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34 - 1Copyright McGraw-Hill/Irwin, 2002
Facts About Income Inequality
The Lorenz Curve
Causes of Income Inequality
Trends in Income Inequality
Equality versus Efficiency
The Economics of Poverty
The Income Maintenance System
Welfare: Goals and Conflicts
Key Terms
PreviousSlide
NextSlide
EndShow
INCOME INEQUALITYAND POVERTY
34C H A P T E R
34 - 2Copyright McGraw-Hill/Irwin, 2002
Facts About Income Inequality
The Lorenz Curve
Causes of Income Inequality
Trends in Income Inequality
Equality versus Efficiency
The Economics of Poverty
The Income Maintenance System
Welfare: Goals and Conflicts
Key Terms
PreviousSlide
NextSlide
EndShow
Distribution of U.S. Personal Income by Families, 1999
Personal Income Category
Percentage of All Families in This Category
Under $10,000$10,000 - $14,999$15,000 - $24,999$25,000 - $34,999$35,000 - $49,999$50,000 - $74,999$75,000 - $99,999$100,000 and over
5.7 4.8 12.0 11.9 16.5 21.2 12.7 15.2100.0
FACTS ABOUT INCOME INEQUALITY1999 U.S. Average Family Income $62,636
34 - 3Copyright McGraw-Hill/Irwin, 2002
Facts About Income Inequality
The Lorenz Curve
Causes of Income Inequality
Trends in Income Inequality
Equality versus Efficiency
The Economics of Poverty
The Income Maintenance System
Welfare: Goals and Conflicts
Key Terms
PreviousSlide
NextSlide
EndShow
The Lorenz Curvegraphically...
Distribution of Personal Income by Quintiles, 1999Percentage of Total Income
UpperIncome Limit
$22,826 39,600 59,400 88,082
4.3 9.9 15.6 23.0 47.2100.0
FACTS ABOUT INCOME INEQUALITY
Quintile
Lowest 20%Second 20%Third 20%Fourth 20%Highest 20%Total
34 - 4Copyright McGraw-Hill/Irwin, 2002
Facts About Income Inequality
The Lorenz Curve
Causes of Income Inequality
Trends in Income Inequality
Equality versus Efficiency
The Economics of Poverty
The Income Maintenance System
Welfare: Goals and Conflicts
Key Terms
PreviousSlide
NextSlide
EndShow
20 40 60 80 100
100
80
60
40
20
0
Percent of Families
Per
cen
t o
f In
com
e Perfect Equality
CompleteInequality
THE LORENZ CURVE
34 - 5Copyright McGraw-Hill/Irwin, 2002
Facts About Income Inequality
The Lorenz Curve
Causes of Income Inequality
Trends in Income Inequality
Equality versus Efficiency
The Economics of Poverty
The Income Maintenance System
Welfare: Goals and Conflicts
Key Terms
PreviousSlide
NextSlide
EndShow
20 40 60 80 100
100
80
60
40
20
0
Percent of Families
Per
cen
t o
f In
com
e Perfect Equality
CompleteInequality
Lorenz Curve (actual distribution)
Area betweenthe lines shows
the degree ofincome inequality
THE LORENZ CURVE
34 - 6Copyright McGraw-Hill/Irwin, 2002
Facts About Income Inequality
The Lorenz Curve
Causes of Income Inequality
Trends in Income Inequality
Equality versus Efficiency
The Economics of Poverty
The Income Maintenance System
Welfare: Goals and Conflicts
Key Terms
PreviousSlide
NextSlide
EndShow
20 40 60 80 100
100
80
60
40
20
0
Percent of Families
Per
cen
t o
f In
com
e Perfect Equality
CompleteInequality
Lorenz Curve (actual distribution)
Area betweenthe lines shows
the degree ofincome inequality
THE LORENZ CURVE
Limitations due to Income Mobility:
The Time Dimension – Income churning over longer
time periods is evident
34 - 7Copyright McGraw-Hill/Irwin, 2002
Facts About Income Inequality
The Lorenz Curve
Causes of Income Inequality
Trends in Income Inequality
Equality versus Efficiency
The Economics of Poverty
The Income Maintenance System
Welfare: Goals and Conflicts
Key Terms
PreviousSlide
NextSlide
EndShow
20 40 60 80 100
100
80
60
40
20
0
Percent of Families
Per
cen
t o
f In
com
e Perfect Equality
CompleteInequality
Lorenz Curve (actual distribution)
Area betweenthe lines shows
the degree ofincome inequality
THE LORENZ CURVE
Effect of governmentredistribution of cash and
noncash transfers
34 - 8Copyright McGraw-Hill/Irwin, 2002
Facts About Income Inequality
The Lorenz Curve
Causes of Income Inequality
Trends in Income Inequality
Equality versus Efficiency
The Economics of Poverty
The Income Maintenance System
Welfare: Goals and Conflicts
Key Terms
PreviousSlide
NextSlide
EndShow
20 40 60 80 100
100
80
60
40
20
0
Percent of Families
Per
cen
t o
f In
com
e Perfect Equality
CompleteInequality
Lorenz Curve (actual distribution)
Area betweenthe lines shows
the degree ofincome inequality
THE LORENZ CURVE
Lorenz curveafter taxes and
transfers
34 - 9Copyright McGraw-Hill/Irwin, 2002
Facts About Income Inequality
The Lorenz Curve
Causes of Income Inequality
Trends in Income Inequality
Equality versus Efficiency
The Economics of Poverty
The Income Maintenance System
Welfare: Goals and Conflicts
Key Terms
PreviousSlide
NextSlide
EndShow
Ability DifferencesEducation and TrainingDiscriminationPreferences and RisksUnequal Distribution of
WealthMarket PowerLuck, Connections, and
Misfortune
CAUSES OF INCOME INEQUALITY
34 - 10Copyright McGraw-Hill/Irwin, 2002
Facts About Income Inequality
The Lorenz Curve
Causes of Income Inequality
Trends in Income Inequality
Equality versus Efficiency
The Economics of Poverty
The Income Maintenance System
Welfare: Goals and Conflicts
Key Terms
PreviousSlide
NextSlide
EndShow
TRENDS IN INCOME INEQUALITY
1929 - 1947Significant reduction in income inequality
1947 - 1969Less inequality but at a slower pace
1969 - 1999More unequal since 1969
34 - 11Copyright McGraw-Hill/Irwin, 2002
Facts About Income Inequality
The Lorenz Curve
Causes of Income Inequality
Trends in Income Inequality
Equality versus Efficiency
The Economics of Poverty
The Income Maintenance System
Welfare: Goals and Conflicts
Key Terms
PreviousSlide
NextSlide
EndShow
South AfricaBrazil
GuatemalaMexico
United StatesFrance
ItalyNorway
30 40 50 60 70
GLOBAL PERSPECTIVEPercentage of Total Income ReceivedBy Top One-Fifth of Income Receivers,Selected Nations
Source: World Development Report, 2000
34 - 12Copyright McGraw-Hill/Irwin, 2002
Facts About Income Inequality
The Lorenz Curve
Causes of Income Inequality
Trends in Income Inequality
Equality versus Efficiency
The Economics of Poverty
The Income Maintenance System
Welfare: Goals and Conflicts
Key Terms
PreviousSlide
NextSlide
EndShow
Greater Demand for
Highly Skilled Workers
Demographic Changes
International Trade •Immigration•Decline in Unionism
CAUSES OF GROWING INEQUALITY
34 - 13Copyright McGraw-Hill/Irwin, 2002
Facts About Income Inequality
The Lorenz Curve
Causes of Income Inequality
Trends in Income Inequality
Equality versus Efficiency
The Economics of Poverty
The Income Maintenance System
Welfare: Goals and Conflicts
Key Terms
PreviousSlide
NextSlide
EndShow
EQUALITY VERSUS EFFICIENCY
The Case for Equality
Maximizing Total Utility
The Case for Inequality
Incentives and Efficiency
Tradeoff Between Equality
and Efficiency
34 - 14Copyright McGraw-Hill/Irwin, 2002
Facts About Income Inequality
The Lorenz Curve
Causes of Income Inequality
Trends in Income Inequality
Equality versus Efficiency
The Economics of Poverty
The Income Maintenance System
Welfare: Goals and Conflicts
Key Terms
PreviousSlide
NextSlide
EndShow
THE ECONOMICS OF POVERTY
Poverty Defined – 1999
Single $ 8, 501
Family of 4
17,029
Family of 6
22,727
11.8% in U.S. Live in Poverty
32.3 Million People
34 - 15Copyright McGraw-Hill/Irwin, 2002
Facts About Income Inequality
The Lorenz Curve
Causes of Income Inequality
Trends in Income Inequality
Equality versus Efficiency
The Economics of Poverty
The Income Maintenance System
Welfare: Goals and Conflicts
Key Terms
PreviousSlide
NextSlide
EndShow
THE ECONOMICS OF POVERTY
Incidence of PovertyPoverty RatePoverty TrendsThe “Invisible” Poor
•Short-Periods of Time•Geographic Isolation•Politically Invisible – Are Easy to Ignore
34 - 16Copyright McGraw-Hill/Irwin, 2002
Facts About Income Inequality
The Lorenz Curve
Causes of Income Inequality
Trends in Income Inequality
Equality versus Efficiency
The Economics of Poverty
The Income Maintenance System
Welfare: Goals and Conflicts
Key Terms
PreviousSlide
NextSlide
EndShow
0 10 20 30 40 50
Married-couple familiesPersons 65 or over
WhitesTotal population
Children under 18Foreign-born (not citizens)
HispanicsBlacks
Female-headed families
PERCENTAGE IN POVERTY
1999 Data
34 - 17Copyright McGraw-Hill/Irwin, 2002
Facts About Income Inequality
The Lorenz Curve
Causes of Income Inequality
Trends in Income Inequality
Equality versus Efficiency
The Economics of Poverty
The Income Maintenance System
Welfare: Goals and Conflicts
Key Terms
PreviousSlide
NextSlide
EndShow
THE INCOME-MAINTENANCE SYSTEM
Social Insurance Programs
OASDHI$386 Billion
Medicare$210 Billion
Unemployment Compensation$20 Billion
Entitlement Programs
34 - 18Copyright McGraw-Hill/Irwin, 2002
Facts About Income Inequality
The Lorenz Curve
Causes of Income Inequality
Trends in Income Inequality
Equality versus Efficiency
The Economics of Poverty
The Income Maintenance System
Welfare: Goals and Conflicts
Key Terms
PreviousSlide
NextSlide
EndShow
THE INCOME-MAINTENANCE SYSTEM
Public Assistance ProgramsSupplemental Security Income (SSI)
$29 Billion
Temporary Assistance for Needy Families $23 Billion
Food-stamp program $20 BillionMedicaid $124 BillionEarned-income Tax Credit (EITC)
$30 Billion
Entitlement Programs
34 - 19Copyright McGraw-Hill/Irwin, 2002
Facts About Income Inequality
The Lorenz Curve
Causes of Income Inequality
Trends in Income Inequality
Equality versus Efficiency
The Economics of Poverty
The Income Maintenance System
Welfare: Goals and Conflicts
Key Terms
PreviousSlide
NextSlide
EndShow
Common Features•Minimum Annual Income
•Benefit-Reduction RateConflicts Among Goals
•Eliminating Poverty•Maintaining Work Incentives
•Holding Down Costs
WELFARE: GOALS AND CONFLICTS
34 - 20Copyright McGraw-Hill/Irwin, 2002
Facts About Income Inequality
The Lorenz Curve
Causes of Income Inequality
Trends in Income Inequality
Equality versus Efficiency
The Economics of Poverty
The Income Maintenance System
Welfare: Goals and Conflicts
Key Terms
PreviousSlide
NextSlide
EndShow
Welfare ReformGrowing Government DependencePersonal Responsibility Act 1996Temporary Assistance to Needy
Families• 5 Year Lifetime Limit• Must Work After 2 Years• Reduced Food-Stamp Eligibility
• Tightened Some Definitions• 5 Year Waiting Period on New Legal Immigrants
WELFARE: GOALS AND CONFLICTS
34 - 21Copyright McGraw-Hill/Irwin, 2002
Facts About Income Inequality
The Lorenz Curve
Causes of Income Inequality
Trends in Income Inequality
Equality versus Efficiency
The Economics of Poverty
The Income Maintenance System
Welfare: Goals and Conflicts
Key Terms
PreviousSlide
NextSlide
EndShow
Welfare ReformGrowing Government DependencePersonal Responsibility Act 1996Temporary Assistance to Needy
Families• 5 Year Lifetime Limit• Must Work After 2 Years• Reduced Food-Stamp Eligibility
• Tightened Some Definitions• 5 Year Waiting Period on New Legal Immigrants
WELFARE: GOALS AND CONFLICTS
ChapterConclusions
income inequalityLorenz curveincome mobilitynoncash transferstradeoff between equality
and efficiencypoverty rateentitlement programssocial insurance programsOASDHIMedicare
unemployment compensation
public assistance programs
Supplemental Security Income (SSI)
Temporary Assistance for Needy Families (TANF)
food-stamp program
Medicaid
earned-income tax credit (EITC)
ENDBACKCopyright McGraw-Hill/Irwin 2002
34 - 23Copyright McGraw-Hill/Irwin, 2002
Facts About Income Inequality
The Lorenz Curve
Causes of Income Inequality
Trends in Income Inequality
Equality versus Efficiency
The Economics of Poverty
The Income Maintenance System
Welfare: Goals and Conflicts
Key Terms
PreviousSlide
NextSlide
EndShow
Next:
Labor Market IssuesChapter 35
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