment Compensation: Pays people who have lost their jobs and are looking for new employment.

18. ANTI-POVERTY PROGRAMS
Supplemental Security Income (SSI) SSI makes monthly payments to people who have low income and few resources and are: Age 65 or older; Blind; or Disabled.
Temporary Assistance for Needy Families: This is what is typically referred to as “welfare.”
Food-stamp program
Medicaid: This programs provides assistance with medical payments to families that fall beneath the poverty threshold.
Earned-income Tax Credit (EITC): This program provides a tax credit for earned income, as an incentive to go to work.

19. Conflicts Among Goals Eliminating Poverty Maintaining Work Incentives
Could we totally eliminate poverty? How?
If so, what might happen to our economy?
Maintaining Work Incentives
Being on welfare should not be pleasant.
You should want to return to work a.s.a.p.
Holding Down Costs
The money you use to fund welfare is coming out of the pockets of the taxpayers.