copyright©2004 south-western mod 78 income inequality and poverty

Copyright©2004 South-Western

Mod 78Mod 78Income Inequality

and Poverty

Copyright © 2004 South-Western

THE MEASUREMENT OF INEQUALITY

• Imagine that you. . .• lined up all of the families in the economy

according to their annual income. • divided the families into five equal groups (bottom

fifth, second fifth, etc.)


U.S. Income Inequality

• If income were equally distributed across all families…then, each one-fifth of families would receive one-fifth (20 percent) of total income.

• BUT…that is not what we have!


Income inequality in the United StatesIncome group Average 2013

income% of total income if distributed equally

2013 % of total income

Bottom quintile

$20, 900 20% 3.8%

Second quintile

$40, 187 20% 9.3%

Third quintile $65,501 20% 15.1%

Fourth quintile $105,910 20% 23%

Top quintile $196,000 20% 48.8%


The Measurement of Inequality

U.S. income inequality

• Using quintiles to analyze income distribution

• Unequal Distribution of income

• Bottom fifth: <4% of all income

• Top fifth: nearly 50% of all income

• The Gini coefficient

0 = completely equal distribution

1 = all income goes to 1 person

• 2013 U.S. Gini coefficent = .481 5


Lorentz Curve



• From 1935-1970, the distribution of income gradually became more equal.

• 1970-2014: more unequal distribution



• Reasons for Recent Increases in Income Inequality

• Reduced demand for low skill labor

• Increases in international trade with low-wage countries

• Changes in technology


How many people live in poverty?

• The poverty rate is the percentage of the population whose family income falls below an absolute level called the poverty line.

• 2013 Poverty rate=14.5%


The poverty rate

The poverty rate shows the percentage of the population with incomes below an absolute level called the poverty line.


Problems in Measuring Inequality

• Three Facts About Poverty• Poverty is correlated with race.• Poverty is correlated with age.• Poverty is correlated with family composition.


Who is Poor? 2013 Data

Group Poverty RateAll Persons 14.5%White, not Hispanic 9.6%Black 27.2%Hispanic 23.5%Asian/Pacific Islander 10.5%Children 19.9%Elderly 9.5%Married-couple families 5.8%Single female families 30.6%


Poverty Measures

• The Poverty Line (2014)• 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.

Household Size Federal Poverty Threshold

1 person $11,670

2 people $15,730

3 people $19,790

4 people $23,850

copyright©2004 south-western mod 78 income inequality and poverty

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