1. Poverty and the Distribution of Income
Chapter 14, Section 4

2. “Cover Story” (pg. 394)
A large number of people live in poverty despite efforts of programs designed to decrease that population

3. Distribution of Income (pg. 395, Figure 14.7)
Incomes of households are ranked from highest to lowest and divided into quintiles (fifths)
Figure A – quintile data for 1980 and 2001
Does not include food stamps, medicaid, or subsidized housing

4. Distribution of Income (continued)
Panel B – Lorenz curve: shows how much actual distribution of income varies from an equal distribution
If households received exactly the same amount of income the Lorenz curve would be diagonal, but it isn’t diagonal because household income in not the same

5. Reasons for Income Inequality
Education
Some people have higher incomes because they have more education
Wealth
Distribution of wealth more unequal than distribution of income
Discrimination
“glass ceiling”
Women and minority groups driven into other labor markets where oversupply drives down wages

6. Reasons for Income Inequality (continued)
Ability
Professional athletes and performers have certain natural abilities
Monopoly Power
American Medical Association

7. Poverty
Poverty guidelines are annual dollar amounts used to evaluate the money income that families and unrelated individuals receive
2003, poverty was defined as an income of less than $18,400 for a family of 4

8. People in Poverty (pg. 397, Figure 14.8)
Nearly 35 million people (12.4 %) live in poverty
1/3 are white, 1/4 are African American, and 36 % are children (26% of the population)

9. The Growing Income Gap
Structural changes in the economy as industry changes from good production to service production
Growing gap between well-educated and poorly educated workers
Decline of unions
Changing structure of the American Family

10. Antipoverty Programs Income assistance General assistance
Provide direct cash assistance to those in need
Supplemental Security Income (SSI)
General assistance
Food stamps government issued coupons that can be redeemed for food
Medicaid
Social Service Programs
Child abuse prevention, foster care, family planning, child welfare, job training and day care
Tax Credits
Earned Income Tax Credits (EITC): first applied to federal taxes and then low-income workers can take remainder in cash

11. Antipoverty Programs (continued)
Enterprise zones
Areas where companies can locate free of some federal, state and local tax laws and other operating restrictions
Workfare programs
Requires recipients to exchange some of their labor for benefits
Negative income tax
Proposed type of tax that would make cash payments to certain groups below the poverty line
Individual Tax Liability:
Taxes = (25% of income) - $8,000

12. Per Capita Personal Income by State (pg. 399, Figure 14.9)
In what range was the per capita income in the state of Oklahoma (OK) in 2002?
What is the average annual growth percentage of real per capita personal income in the state of Colorado (CO)?