Lecture 9 - Income Inequality.pdf - LECTURE 9 INCOME INEQUALITY A INTRODUCTION B MEASURING INCOME INEQUALITY C THE KUZNETS HYPOTHESIS A INTRODUCTION How

Lecture 9 - Income Inequality.pdf - LECTURE 9 INCOME...

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L ECTURE 9: I NCOME I NEQUALITY 1 | P a g e A. I NTRODUCTION B. M EASURING I NCOME I NEQUALITY C. T HE K UZNETS H YPOTHESIS D. S OURCES OF I NCOME I NEQUALITY E. E FFECT OF I NCOME I NEQUALITY ON G ROWTH F. E CONOMIC M OBILITY G. R ELATED L ITERATURE A. I NTRODUCTION How GDP is Divided among Households? source:
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L ECTURE 9: I NCOME I NEQUALITY 2 | P a g e A. I NTRODUCTION B. M EASURING I NCOME I NEQUALITY C. T HE K UZNETS H YPOTHESIS D. S OURCES OF I NCOME I NEQUALITY E. E FFECT OF I NCOME I NEQUALITY ON G ROWTH F. E CONOMIC M OBILITY G. R ELATED L ITERATURE Unequal distribution of income Income Inequality We have so far been concerned with what determines the average level of income per capita in a country But how a country’s total income is distributed amongst its population is also important Why do we pay attention to income inequality?
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L ECTURE 9: I NCOME I NEQUALITY 3 | P a g e A. I NTRODUCTION B. M EASURING I NCOME I NEQUALITY C. T HE K UZNETS H YPOTHESIS D. S OURCES OF I NCOME I NEQUALITY E. E FFECT OF I NCOME I NEQUALITY ON G ROWTH F. E CONOMIC M OBILITY G. R ELATED L ITERATURE Income inequality is linked to several economic variables Income Inequality Poverty Growth Policy
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L ECTURE 9: I NCOME I NEQUALITY 4 | P a g e A. I NTRODUCTION B. M EASURING I NCOME I NEQUALITY C. T HE K UZNETS H YPOTHESIS D. S OURCES OF I NCOME I NEQUALITY E. E FFECT OF I NCOME I NEQUALITY ON G ROWTH F. E CONOMIC M OBILITY G. R ELATED L ITERATURE B. M EASURING I NCOME I NEQUALITY 2 simple approaches to look at income inequality Household Income in the United States by Quintiles, 2009 Approach 1 Divide the population into several equal-sized groups and measure how much income each group earns
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L ECTURE 9: I NCOME I NEQUALITY 5 | P a g e Income Distribution in the United States, 2009 Approach 2 Divide the population into several categories of income and look at the fraction of population in each Mode = $20k-$25k Median = $49,777 Mean = $67,976 Mean > Median (common outcome) skewed The income distribution has a long right tail (rather than being symmetric around the mean) Notes: the figure does not include the 3.8% households with income >$200,000
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L ECTURE 9: I NCOME I NEQUALITY 6 | P a g e A. I NTRODUCTION B. M EASURING I NCOME I NEQUALITY C. T HE K UZNETS H YPOTHESIS D. S OURCES OF I NCOME I NEQUALITY E. E FFECT OF I NCOME I NEQUALITY ON G ROWTH F. E CONOMIC M OBILITY G. R ELATED L ITERATURE Measuring income inequality G INI C OEFFICIENT - summarizes the degree of income inequality in a country - useful for comparing inequality among countries or examining inequality trends in one country over time - households are ordered according to their levels of income - then we ask: “what fraction of income is earned by the poorest 1%, 2%, 3%, … of households” - graphing these data produces a Lorenz curve Corrado Gini [ BIO ] [1884-1965]
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L ECTURE 9: I NCOME I NEQUALITY 7 | P a g e Gini Coefficient Index World Map (2014) Source: The World Bank (2014)
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L ECTURE 9: I NCOME I NEQUALITY 8 | P a g e The Lorenz Curve for the United States, 2009
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