Chapter 21. Income Inequality, Poverty and Discrimination

Chapter 21Income Inequality, Poverty and Discrimination Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.Facts About Income InequalityAverage household income$69,821 in 2011 Among the highest in the worldDistribution by quintilesIncome mobilityPeople change quintilesGovernment redistributionTaxes and transfersLO1Facts About Income InequalityLorenz curve and Gini ratio20406080100204060801000Perfect EqualityLorenz Curve(Actual Distribution)Complete InequalityABabcdefGini Ratio =Area AArea A + Area BPercentage of HouseholdsPercentage of IncomeLO1Causes of Income InequalityAbilityEducation and trainingDiscriminationPreferences and risksUnequal distribution of wealthMarket powerLuck, connections, and misfortuneLO2Income Inequality Over TimeRising income inequality since 1975Causes of growing inequalityGreater demand for highly skilled workersDemographic changesInternational trade, immigration, and decline in unionismLO3Income Inequality Over TimeLO3Equality Versus EfficiencyThe case for equality Maximizing total utilityThe case for inequalityIncentives and efficiencyThe equality-efficiency trade-offLO4The Economics of PovertyDefinition of poverty in 2011Single person < $11,702Family of 4 < $22,891Family of 6 < $29,49446.2 million AmericansPoverty rate 15%LO5Poverty TrendsPoverty rate trendsSignificant decline 1959-1969Stable in 11-13% range sinceRises with recession Measurement issuesArbitrary income thresholdConsumption vs. incomeLO5Poverty TrendsLO5The U.S. Income-Maintenance SystemEntitlement programsAll those eligible receive aidSocial insurance programsSocial security and MedicareUnemployment compensationPublic assistance programsWelfare LO6Public Assistance ProgramsSupplemental Security Income (SSI)Temporary Assistance for Needy Families (TANF)Supplemental Nutrition Assistance Program (SNAP)MedicaidEarned Income Tax CreditLO6DiscriminationInferior treatmentTaste-for-discrimination modelPrejudiced people receive disutilityWilling to pay to avoidDiscrimination coefficientPrejudice and the market African-American—White wage ratioCompetition and discriminationLO7DiscriminationStatistical discriminationJudged on average group characteristicsLabor market exampleProfitable, undesirable, but not maliciousLO7DiscriminationOccupational segregationThe crowding modelCrowd certain groups into less desirable occupationsEffects of crowdingEliminating occupational segregationCost to Society as well as to individualsLO7Occupational SegregationWage RateBBBMMW343464DxDyDzOccupation XOccupation YOccupation ZQuantity of Labor(Millions)Quantity of Labor(Millions)Quantity of Labor(Millions)Crowding women into one occupation (Z)results in men enjoying higher wages in the other occupations (X and Y).000LO7U.S. Family WealthMedian and Average Family Wealth, Survey Years 1995-2010 (In 2010 Dollars)199519982001200420072010$84,00098,100106,100107,200126,40077,300$307,900386,700487,000517,100584,600498,800Family wealth rose rapidly between 1995 and 2010 Year Median Average**The average greatly exceeds the medians because the averages are boosted by the multibillion dollar wealth of a relatively few families.U.S. Family WealthFamily wealth became more unequal between 1995 and 2010Percentage of Total Family Wealth Held by Different Groups, Survey Years 1995-201019951998200120042007201032.2%31.430.230.428.523.334.6%33.932.733.433.835.467.8%68.669.869.571.576.7YearBottom 90%Top 1%Top 10%Percentage of Total Wealth by Group