chap20 - Income Inequality and Poverty Income Inequality...

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1 Income Inequality and Poverty Chapter 20 Income Inequality and Poverty s 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 s How much inequality is there in our society? s How many people live in poverty? s What problems arise in measuring the amount of inequality? s How often do people move among income classes? Table 1 The Distribution of Income in the United States: 2003 U.S. Income Inequality s Imagine that you. . . b lined up all of the families in the economy according to their annual income. b divided the families into five equal groups (bottom fifth, second fifth, etc.) b computed the share of total income that each group of families received. Table 2 Income Inequality in the United States
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U.S. Income Inequality s 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 s From 1935-1970, the distribution of income gradually became more equal. s In more recent years, this trend has reversed itself. U.S. Income Inequality s Reasons for Recent Increase in Income Inequality b The following have tended to reduce the demand for unskilled labor and raise the demand for skilled labor: s Increases in international trade with low-wage countries s Changes in technology b Therefore, the wages of unskilled workers have fallen relative to the wages of skilled workers. b This has resulted in increased inequality in family incomes. Inequality around the World s Answering this question is problematic. b Some countries, data unavailable b Data collected differently s By individual s By family s Expenditures versus income Table 3 Inequality around the World The Poverty Rate s The poverty rate is the percentage of the population whose family income falls below an absolute level called the poverty line. b
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chap20 - Income Inequality and Poverty Income Inequality...

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