Poverty and the Poverty and the Distribution of IncomeDistribution of Income

Chapter 14, Section 4Chapter 14, Section 4

““Cover Story” (pg. 394)Cover Story” (pg. 394)

A large number of people live in poverty A large number of people live in poverty despite efforts of programs designed to despite efforts of programs designed to decrease that populationdecrease that population

Distribution of IncomeDistribution of Income(pg. 395, Figure 14.7)(pg. 395, Figure 14.7)

Incomes of households are ranked from Incomes of households are ranked from highest to lowest and divided into quintiles highest to lowest and divided into quintiles (fifths)(fifths)

Figure A – quintile data for 1980 and 2001Figure A – quintile data for 1980 and 2001

Does not include food stamps, medicaid, Does not include food stamps, medicaid, or subsidized housingor subsidized housing

Distribution of IncomeDistribution of Income(continued)(continued)

Panel B – Panel B – Lorenz curveLorenz curve: shows how : shows how much actual distribution of income varies much actual distribution of income varies from an equal distributionfrom an equal distribution

If households received exactly the same If households received exactly the same amount of income the Lorenz curve would amount of income the Lorenz curve would be diagonal, but it isn’t diagonal because be diagonal, but it isn’t diagonal because household income in not the samehousehold income in not the same

Reasons for Income InequalityReasons for Income Inequality

1.1. EducationEducation– Some people have higher incomes because they Some people have higher incomes because they

have more educationhave more education

2.2. WealthWealth– Distribution of wealth more unequal than distribution Distribution of wealth more unequal than distribution

of incomeof income

3.3. DiscriminationDiscrimination– ““glass ceiling”glass ceiling”– Women and minority groups driven into other labor Women and minority groups driven into other labor

markets where oversupply drives down wagesmarkets where oversupply drives down wages

Reasons for Income InequalityReasons for Income Inequality(continued)(continued)

4.4. AbilityAbility– Professional athletes and performers have Professional athletes and performers have

certain natural abilitiescertain natural abilities

5.5. Monopoly PowerMonopoly Power– American Medical AssociationAmerican Medical Association

PovertyPoverty

Poverty guidelinesPoverty guidelines are annual dollar are annual dollar amounts used to evaluate the money amounts used to evaluate the money income that families and unrelated income that families and unrelated individuals receiveindividuals receive

2003, poverty was defined as an income 2003, poverty was defined as an income of less than $18,400 for a family of 4of less than $18,400 for a family of 4

People in PovertyPeople in Poverty(pg. 397, Figure 14.8)(pg. 397, Figure 14.8)

Nearly 35 million people (12.4 %) live in Nearly 35 million people (12.4 %) live in povertypoverty

1/3 are white, 1/4 are African American, 1/3 are white, 1/4 are African American, and 36 % are children (26% of the and 36 % are children (26% of the population) population)

The Growing Income GapThe Growing Income Gap

1.1. Structural changes in the economy as industry Structural changes in the economy as industry changes from good production to service changes from good production to service productionproduction

2.2. Growing gap between well-educated and Growing gap between well-educated and poorly educated workerspoorly educated workers

3.3. Decline of unionsDecline of unions

4.4. Changing structure of the American FamilyChanging structure of the American Family

Antipoverty ProgramsAntipoverty Programs

Income assistanceIncome assistance– Provide direct cash assistance to those in needProvide direct cash assistance to those in need– Supplemental Security Income (SSI)Supplemental Security Income (SSI)

General assistanceGeneral assistance– Food stampsFood stamps government issued coupons that can be redeemed for government issued coupons that can be redeemed for

foodfood– MedicaidMedicaid

Social Service ProgramsSocial Service Programs– Child abuse prevention, foster care, family planning, child welfare, job Child abuse prevention, foster care, family planning, child welfare, job

training and day caretraining and day care

Tax CreditsTax Credits– Earned Income Tax Credits (EITC): first applied to federal taxes and Earned Income Tax Credits (EITC): first applied to federal taxes and

then low-income workers can take remainder in cashthen low-income workers can take remainder in cash

Antipoverty ProgramsAntipoverty Programs(continued)(continued)

Enterprise zonesEnterprise zones– Areas where companies can locate free of some federal, state Areas where companies can locate free of some federal, state

and local tax laws and other operating restrictionsand local tax laws and other operating restrictions

Workfare programsWorkfare programs– Requires recipients to exchange some of their labor for benefitsRequires recipients to exchange some of their labor for benefits

Negative income taxNegative income tax– Proposed type of tax that would make cash payments to certain Proposed type of tax that would make cash payments to certain

groups below the poverty linegroups below the poverty line

Individual Tax Liability:Individual Tax Liability:

Taxes = (25% of income) - $8,000Taxes = (25% of income) - $8,000

Per Capita Personal Income by StatePer Capita Personal Income by State(pg. 399, Figure 14.9)(pg. 399, Figure 14.9)

In what range was the per capita income in In what range was the per capita income in the state of Oklahoma (OK) in 2002?the state of Oklahoma (OK) in 2002?

What is the average annual growth What is the average annual growth percentage of real per capita personal percentage of real per capita personal income in the state of Colorado (CO)?income in the state of Colorado (CO)?