Chapter 19 Income, Income Distribution, and Poverty

What are the determinants of poverty?

-A lack of education and thus a lack of a full-time or well-paying job, as well as the health of the economy, are the primary determinants of poverty. -Marital status is an important determinant of poverty. Single mothers are the most likely to be in poverty. 401

What are the causes of rising income inequality?

-Globalization, increased demand for skills, technological change, and a changing structure of the economy are contributors to the recent increases in income inequality. -The returns to labor have declined as the returns to capital have increased. Labor's share of nat'l income has fallen and capital's share has risen. -The superstar effect has widended the distribution of income at the very top of the income scale

Who are the poor?

-Many people fall below the poverty line for a short time only -The incidence of poverty decreases as the economy grows and increases as the economy falls into recession 401

What incentives are created by transfer programs and taxes?

-Redistributing income from the higher-income individuals to the lower-income individuals can affect the incentive to work for both groups -Transfer programs can also affect nonwork behavior. The transfer programs in the past paid more to a single mother than to a married couple with children -Transfer programs place a high implicit tax on work. The more one works, the less amount one can receive in transfers.

Are incomes distributed equally in the US?

-The Lorenz curve and the Gini coefficient provide measures of the degree of income inequality. -If the Lorenz curve corresponds with the line of income inequality, then incomes are distributed equally. If the Lorenz curve bows down below the line of income equality, then income is distributed in such a way that more people earn low incomes that earn high incomes. -The Gini coefficient is a measure of the area b/t the Lorenz curve and the line of equality. The ihgher the Gini coefficient, the greater is income inequality. 401

How is poverty measured, and does poverty exist in the US?

-The poverty threshold is based on a 1955 study of how much the average family in the US spent on food. -The income counted in calculation of poverty statistics is resource earnings and cash transfers. p401

Do transfer programs change the distribution of income?

-Transfer programs provide money and in-kind (nonmoney goods and services) benefits to low-income people, the elderly, disables, and others -the gov't spent 916 billion on transfer programs in 2013 -pre-tax and transfer income is distributed more unequally that post-tax and transfer income. p 401

The __________ ___ _______ is the percentage of the population whose income falls below the poverty threshold.

397 incidence of poverty

The ____ of the economy is a primary determinant of the incidence of poverty

397- health

The number of people in poverty and the needs of people for gov't transfers reamin very high

399

_______ and _________ _____ may have good intentions of reducing income inequality, but nay have unintended consequences of reducing incentives to work.

399; transfers; progressive taxes

lorenz curve

A graph showing the degree of income inequality p393- Shows the degree to which incomes are distributed equally in a society. The more the Lorenz curve bows out, the more unequal is the income distribution

Gini coefficient

A measure of income inequality based on the Lorenz curve p393- measure of the degree to which the Lorenz curve bows down away from the line of income equality. The higher the Gini coefficient, the greater the income inequality.

in-kind transfers

Goods and services given to some people

_____ _____ is a primary determinant of poverty.

Marital status 397

cash transfers

Money taken from some people through taxes and given to other people

_________ income doesn't include transfer payments or taxes. Post-tax income does.

Pre-tax p 393

_______ _________ include social security, welfare, and unemployment programs.

Transfer mechanisms 393

The health of the _________ is a primary determinant of the incidence of poverty.

economy 393

The _________ spends about $600 billion each year on transfers

gov't 399

The _______ ___ _______ is much higher among African American and Hispanics than it is among whites, and higher among females than males.

incidence of poverty 397

The standard explanations for the increase in _______ ______ include a decline in labor;s share of nat'l income due to globalization and technological change and what is called a ____ ______.

income inequality; superstar effect p401

The _______ _____ selected as the poverty threshold is arbitrary, based on an attempt to measure the income people would need to purchase three meals of a certain nutritional value.

income level 397

The _____ _________ a person has, the greater his or her chance of experiencing poverty.

less education 396

The size of families or households matters in measures of inequality. The higher-income households tend to have more children that do lower-income households.

p 393

The gap b/t the income of those with college degrees and those w/o a college degree widened in the past 50 yrs, although not steadily. The college premium increased by over 25% b/t 1979 and 1995, then remained the same until about 2005. It's risen since then.

p 401 #2

2 approaches to gov't uses to provide benefits to poor

p391 -tax policies -welfare programs

_________ is a measure of relative status in a country. It doesn't tell us the absolute level of income or consumption nor the standard of living.

p393 Inequality How income is measured makes a large difference in the measurement of inequality.

_______ _____ in communication and information flows has increased the potential of a few people to reach a much larger audience. This is called the _______ ________.

p401; Technological; superstar effect

Many people experience _______ only temporarily. Nearly 45% of the spells of poverty last less than a year.

poverty

The primary characteristic of those who fall below the _______ ______ is the lack of a job.

poverty line 396

A ____ may be progressive, proportional, or regressive.

tax 393

regressive tax

tax rate decreases as the base increases

progressive tax

tax rate increases as the base increases

proportional tax

tax rate stays the same as base increases

mobility

the ease with which people can move from one income bracket to another over time

The ______ ______ may affect nonwork behavior such as incentivizing couples not to marry and to have children out of marriage

transfer programs; 399

Much of the most recent gap between those with college degrees and those w/o has been due to the declining wages of the ______.

unskilled; 401

superstar effect

Technology increases the ability of more people to experience the performance of a single person, thereby greatly increasing the demand for that person's services. 400