Government and Households

Chapter 9

What makes poor ‘poor’?

What should government do?

How do you define poverty?

• Poverty is defined in terms of income.

• Depends on the number of people in a household and whether they live in a farm / nonfarm household.

2004 HHS Poverty Guidelines

Size ofFamily Unit

48 ContiguousStates and D.C. Alaska Hawaii

1 $ 9,310 $11,630 $10,700

2 12,490 15,610 14,360

3 15,670 19,590 18,020

4 18,850 23,570 21,680

5 22,030 27,550 25,340

6 25,210 31,530 29,000

7 28,390 35,510 32,660

8 31,570 39,490 36,320For each additional

person, add 3,180  3,980  3,660

SOURCE:  Federal Register, Vol. 69, No. 30, February 13, 2004, pp. 7336-7338.

What percentage live in poverty?

• The number of people below the official poverty thresholds numbered 35.9 million in 2003, or 1.3 million more than in 2002, for a 2003 poverty rate of 12.5 percent. Although up from 2002, this rate is below the average of the 1980s and 1990s.

Where is poverty in the US?

• Real median household income remained unchanged between 2002 and 2003 in three of the four census regions — – Northeast ($46,742)

– Midwest ($44,732)

– West ($46,820).

Where is poverty in the US

• The exception was the South, where income declined 1.5 percent.

• The South continued to have the lowest median household income of all four regions ($39,823).

Who is affected by our economic situation?

• Native households had a real median income in 2003 ($44,347), not different from that in 2002.

• Foreign-born households experienced a real decline of 3.5 percent to $37,499.

Who is affected by our economic situation?

• Real median earnings of men age 15 and older who worked full-time, year-round in 2003 ($40,668) remained unchanged from 2002.

• Women with similar work experience saw their earnings decline — 0.6 percent to $30,724 — their first annual decline since 1995.

Who is affected by our economic situation?

• As a result, the ratio of female-to-male earnings for full-time, year-round workers was 76 cents for every dollar in 2003,

• down from 77 cents for every dollar in 2002.

Measuring Income Inequality

• Lorenz Curve• Gini Index

Lorenz Curve

• The line of equality:– Each 20% should

control 20% of the income in the US.

– The further from the line of equality, the Lorenz Curve shows

Gini Index

• Measures the degree of income inequality.

• Area enclosed by the Lorenz Curve and the diagonal.

Gini Index

• when the Gini Index is g, and the society can be divided into the rich layer and the poor layer by r : 1-r, the share of the rich layer income becomes r+g, and it makes us know the degree of inequality.

Standard of Gini Index

-0.1There is an artificial backgroundfor leveling.

0.1-0.2Though considerably equal,there is an anxiety to obstruct the effort to the improvement.

0.2-0.3Usual distribution type that exists in general in society

0.3-0.4Though there are some differences,there is also a desirable respect in the improvement through competition.

0.4-0.5 The difference is serious.

0.5-The improvement is requiredexcept under special circumstances

HDI Rank Country Inequality measures - Gini index

1

   

                  

   

     

1 Norway 25.8

2 Iceland ..

3 Sweden 25.0

4 Australia 35.2

5 Netherlands 32.6

 

6 Belgium 25.0

7 United States 40.8

8 Canada 31.5

9 Japan 24.9

10 Switzerland 33.1

166 Guinea-Bissau 47.0

167 Congo, Dem. Rep. of the ..

168 Central African Republic 61.3

169 Ethiopia 48.6

170 Mozambique 39.6

 

171 Burundi 33.3

172 Mali 50.5

173 Burkina Faso 48.2

174 Niger 50.5

175 Sierra Leone 62.9

US Gini Index History

• 1970: 0.394 • 1980: 0.403 • 1990: 0.428 • 2004: 0.408

What does government do to reduce poverty?

• Unequal distribution of income

• Differences in technology

• Differences in employee skills– Dual Labor Market

What does government do to reduce poverty?

• Lack of human capital– Education and Skills

• Discrimination– Affirmative Action

• Inability to work and earn income– Age, disabled, health

– SS, SSI, Medicare, Medicaid

What is the answer to poverty?

• Supplementary Security Income: - Designed to help poor people who are aged, blind, disabled.

• Transfer payments – no goods or services exchanged.– Welfare and SS examples

• TANF: Temporary Assistance for Needy Families

What is the answer to poverty?

• Workfare – required welfare recipients to work at public service hours a month for pay.– Includes job training

• Earned Income Tax Credit– Federal tax credit for poor

families.

• Food Stamps – certificates in exchange for food.

• Medicaid – helps long term medical needs.

What does the government do to help older Americans?

• Social Security• Medicare• Medicaid• Social Insurance –

programs to maintain people’s incomes so that they do not fall into poverty.

What does the government do to help older Americans?

Social Security ReformDefined benefits retirement plan

Individual retirement account (IRA)special tax treatment as long as funds are not withdrawn until retirement.

Defined contributions retirement planParticipants contribute amount of income.401K plans

What is the role of government in protecting consumers and

workers?• Consumer Protection

– FDA (Food and Drug Administration)

– CPSC (Consumer Product safety Commission)

– FTC (Federal Trade Commission)

– SEC (Securities and Exchange Commission)

What role does government play in protecting workers?

• Worker Protection– OSHA (Occupational

Safety and Health Administration)