Chapter 27Chapter 27

Income Inequality and PovertyIncome Inequality and Poverty

FactsFacts

Income InequalityIncome Inequality 20092009

39.83 million (14.3%) in poverty39.83 million (14.3%) in poverty 500,000 homeless500,000 homeless George Lucas made $400 millionGeorge Lucas made $400 million

Income distributionIncome distribution Median family income $49777Median family income $49777 Top 20% receive more than half of incomeTop 20% receive more than half of income

Lorenz Curve – measures income distributionLorenz Curve – measures income distribution Gini Coefficient measures degree of inequality Gini Coefficient measures degree of inequality

= area between line and curve/ triangle= area between line and curve/ triangle

Causes of Income InequalityCauses of Income Inequality Ability differencesAbility differences Work and Leisure choicesWork and Leisure choices Education and trainingEducation and training

ProductivityProductivity Discrimination in hiring, education, promotions Discrimination in hiring, education, promotions

and wagesand wages Differences in risk and tastesDifferences in risk and tastes Distribution of wealthDistribution of wealth

InheritanceInheritance Market powerMarket power Luck and connectionsLuck and connections AgeAge

PovertyPoverty Poverty – family’s basic needs are greater than the means to satisfy Poverty – family’s basic needs are greater than the means to satisfy

themthem Poverty Line = Food x 3 =$22,025(2008)Poverty Line = Food x 3 =$22,025(2008) Poverty Rate = % of families below poverty line = 14.3%Poverty Rate = % of families below poverty line = 14.3% Who are the poor?Who are the poor?

NonwhiteNonwhite Female headed families (single parent, large families)Female headed families (single parent, large families) Foreign bornForeign born Low educationLow education UrbanUrban SouthSouth

ComparisonComparison Refrigerators (96%)Refrigerators (96%) TV (95%)TV (95%) Cars (77%)Cars (77%)

Income Maintenance Income Maintenance Robin Hood EffectRobin Hood Effect

Social Insurance programsSocial Insurance programs Social securitySocial security Unemployment CompensationUnemployment Compensation Medicare (elderly)Medicare (elderly)

Public Assistance – provide peoples basic needsPublic Assistance – provide peoples basic needs WelfareWelfare

Goals - eliminate poverty and provide work incentives at a Goals - eliminate poverty and provide work incentives at a reasonable costsreasonable costs

ProgramsPrograms TANF – Temporary Aid to Needy Families (reform of TANF – Temporary Aid to Needy Families (reform of

1996)1996) Nonwelfare programsNonwelfare programs

Supplemental Income (disabled, elderly or blind)Supplemental Income (disabled, elderly or blind) Day care centersDay care centers Earned Income tax credit – refund for low income familiesEarned Income tax credit – refund for low income families MedicaidMedicaid Food stampsFood stamps Housing programsHousing programs