Ch. 18 micro

means-tested program

a program in which, to be eligible, an individual's income and assets must not exceed specified levels

social insurance

gov programs designed to help make up for lost income of people who worked but are now retired, unemployed, or unable to work bc of disability/injury

What is a Lorenz curve? What does the Lorenz curve in Exhibit 2 illustrate?

A Lorenz curve is a curve showing the percentage of total income received by a given percentage of households whose incomes are arrayed from smallest to largest. Exhibit 2 shows that the U.S. distribution was even more unequal in 2009 than in 1980 with the top 20% received half of all household incom

Temporary Assistance for Needy Families

income assistance program funded largely by gov but run by states to provide cash transfer payments to poor families with dependent children

Supplemental Security Income

income assistance program that provides cash transfers to the elderly poor and disabled; a uniform fed payment is supplemented by transfers that vary across states

Growth in the number of female householders in the last four decades _____ poverty among children, though the overall poverty rate among households headed by females has declined since peaking in 1993. More unmarried mothers are working now than ever befor

increased

Affirmative action programs and gains in education seem to have

increased employment opportunities among black workers.

Distinguish between social insurance programs and income assistance programs. Identify key examples of each.

Social insurance programs (Social Security and Medicare) are for people who have worked and paid taxes into the programs. These require that beneficiaries have a prior record of employment of sufficient length. Benefits are paid to those who retire, those who become unable to work due to disability or work-related injury, or those who qualify for unemployment compensation. Income assistance programs do not require beneficiaries to have worked or paid into the programs. They are means-tested programs: If a household's income and assets fall below specified levels, the household is entitled to benefits

medicare

providing health insurance for short term med care to older americans regardless of income

Money income in the United States has become ____ evenly distributed since 1970.

less

Marital Sorting and Income Inequality) How have marriage trends widened the gap between low-income and high-income households?

At the bottom end of the income distribution, an increase in the number of young women having children outside of marriage has become a source of poverty. At the top end of the income distribution, women have made huge strides in education and earnings, and they tend to select marriage partners with similar educations and earnings. The result is a high-income couple who pass along their advantages to their children, which reinforces the income gap in the next generation

Why is it difficult to pass legislation to reduce the growth in Social Security or Medicare benefits?

Changes in Social Security and Medicare benefits would have a major impact on the total income levels of the elderly—the cost of the change is concentrated. The elderly have relatively high voter participation rates and have become a strong political force. In addition to affecting the elderly currently receiving benefits, changes in Social Security also would affect the relatives of the elderly— those under 65 who are concerned about their future benefits and those who earn income by caring for the elderly (nursing homes, and hospital employees, doctors, and so forth).

Identify economic trends that have hurt those with few skills and little education, and at the same time have helped those with more skills and a good education

Deregulation, declining unionization and freer international trade and migration have reduced the pay for workers with less education. New computer based information technologies have reduced the demand for low skilled clerical workers, because their jobs have become computerized. Computers also offered more timely and accurate information. During the past three decades, U.S. manufacturers have invested heavily in computer controlled machinery. The supply of less educated workers increased more than the supply of more educated workers, thus increasing the rewards of education.

List some reasons why household incomes differ. Which factors are the most important?

Household incomes may differ because of the number of household members who are working. Differences may also occur for the same reasons wages differ in the labor market: differences in education, ability, job experience, etc. An important factor is that marriage trends have also widened the gap between low-income and high-income households

How would you explain the shift of the U.S. income distribution in the last three decades?

In recent years, the share of U.S. income going to the highest fifth has increased while the share going to the lowest fifth has decreased. The increase in two-earner households and the growth of income share going to the top five percent of the population has increased the income share of the highest quintile of the population. The growth of unmarried-parent households has contributed to the decrease in the income share going to the lowest quintile of the population.

What's the difference between median household income and the mean household income?

Median income - middle income when incomes are ranked from lowest to highest. Mean household income - average of all household incomes

Although the poverty rate among single mothers has decreased since 1960, the number of poor children from such families has more than doubled. Explain.

Poverty rates among female householders are high. These rates, however, have trended downward since the early 1990s. What has increased is the number of female householders in the economy. The percentage of births to unmarried mothers is five times higher today than in 1960. One in ten children lives with a single parent who has never married. Female householders accounted for an overwhelming amount of the increase in poor families since 1965.

Poverty among the elderly fell dramatically between 1959 and 1974 and has continued to decline. However, poverty among that portion of the U.S. population that is less than 18 years old is no lower today than in the 1970s. Why have the experiences of these two age groups differed?

The elderly have benefited from a large increase in Social Security and Medicare spending. In contrast, poverty rates among households headed by unmarried females are substantially higher than for other types of households. Furthermore, increased divorce rates and a dramatic rise in the percentage of births to unwed mothers have greatly increased the number of female householders since 1965. Thus, more children are living in the types of households with the highest poverty rates

How does the implicit tax on earned income (in the form of lost benefits from government assistance programs as earned income increases) affect work incentives? How do some people avoid the implicit tax

The level of benefits in income assistance programs is inversely related to income from other sources. As earned income increases, government benefits programs such as TANF, Medicaid, food vouchers, housing assistance, and so forth are reduced. Thus, working may result in little or no increase in total income because earned income is offset by drops in cash and in-kind transfers. This high marginal implicit tax rate discourages employment. A high implicit tax promotes the underground economy. Those people who might have a chance for employment in the regular economy may choose the underground economy instead because they can earn income and still receive public assistance. This allows them to avoid the implicit tax completely.

Which types of discrimination may cause an earnings gap between white and black workers? Consider discrimination in schooling, for example. How would researchers detect racial discrimination in employment and in housing

There are numerous types of discrimination, including school admissions, school funding, school quality, housing, employment, and career advancement. Each of these affects the relative poverty rates for blacks and whites; discrimination in one affects opportunities in others One way to detect discrimination is to look at poverty rates or earning levels within specific groups that have been adjusted for education and experience. After adjustment for education is made, blacks still earn less than whites. However, data are adjusted only for the years, not for the quality, of schooling. Evidence of discrimination comes from studies where otherwise similar white and black candidates are sent to seek jobs, rent apartments, or apply for mortgages. For example, white and black job applicants with similar qualifications and résumés applied for the same job

What has happened to the number of people on welfare since 1994? What best explains the change over time?

Work requirements do seem to yield substantial declines in the number of people on welfare. Welfare rolls declined more in states that made the greatest efforts to get people to work. However, the biggest reform occurred in 1996 with legislation that replaced AFDC (Aid to Families with Dependent Children) with TANF (Temporary Assistance for Needy Families), which gave states more control over their welfare programs. TANF has a five-year lifetime limit on cash transfers and requires a certain percentage of people be moved from welfare to work.

US official poverty level

benchmark level of income computed by federal gov to track poverty over time; based on 3 times the cost of a nutritionally adequate diet

Young, single motherhood is a recipe for _____ Often the young mother drops out of school, which reduces her future earning possibilities when and if she seeks work outside the home.

poverty.

One undesirable effect of income assistance is a high marginal tax rate on earned income, which

discourages employment and encourages welfare dependency.

The poverty rate has ____ most among the elderly, thanks to Social Security and Medicare.

dropped

The states began experimenting with different systems to

encourage more personal responsibility.

earned income tax credit

federal program that supplements the wages of the working poor

Welfare reforms introduced by the states set the stage for

federal welfare reforms aimed at breaking the cycle of poverty and promoting the transition from welfare to work.

SNAP

in kind transfer program that offers low income households vouchers redeemable for food; benefit levels vary inversely with household income

medicaid

in kind transfer program that provides medical care for poor people; most costly welfare program

median income

middle income when all incomes are ranked form smallest to largest

median wage

middle wage when wages of all workers are ranked from lowest to highest

The wage gap between black and white workers ____ between 1940 and 1976,______ until the early 1990s, and has been narrowing again since 1993.

narrowed, widened

Worse still, welfare dependency could be passed on to the

next generation.

How does the U.S. Department of Agriculture calculate the official poverty level? What government assistance programs does the Census Bureau consider when calculating household income? What programs are ignored?

official poverty level calculated by estimating the cost of a nutritionally adequate diet and multiplying that food cost by 3. In considering each household, the Census Bureau considers only cash income. This includes the following government programs: Social Security, unemployment insurance, workers' compensation, Temporary Assistance for Needy Families (TANF), Supplemental Security Income (SSI), and General Assistance. The Census Bureau does not consider in-kind transfers: Medicaid, food vouchers, housing assistance, the school lunch program, energy assistance.

social security

supplements retirement income to those with a record of contributing to the program during their working years. largest gov redistribution program

income assistance programs

welfare programs that provide money and in-kind assistance to the poor; benefits do not depend on prior conditions

As a result to state reforms, federal welfare reform, and a strengthening economy,

welfare rolls dropped by about two thirds since 1994.

Research suggests that daughters from welfare families are more likely than daughters in other families to participate in the

welfare system themselves and are more likely to have premarital births.