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chap20 - Income Inequality and Poverty Income Inequality...

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1 Income Inequality and Poverty Chapter 20 Income Inequality and Poverty square6 A person’s earnings depend on the supply and demand for that person’s labor, which in turn depend on natural ability, human capital, compensating differentials, discrimination, and so on. THE MEASUREMENT OF INEQUALITY square6 How much inequality is there in our society? square6 How many people live in poverty? square6 What problems arise in measuring the amount of inequality? square6 How often do people move among income classes? Table 1 The Distribution of Income in the United States: 2003 U.S. Income Inequality square6 Imagine that you. . . box2 lined up all of the families in the economy according to their annual income. box2 divided the families into five equal groups (bottom fifth, second fifth, etc.) box2 computed the share of total income that each group of families received. Table 2 Income Inequality in the United States
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2 U.S. Income Inequality square6 If income were equally distributed across all families, each one-fifth of families would receive one-fifth (20 percent) of total income. U.S. Income Inequality square6 From 1935-1970, the distribution of income gradually became more equal. square6 In more recent years, this trend has reversed itself. U.S. Income Inequality square6 Reasons for Recent Increase in Income Inequality box2 The following have tended to reduce the demand for unskilled labor and raise the demand for skilled labor: square6 Increases in international trade with low-wage countries square6 Changes in technology box2 Therefore, the wages of unskilled workers have fallen relative to the wages of skilled workers. box2 This has resulted in increased inequality in family incomes. Inequality around the World square6 Answering this question is problematic. box2 Some countries, data unavailable box2 Data collected differently square6 By individual square6 By family square6 Expenditures versus income Table 3 Inequality around the World The Poverty Rate square6 The poverty rate is the percentage of the population whose family income falls below an absolute level called the poverty line. box2 The poverty line is an absolute level of income set by the federal government for each family size below which a family is deemed to be in poverty.
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3 Figure 1 The Poverty Rate Percent of the Population below Poverty Line 1960 1965 1970 1975 1980 1985 1990 1995 2000 5 10 15 20 25 2005
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