CONTEMPORARY ECONOMICS: LESSON 3.4 © SOUTH-WESTERN1

LESSON 3.4

Providing a Safety Net Determine why incomes differ across

households, and identify the main source of poverty in the United States.

Describe government programs that provide a safety net for poor people.

Objectives

CONTEMPORARY ECONOMICS: LESSON 3.4 © SOUTH-WESTERN2

LESSON 3.4

Providing a Safety Net median income social insurance income-assistance programs

Key Terms

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Income and Poverty

In a market economy, income depends primarily on earnings, which depend on the value of each person’s contribution to production

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Why Household Incomes Differ The median income of households is

the middle income when incomes are ranked from lowest to highest.

The main reason household incomes differ is that the number of household members who are working differs.

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Official Poverty Rate

The federal government determines the official poverty level and adjusts this benchmark over time to account for inflation.

The U.S. official property level of income is many times greater than the average income for most of the world’s population.

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Number and Percentage of U.S. Population in Poverty: 1959–2001

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Poverty and Marital Status

Poverty rates among female-headed families are five to six times greater than rates among married couples.

Poverty rates among female-headed families are two to three times greater than those for male-headed families.

Since the mid-1990s poverty rates have trended down for all types of families, before rising slightly in the recession year of 2001.

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U.S. Poverty Rates and Types of Households

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Programs to Help the Poor

Social insurance Income-assistance programs Earned-income tax credit Welfare reform

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Social Insurance

Social insurance programs are designed to help make up for the lost income of people who worked but are now Retired Temporarily unemployed Unable to work because of disability or

work-related injury

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Social Insurance Programs

Social Security Medicare Unemployment insurance Worker’s compensation

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Income-Assistance Programs Income-assistance programs provide

money and in-kind assistance to poor people.

Cash transfer programs In-kind transfer programs

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Earned-income tax credit

Supplements wages of the working poor

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Welfare Reform

Temporary Assistance for Needy Families (TANF)

Welfare reform has reduced welfare rolls and increased employment.

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Income Redistribution—Composition of Federal Outlays