2. FACTS ABOUT INCOME INEQUALITY
2001 U.S. Average Family Income $66,863
Distribution of U.S. Personal Income by Families, 2001
Percentage of All
Personal Families in This
Income Category Category
Under $10,000 5.3
$10,000 - $14,999 4.3
$15,000 - $24,999 11.3
$25,000 - $34,999 11.9
$35,000 - $49,999 15.7
$50,000 - $74,999 20.8
$75,000 - $99,999 13.1
$100,000-$199,999 14.6
$200,000 and over 3.0
100.0
3. FACTS ABOUT INCOME INEQUALITY
Distribution of Personal Income by Quintiles, 2001
Percentage of Upper
Quintile Total Income Income Limit
Lowest 20% 4.2 $24,000
Second 20% 9.7
Third 20% 15.4 41,127
Fourth 20% 22.9
Highest 20% 47.7 62,500
Total 100.0
94,150
The Lorenz Curve
graphically...
4. THE LORENZ CURVE
100
80
Perfect Equality
Percent of Income
60
40
20 Complete
Inequality
0
20 40 60 80 100
Percent of Families
5. THE LORENZ CURVE
100
Lorenz Curve
(actual distribution)
80
Perfect Equality
Percent of Income
60
40 Area between
the lines shows
the degree of
income inequality
20 Complete
Inequality
0
20 40 60 80 100
Percent of Families
6. THE LORENZ CURVE
100
Lorenz Curve
Gini Ratio
(actual distribution)
80
Numerical Measure of Overall
Perfect Equality
Dispersion of Income
Percent of Income
Gini 60 Area Between Lorenz Curve and Diagonal
Ratio = Total Area Below the Diagonal
40 Area between
the lines shows
the degree of
income inequality
20 Complete
Inequality
0
20 40 60 80 100
Percent of Families
7. THE LORENZ CURVE
100
Lorenz Curve
(actual distribution)
80
Perfect Equality
Percent of Income
60
40 Area between
the lines shows
the degree of
income inequality
20 Complete
Inequality
0
20 40 60 80 100
Percent of Families
8. THE LORENZ CURVE
100
Lorenz Curve
(actual distribution)
80
Perfect Equality
Effect of government
Percent of Income
60
redistribution of cash
and noncash transfers
40 Area between
the lines shows
the degree of
income inequality
20 Complete
Inequality
0
20 40 60 80 100
Percent of Families
9. THE LORENZ CURVE
100
Lorenz Curve
(actual distribution)
80
Perfect Equality
Percent of Income
60
Lorenz curve
after taxes and Area between
40
transfers the lines shows
the degree of
income inequality
20 Complete
Inequality
0
20 40 60 80 100
Percent of Families
10. CAUSES OF INCOME INEQUALITY
Ability Differences
Education and Training
Discrimination
Preferences and Risks
Unequal Distribution of
Wealth
Market Power
Luck, Connections, and
Misfortune
11. TRENDS IN INCOME INEQUALITY
1929 - 1947
Significant reduction in
income inequality
1947 - 1969
Less inequality but at a
slower pace
1969 - 2001
More unequal since 1969
12. GLOBAL PERSPECTIVE
Percentage of Total Income Received
By Top One-Tenth of Income Receivers,
Selected Nations
0 10 20 30 40 50
Brazil
Guatemala
South Africa
Mexico
United States
France
Italy
Sweden
Source: World Development Report, 2003
13. CAUSES OF GROWING INEQUALITY
Greater Demand for Highly
Skilled Workers
Demographic Changes
International Trade
•Immigration
•Decline in Unionism
14. EQUALITY VERSUS EFFICIENCY
The Case for Equality
Maximizing Total Utility
The Case for Inequality
Incentives and Efficiency
Tradeoff Between Equality
and Efficiency
15. THE ECONOMICS OF POVERTY
Poverty Defined – 2001
Single $ 9,039
Family of 4 18,104
Family of 6 24,195
Poverty Rates in the U.S
Blacks 22.7%
Hispanics 21.4%
Whites 9.9%
16. THE ECONOMICS OF POVERTY
Incidence of Poverty
Poverty Rate
Poverty Trends
The “Invisible” Poor
•Short-Periods of Time
•Geographic Isolation
•Politically Invisible –
Are Easy to Ignore
17. PERCENTAGE IN POVERTY
0 10 20 30
Married-couple families
Persons 65 or over
Whites
Total population
Children under 18
Foreign born (not citizens)
Hispanics
Blacks
Female householders
2001 Data
18. THE INCOME-MAINTENANCE SYSTEM
Entitlement Programs
Social Insurance Programs, 2002
OASDHI
$432 Billion ($386 Billion in 1999)
Medicare
$219 Billion ($210 Billion in 1999)
Unemployment Compensation
$32 Billion ($20 Billion in 1999)
19. THE INCOME-MAINTENANCE SYSTEM
Entitlement Programs
Public Assistance Programs, 2002
Supplemental Security Income (SSI)
$35 Billion ($29 Billion in 1999)
Temporary Assistance for Needy Families
$14 Billion ($23 Billion in 1999)
Food stamps
$20 Billion ($20 Billion in 1999)
Medicaid
$207 Billion ($124 Billion in 1999)
Earned-Income Tax Credit (EITC)
$55 Billion ($30 Billion in 1999)
20. WELFARE: GOALS AND CONFLICTS
Common Features
•Minimum Annual Income
•Benefit-Reduction Rate
Conflicts Among Goals
•Eliminating Poverty
•Maintaining Work
Incentives
•Holding Down Costs
21. WELFARE: GOALS AND CONFLICTS
Welfare Reform
Growing Government Dependence
Personal Responsibility Act 1996
Temporary Assistance to Needy
Families
•5-Year Lifetime Limit
•Must Work After 2 Years
•Reduced Food-Stamp Eligibility
•Tightened Some Definitions
•5-Year Waiting Period on New
Legal Immigrants
22. income inequality unemployment compensation
Lorenz curve public assistance programs
Gini Ratio
Supplemental Security Income
income mobility
(SSI)
noncash transfers
equality-efficiency tradeoff Temporary Assistance for
poverty rate Needy Families (TANF)
entitlement programs food stamp program
social insurance programs Medicaid
OASDHI earned-income tax credit
Medicare (EITC)
Copyright McGraw-Hill/Irwin, 2005 BACK END
