THE DISTRIBUTION OF INCOME AND POVERTY
WHO ARE THE RICH AND HOW RICH ARE THEY?
By many interpretations, the lowest fifth (20%) of family income groups is considered poor, the top fifth is
considered rich, and the three fifth in between are considered middle income.
For a family of four to be considered rich in 1987 (2002?), the family had to earned $52,911.
In 1987 (2002?), the lowest 20% earned 4.6% of the total money income and the highest 20% earned 43.7%. The
highest 5% earned 16.9%
THE INCOME DISTRIBUTION ADJUSTED FOR TAXES AND IN-KIND TRANSFER
One of the ways the government can change the distribution of income is through the means of taxes and transfer
Ex Ante Distribution (of income)
The before-tax-and-transfer-payment distribution of income
Ex Post Distribution (of income)
The after-tax-and-transfer-payment distribution of income
Payments to persons that are not made in return for goods and service currently supplied. E.g., Welfare payments
such as aid to families with dependent children, food stamps, housing, education, health care etc.
In-Kind Transfer Payments
Transfer payments, such as food stamps, medical assistance, and subsidized housing that are made in a specific
good or service.
The distribution of income don’t take into account taxes, or in-kind transfer payments however, it does take into
account cash (monetary) transfer payments, such as direct monetary welfare assistance.
THE EFFECT OF AGE ON THE INCOME DISTRIBUTION
We need to distinguish between people who are poor for long periods of time (Sometimes their entire lives) and
people who are poor temporally. E.g., a college student, who attends college and works part-time while doing so,
her income is so low that she falls into the lowest fifth of income earning but it isn’t likely that this will always be
It is possible, in fact highly likely, that a person in her late twenties, thirties, or forties will have a higher income
than another person in her early twenties or sixties, even though their total lifetime incomes will be identical. That
is, if we view each person over time, income equality is greater than if we view each person at a particular point in
time (say when one is 58 years and the other is 68).