Principles of Economics - 3e Chapter 15 Issues in Labor Markets Unions, Discrimination, Immigration

Poverty and Economic Inequality . I ' xy . FIGURE Occupying Wall Street On September 17 , 2011 , Occupy Wall Street began in New York City Wall Street district . Credit of Occupy Wall Street Day 2011 by David Creative Commons , BY ) CHAPTER OBJECTIVES In this chapter , you will learn about Drawing the Poverty Line The Poverty Trap The Safety Net Income Inequality Measurement and Causes Government Policies to Reduce Income Inequality Introduction to Poverty and Economic Inequality BRING IT HOME Occupy Wall Street In September 2011 , a group of protesters gathered in Park in New York City to decry what they perceived as increasing social and economic inequality in the United States . Calling their protest Occupy Wall Street , they argued that the concentration of wealth among the richest in the United States was both economically unsustainable and inequitable , and needed to be changed . The protest then spread to other major cities , and the Occupy movement was born . Why were people so upset ?

How much wealth is concentrated among the top in our society ?

How did they acquire so much wealth ?

These are very real , very important questions in the United States now , and this chapter on poverty and economic inequality will help us address the causes behind this sentiment .

360 15 Poverty and Economic Inequality The labor markets that determine the pay that workers receive do not take into account how much income a family needs for food , shelter , clothing , and health care . Market forces do not worry about what happens to families when a major local employer goes out of business . Market forces do not take time to contemplate whether those who are earning higher incomes should pay an even higher share of taxes . However , labor markets do create considerable income inequalities . In 2020 , the median American household income was ( the median is the level where half of all families had more than that level and half had less ) For family households , the median was for households , it was . The Census Bureau also reported that in 2020 , there were million people living in poverty , representing of the population . Think about a family of a single mother with two to pay for the basics of life on perhaps per year . After paying for rent , healthcare , clothing , and transportation , such a family might have to spend on food . Spread over 365 days , the food budget for the entire family would be about 17 per day . To put this in perspective , most cities have restaurants where 17 will buy you an appetizer for one . This chapter explores how the government poverty , the balance between assisting the poor without discouraging work , and how federal antipoverty programs work . It also discusses income economists measure inequality , why inequality has changed in recent decades , the range of possible government policies to reduce inequality , and the danger ofa tradeoff that too great a reduction in inequality may reduce incentives for producing output . Drawing the Poverty Line LEARNING OBJECTIVES By the end of this section , you will be able to Explain economic inequality and how the poverty line is determined Analyze the poverty rate over time , noting its prevalence among different groups of citizens Comparisons of high and low incomes raise two different issues economic inequality and poverty . Poverty is measured by the number ofpeople who fall below a certain level of the poverty the income one needs for a basic standard of living . Income inequality compares the share of the total income ( or wealth ) in society that different groups receive . For example , one of numerous ways to look at income inequality is to compare the share of income that the top 10 receive to the share of income that the bottom 10 receive . In the United States , the of the poverty line traces back to a single person Mollie . In 1963 , who was working for the Social Security Administration , published an article called Children of the Poor in a highly useful and publication called the Social . idea was to a poverty line based on the cost ofa healthy diet . Her previous job had been at the Department , where she had worked in an agency called the Bureau of Home Economics and Human Nutrition . One task of this bureau had been to calculate how much it would cost to feed a nutritionally adequate diet to a family . found that the average family spent third of its income on food . She then proposed that the poverty line be the amount one requires to buy a nutritionally adequate diet , given the size of the family , multiplied by three . The current poverty line is essentially the same as the poverty line , although the government adjusts the dollar amounts to represent the same buying power over time . The poverty line in 2021 ranged from for a single individual to for a household of four people . Figure 152 shows the poverty rate overtime that is , the percentage of the population below the poverty line in any given year . The poverty rate declined through the , rose in the early and early , but seems to have been slightly lower since the . However , in no year in the last six decades has the poverty rate been less than of the is , at best almost one American in nine is below Access for free at

Drawing the Poverty Line 361 the poverty line . In recent years , the poverty rate peaked at in 2010 , before dropping to in 2019 . Table compares poverty rates for different groups in 2011 . As you will see when we delve further into these numbers , poverty rates are relatively low for White people , for the elderly , for the , and for households . Poverty rates for females , Hispanic people , and African Americans are much higher than for White people . While Hispanic people and African Americans have a higher percentage of individuals living in poverty than others , most people in the United States living below the poverty line are White people . LINK up Visit this website ( for more information on US . poverty . 40 Percentage of People Below the Poverty Line FIGURE The . Poverty Rate since 1960 The poverty rate fell dramatically during the 19605 , rose in the early and early 19905 , and , after declining in the 19905 through , rose to in 2020 , which is close to the 1960 levels . Between 2010 and 2019 , the poverty rate declined to , before rising to in 2020 due to the onset of the pandemic in 2020 . Source Census Bureau ) Group Poverty Rate Females Males White ( Black Hispanic Under age 18 Ages Ages TABLE Poverty Rates by Group , 2020

362 15 Poverty and Economic Inequality The concept ofa poverty line raises many tricky questions . In a vast country like the United States , should there be a national poverty line ?

After all , according to the Federal Register , the median household income for a family of four was in New Jersey and in Mississippi in 2017 , and prices of some basic goods like housing are quite different between states . The poverty line is based on cash income , which means it does not account for government programs that provide assistance such as Medicaid ( health care for individuals and families ) and food aid . Also , families can qualify for federal housing assistance . We will discuss these and other government aid programs in detail later in this chapter . Should the government adjust the poverty line to account for the value of such programs ?

Many economists and wonder whether we should rethink the concept ofwhat poverty means in the century . The following Clear It Up feature explains the poverty lines set by the World Bank for countries around the world . CLEAR IT UP How do economists measure poverty in countries ?

The World Bank sets two poverty lines for countries around the world . One poverty line is set at an income of per person . The other is at . By comparison , the 2015 poverty line of annually for a family of three works out to per person per day . Clearly , many people around the world are far poorer than Americans , as Table shows . China and India both have more than a billion people is the most populous country in Africa and Egypt is the most populous country in the Middle East . In all four of those countries , in the , a substantial share of the population on less than . About half the world lives on less than a day , and 80 percent of the world lives on less than 10 per day . Of course , the cost of food , clothing , and shelter in those countries can be very different from those costs in the United States , so the and may mean greater purchasing power than they would in the United States . Percentage of Population with Income Less Percentage of Population with Income Less Country Year Than Than Brazil 2019 China 2017 Egypt 2017 India 2011 Mexico 2018 2018 TABLE Poverty Lines for Countries , Source ) Any poverty line will be somewhat arbitrary , and it is useful to have a poverty line whose basic definition does not change much over time . voted every few years to poverty , then it would be difficult to compare rates over time . After all , would a lower poverty rate change the , or is it the case that people were actually better off ?

Government statisticians at the Census Bureau have ongoing research programs to address questions like these . Access for free at The Poverty Trap 363 The Poverty Trap LEARNING OBJECTIVES By the end of this section , you will be able to Explain the poverty trap , noting how government programs impact it Identify potential issues in government programs that seek to reduce poverty Calculate a budget constraint line that represents the poverty trap Can you give people too much help , or the wrong kind of help ?

When people are provided with food , shelter , healthcare , income , and other necessities , assistance may reduce their incentive to work , particularly if their work is likely to offer low wages and reduce government assistance . Consider a program to poverty that works in this manner the government provides assistance to the those who need it , but as the recipients earn income to support themselves , the government reduces the level of assistance it provides . With such a program , every time a person earns 100 , they lose 100 in government support . As a result , the person experiences no net gain for working . Economists call this problem the poverty trap . Consider the situation a family faces . Figure illustrates a single mother ( earning an hour ) with two children . First , consider the budget constraint that this family faces in a situation without government assistance . On the horizontal axis is hours of leisure ( or time spent with family responsibilities ) increasing in quantity from left to right . Also on the horizontal axis is the number of hours at paid work , going from zero hours on the right to the maximum of hours on the left . On the vertical axis is the amount of income per year rising from low to higher amounts of income . The budget constraint line shows that at zero hours of leisure and hours ofwork , the maximum amount of income is ( hours ) At the other extreme of the budget constraint line , an individual would work zero hours , earn zero income , but enjoy hours of leisure . At point A on the budget constraint line , by working 40 hours a week , 50 weeks a year , the choice is to work a total of hours per year and earn . Now suppose that a government antipoverty program guarantees every family with a single mother and two children in income . This is represented on the graph by a horizontal line at . With this program , each time the mother earns , the government will deduct of its support . Table 153 shows what will happen at each combination of work and government support . Income 500 Leisure ( hours ) Labor ( hours ) FIGURE The Poverty Trap in Action The original choice is 500 hours of leisure , hours of work at point A , and income of . With a guaranteed income of , this family would receive whether it provides zero hours of work or hours of work . Only if the family provides , say , hours of work does its income rise above the guaranteed level of even then , the marginal gain to income from working many hours is small .

364 15 Poverty and Economic Inequality Amount Worked ( hours ) Total Earnings Government Support Total Income 500 TABLE Total Income at Various Combinations of Work and Support The new budget line , with the antipoverty program in place , is the horizontal heavy line that is at . If the mother does not work at all , she receives , all from the government . Ifshe works full time , giving up 40 hours per week with her children , she still ends up with at the end of the year . Only if she works hours in the is an average of 44 hours per week for 50 weeks a household income rise to . Even in this case , all of her year work means that household income rises by only 400 over the income she would receive if she did not work at all . She would need to work 50 hours a week to reach . The poverty trap is even stronger than this example shows , because a working mother will have extra expenses like clothing , transportation , and child care that a nonworking mother will not face , making the economic gains from working even smaller . Moreover , those who do not work fail to build up job experience and contacts , which makes working in the future even less likely . To reduce the poverty trap the government could design an antipoverty program so that , instead of reducing government payments by for every earned , the government would reduce payments by some smaller amount instead . Imposing requirements for work as a condition of receiving and setting a time limit on can also reduce the harshness of the poverty trap . Figure illustrates a government program that guarantees in income , even for those who do not work at all , but then reduces this amount by 50 cents for each earned . The new , higher budget line in shows that , with this program , additional hours ofwork will bring some economic gain . Because of the reduction in government income when an individual works , an individual earning will really net only per hour . The vertical intercept of this higher budget constraint line is at ( hours ) The horizontal intercept is at the point on the graph where and 2500 hours of leisure is set . Table 154 shows the total income differences with various choices of labor and leisure . However , this type raises other issues . First , even if it does not eliminate the incentive to work by reducing government payments by for every earned , enacting such a program may still reduce the incentive to work . At least some people who would be working hours each year without this program might decide to work fewer hours but still end up with more is , their choice on the new budget line would be like , above and to the right of the original choice Of course , others may choose a point like , which involves the same amount ofwork as , or even a point to the left of that involves more work . The second major issue is that when the government phases out its support payments more slowly , the antipoverty program costs more money . Still , it may be preferable in the long run to spend more money on a program that retains a greater incentive to work , rather than spending less money on a program that nearly eliminates any gains from working . Access for free at

The Poverty Trap 365 30000 28000 25000 20 000 18 000 16000 15000 Income 10000 500 1000 Leisure ( hours ) Labor ( hours ) FIGURE Loosening the Poverty Trap Reducing Government Assistance by 50 Cents for Every Earned On the original opportunity set , the lower , budget set , the preferred choice is 500 hours of leisure and of income . Then , the government created an antipoverty program that guarantees in income even to those who work zero hours , shown by the dashed line . In addition , every earned means phasing out 50 cents of at . This program leads to the higher budget set , which the diagram shows . The hope is that this program will provide incentives to work the same or more hours , despite receiving income assistance . However , it is that the recipients will choose a Joint on the new budget set like , with less work , more leisure , and greater income , or a point like , with the same work and greater income . Amount Worked ( hours ) Total Earnings Government Support Total Income 500 TABLE The Tradeoff with Assistance Reduced by 50 Cents for Every Dollar Earned The next module will consider a variety of government support programs focused on people experiencing poverty , including welfare , SNAP ( Supplemental Nutrition Assistance Program ) Medicaid , and the earned income tax credit ( Although these programs vary from state to state , it is generally a true statement that in many states from the 19603 into the , if poor people worked , their level of income barely did not rise at factoring in the reduction in government support payments . The following Work It Out feature shows how this happens .

366 15 Poverty and Economic Inequality The Safety Net LEARNING OBJECTIVES By the end of this section , you will be able to Identify the antipoverty government programs that comprise the safety net Explain the safety net programs primary goals and how these programs have changed over time Discuss the complexities of these safety net programs and why they can be controversial The government has implemented a number of programs to assist those below the poverty line and those who have incomes just above the poverty line . Such programs are called the safety net , to recognize that they offer some protection for those who themselves without jobs or income . Temporary Assistance for Needy Families From the Great Depression until 1996 , the United States most visible antipoverty program was Aid to Families with Dependent Children ( which provided cash payments to mothers with children who were below the poverty line . called this program In 1996 , Congress passed and President Bill Clinton signed into law the Personal Responsibility and Work Opportunity Reconciliation Act , more commonly called the welfare reform The new law replaced with Temporary Assistance for Needy Families ( LINK IT UP Visit this website ( Clinton speech ) to watch a video of President Bill Clinton Welfare Reform speech . brought several dramatic changes in how welfare operated . Under the old program , states set the level of welfare that they would pay to people experiencing poverty , and the federal government guaranteed it would chip in some of the money as well . The federal government welfare spending would rise or fall depending on the number of people in need , and on how each state set its own welfare contribution . Under , however , the federal government gives a amount of money to each state . The state can then use the money for almost any program with an antipoverty component for example , the state might use the money to give funds to families with low income , or to reduce teenage pregnancy , or even to raise the high school graduation rate . However , the federal government imposed two key requirements . First , if states are to keep receiving the grants , they must impose work requirements so that most of those receiving are working ( or attending school ) Second , no one can receive with federal money for more than a total of years over their lifetime . The old program had no such work requirements or time limits . attempts to avoid the poverty trap by requiring that welfare recipients work and by limiting the length of time they can receive . In its few years , the program was quite successful . The number of families receiving payments in 1995 , the last year of , was million . November 2020 , according to the Congressional Research Service , the number of families receiving payments under was decline of nearly 80 . to poor families vary considerably across states . For example , again according to the Congressional Research Service , in July 2020 the highest monthly payment in New to a single mother with one child was 862 , while in Mississippi the highest monthly payment to that family was 146 . In part , these payments differences in states cost of living . As reported by the Department of Health and Human Services , in 1995 total spending on was approximately 19 billion . Spending increased yearly through 2001 , then it was roughly at approximately 26 billion until 2005 , then it increased again through 2010 , where it peaked at nearly 35 billion . It then decreased again to around 30 billion in 2020 . When you take into account the effects of , the decline is even greater . Moreover , there seemed little evidence that families were suffering a reduced standard of living as a result of , on the other side , there was Access for free at

The Safety Net 367 not much evidence that families had greatly improved their total levels of income , either . The Earned Income Tax Credit ( The earned income tax credit ( passed in 1975 , is a method of assisting the working poor through the tax system . The is one of the largest assistance program for groups , and as of December 2021 , about 25 million eligible workers and families received about 60 billion in . For the 2021 tax year , the earned income credit ranges from to depending on status , income , and number of children . The average amount of received nationwide was about . In 2021 , for example , a single parent with two children would have received a tax credit of up to a modest income level . The amount of the tax break increases with the amount of income earned , up to a point . The earned income tax credit has often been popular with both economists and the general public because of the way it effectively increases the payment received for work . What about the danger of the poverty trap that every additional earned will reduce government support payments by close to ?

To minimize this problem , the earned income tax credit is phased out slowly . For example , according to the Tax Policy Center , for a family with two children in 2013 , the credit is not reduced at all ( but neither is it increased ) as earnings rise from to . Then , for every earned above , the amount received from the credit is reduced by cents , until the credit phases out completely at an income level of . Figure illustrates that the earned income tax credits , child tax credits , and the program all cost the federal government in direct or in loss of tax revenues . stands for the government tax cuts for the child tax credit . 70 80 50 40 30 20 Billions of 2011 Dollars 10 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 FIGURE Real Federal Spending on , and , increased from under 10 billion in the late to almost 42 billion in 2000 and to over 61 billion in 2016 , far exceeding estimated 2016 in the ( Child Tax Credits ) and of over 25 billion and 18 billion , respectively . Source Office of Management and Budget ) In recent years , the has become a hugely expensive government program for providing income assistance to people below or near the poverty line , costing about 60 billion in 2021 . In that year , the provided benefits to about 25 million families and individuals and , on average , is worth about per family ( with children ) according to the Tax Policy Center . One reason that the law worked as well as it did is that the government greatly expanded in the late and again in the early , which increased the returns to work for Americans .

368 15 Poverty and Economic Inequality Supplemental Nutrition Assistance Program ( SNAP ) Often called food stamps , Supplemental Nutrition Assistance Program ( SNAP ) is a federally funded program , started in 1964 , in which each month people receive a card like a debit card that they can use to buy food . The amount of food aid for which a household is eligible varies by income , number of children , and other factors but , in general , households are expected to spend about 30 of their own net income on food , and if 30 of their net income is not enough to purchase a nutritionally adequate diet , then those households are eligible for SNAP . SNAP can contribute to the poverty trap . For every 100 earned , the government assumes that a family can spend 30 more for food , and thus reduces its eligibility for food aid by 30 . This decreased is not a complete disincentive to combined with how other programs reduce as income increases , it adds to the problem . SNAP , however , does try to address the poverty trap with its own set ofwork requirements and time limits . Why give debit cards and notjust cash ?

Part of the political support for SNAP comes from a belief that since recipients must spend the the cards on food , they can not waste them on other forms of consumption . From an economic point , however , the belief that cards must increase spending on food seems headed . After all , say that a family is spending per year on food , and then it starts receiving per year in SNAP aid . The family might react by spending per year on food ( income plus aid ) or it might react by continuing to spend per year on food , but use the in food aid to free up that it can now spend on other goods . Thus , it is reasonable to think of SNAP cards as an alternative method , along with and the earned income tax credit , of transferring income to those working but still experiencing poverty . Anyone eligible for is also eligible for SNAP , although states can expand eligibility for food aid if they wish to do so . In some states , where welfare spending is relatively low , a poor family may receive more in support from SNAP than from . In 2021 , about million people received food aid with total of just over 108 billion , which is an average monthly of about 287 per person per month . SNAP participation increased by 70 between 2007 and 2011 , from million participants to 45 million . According to the Congressional Budget , the Great Recession and rising food prices caused this dramatic rise in participation . Likewise , between 2019 and 2021 , the number in SNAP increased by million , the amount per person increased by 67 , and total nearly doubled as a consequence of the sharp recession due to the onset of the pandemic in early 2020 . The federal government deploys a range of income security programs that it funds through departments such as Health and Human Services , Agriculture , and Housing and Urban Development ( HUD ) see Figure . According to the of Management and Budget , collectively , these three departments provided an estimated 62 billion of aid through programs such as supplemental feeding programs for women and children , subsidized housing , and energy assistance . The federal government also transfers funds to individual states through special grant programs . Access for free at

The Safety Net ( Millions of Dollars 1999 2000 2001 2002 2003 2004 2005 2006 2007 2003 2009 2010 2011 A 2012 ( est ) 2013 ( est ) Year FIGURE Expenditure Comparison of , SNAP , HUD , and Other Income Security Programs , est . Total expenditures on income security continued to rise between 1988 and 2010 , while payments for have increased from 13 billion in 1998 to an estimated billion in 2013 . SNAP has seen relatively small increments . These two programs comprise a relatively small portion of the estimated 106 billion dedicated to income security in 2013 . Note that other programs and housing programs increased dramatically during the 2008 and 2010 time periods . Source Table Section 600 Income Security , The safety net includes a number programs school lunches and breakfasts for children from families the Special Supplemental Food Program for Women , Infants and Children ( which provides food assistance for pregnant women and newborns the Low Income Home Energy Assistance Program , which provides help with home heating bills housing assistance , which helps pay the rent and Supplemental Security Income , which provides cash support for people with disabilities and elderly people experiencing poverty . Medicaid Congress created Medicaid in 1965 . This is ajoint health insurance program between both the states and the federal government . The federal government helps fund Medicaid , but each state is responsible for administering the program , determining the level , and determining eligibility . It provides medical insurance for certain people with low incomes , including those below the poverty line , with a focus on families with children , the elderly , and people with disabilities . About of Medicaid spending is for mothers with children . While an increasing share of the program funding in recent years has gone to pay for nursing home costs for older people who can not afford to pay for housing . The program ensures that participants receive a basic level of , but because each state sets eligibility requirements and provides varying levels of service , the program differs from state to state . In the past , a common problem has been that many pay enough to a breadwinner so that a family could lose its eligibility for Medicaid , yet the job does not offer health insurance benefits . A parent considering such a job might choose not to work rather than lose health insurance for their children . In this way , health insurance can become a part of the poverty trap . Many states recognized this problem in the 19805 and and expanded their Medicaid coverage to include people earning up to 135 or even 185 of the poverty line . Some states also guaranteed that children would not lose coverage if their parents worked . These expanded guarantees cost the government money , of course , but they also helped to encourage those on welfare to enter the labor force . As of 2014 , approximately million people participated in Medicaid . Of 369

15 Poverty and Economic Inequality those enrolled , almost half are children . Healthcare expenditures , however , are highest for the elderly population , which comprises approximately 25 of participants . As Figure ( a ) indicates , the largest number of households that enroll in Medicaid are those with children . adults are the next largest group enrolled in Medicaid at 28 . People who are blind or have a disability account for 16 of those enrolled , and seniors are of those enrolled . Figure ( shows how much actual Medicaid dollars the government spends for each group . Out of total Medicaid spending , the government spends more on seniors ( 20 ) and people who are blind or have a disability ( 44 ) Thus , 64 of all Medicaid spending goes to seniors , those who are blind , and people with disabilities . Children receive 21 of all Medicaid spending , followed by adults at 15 . Children ( 39 ) Children ( 19 ) Adults ( 33 ) Adults ( 28 ) Aged ( 16 ) Blind or have Aged ( or have a disability ( 15 ) a disability ( 38 ) a ) Medicaid enrollment ( Medicaid spending FIGURE Medicaid Enrollment and Spending Part ( a ) shows the Medicaid enrollment by different populations , with children comprising the largest percentage at 47 , followed by adults at 28 , and those who are blind or have a disability at 16 . Part ( shows that Medicaid spending is principally for those who are blind or have a disability , followed by the elderly . Although children are the largest population that Medicaid covers , expenditures on children are only at 19 . Income Inequality Measurement and Causes LEARNING OBJECTIVES By the end of this section , you will be able to Explain the distribution of income , and analyze the sources of income inequality in a market economy Measure income distribution in Calculate and graph a curve Show income inequality through demand and supply diagrams Poverty levels can be subjective based on the overall income levels of a country . Typically a government measures poverty based on a percentage of the median income . Income inequality , however , has to do with the distribution of that income , in terms of which group receives the most or the least income . Income inequality involves comparing those with high incomes , middle incomes , and low just looking at those below or near the poverty line . In turn , measuring income inequality means dividing the population into various groups and then comparing the groups , a task that we can be carry out in several ways , as the next Clear It Up feature shows . CLEAR IT UP How do you separate poverty and income inequality ?

Poverty can change even when inequality does not move at all . Imagine a situation in which income for everyone in the population declines by 10 . Poverty would rise , since a greater share of the population would now fall below Access for free at Income Inequality Measurement and Causes the poverty line . However , inequality would be the same , because everyone suffered the same proportional loss . Conversely , a general rise in income levels over time would keep inequality the same , but reduce poverty . It is also possible for income inequality to change without poverty rate . Imagine a situation in which a large number of people who already have high incomes increase their incomes by even more . Inequality would rise as a the number of people below the poverty line would remain unchanged . Why did inequality of household income increase in the United States in recent decades ?

A trend toward greater income inequality has occurred in many countries around the world , although the effect has been more powerful in the economy . Economists have focused their explanations for the increasing inequality on two factors that changed more or less continually from the into the . One set of explanations focuses on the changing shape of American households . The other focuses on greater inequality , what some economists call winner take all labor markets . We will begin with how we measure inequality , and then consider the explanations for growing inequality in the United States . Measuring Income Distribution by One common way of measuring income inequality is to rank all households by income , from lowest to highest , and then to divide all households into groups with equal numbers ofpeople , known as . This calculation allows for measuring the distribution of income among the groups compared to the total . The quintile is the lowest or 20 , the second quintile is the next lowest , and so on . We can measure income inequality by comparing what share of the total income each quintile earns . income distribution by quintile appears in Table . In 2020 , for example , the bottom quintile of the income distribution received of income the second quintile received the third quintile , the fourth quintile , and the top quintile , The column of Table shows what share of income went to households in the top of the income distribution in 2020 . Over time , from the late to the early , the top of the income distribution typically received between about 43 to 44 of all income . The share of income that the top received then begins to rise . Census Bureau researchers trace , much of this increase in the share of income going to the top to an increase in the share of income going to the top . The quintile measure shows how income inequality has increased in recent decades . Year Lowest Quintile Second Quintile Third Quintile Fourth Quintile Highest Quintile Top 1967 1970 1975 1980 1985 1990 1995 2000 TABLE Share of Aggregate Income Received by Each Fifth and Top of Households , Source Census Bureau , Table , All Races .

372 15 Poverty and Economic Inequality Year Lowest Quintile Second Quintile Third Quintile Fourth Quintile Highest Quintile Top 2005 2010 2015 2020 TABLE Share of Aggregate Income Received by Each Fifth and Top of Households , Source Census Bureau , Table , All Races . It can also be useful to divide the income distribution in ways other than for example , into tenths or even into ( that is , hundredths ) A more detailed breakdown can provide additional insights . For example , the last column of Table 155 shows the income received by the top of the income distribution . Between 1980 and 2020 , the share of income going to the top increased by percentage points ( from in 1980 to in 2020 ) From 1980 to 2020 the share of income going to the top quintile increased by percentage points ( from in 1980 to in 2013 ) Thus , the top 20 of ( the quintile ) received over half ( 51 ) of all the income in the United States in 2020 . Curve We can present the data on income inequality in various ways . For example , you could draw a bar graph that showed the share of income going to each of the income distribution . Figure presents an alternative way of showing inequality data in a curve . This curve shows the cumulative share of population on the horizontal axis and the cumulative percentage of total income received on the vertical axis . 100 80 60 40 20 Cumulative Share of Income 20 40 60 80 100 Income FIGURE The Curve A curve graphs the cumulative shares of income received by everyone up to a certain quintile . The income distribution in 1980 was closer to the perfect equality line than the income distribution in is , the income distribution became more unequal over time . Every curve diagram begins with a line sloping up at a angle . We show it as a dashed line in Figure . The points along this line show what perfect equality of the income distribution looks like . It would mean , for example , that the bottom 20 of the income distribution receives 20 of the total income , the bottom 40 gets 40 of total income , and so on . The other lines actual data on inequality for 1980 and 2020 . The trick in graphing a curve is that you must change the shares of income for each quintile , which we show in the and third columns of numbers in Table 156 , into cumulative income , which we Access for free at

Income Inequality Measurement and Causes show in the second and fourth columns of numbers . For example , the bottom 40 of the cumulative income distribution will be the sum of the and second the bottom 60 of the cumulative income distribution will be the sum of the , second , and third , and so on . The entry in the cumulative income column needs to be 100 , because by , 100 of the population receives 100 of the income . Income Share of Income Cumulative Share of Share of Income Cumulative Share of Category in 1980 ( Income in 1930 ( in 2020 ( Income in 2020 ( quintile Second , quintile Third , quintile Fourth , quintile , quintile TABLE Calculating the Curve In a curve diagram , a more unequal distribution of income will loop farther down and away from the line , while a more equal distribution of income will move the line closer to the line . Egg illustrates the greater inequality of the US . income distribution between 1980 and 2020 because the curve for 2020 is farther from the line than the curve for 1980 . The curve is a useful way the quintile data that provides an image of all the quintile data at once . The next Clear It Up feature shows how income inequality differs in various countries compared to the United States . CLEAR IT UP How does economic inequality vary around the world ?

The economy has a relatively high degree of income inequality by global standards . As Table shows , based on a variety of national surveys for a selection of years in the second decade of this century , the economy has greater inequality than Germany ( along with most Western European countries ) The region of the world with the highest level of income ity is Latin America , illustrated in the numbers for Brazil and Mexico . The level of inequality in the United States is higher than in some of the countries of the world , like India and , as well as in some countries , like China and Russia . Country Survey Year First Quintile Second Quintile Third Quintile Fourth Quintile Fifth Quintile United States 2020 Germany 2016 TABLE Income Distribution in Select Countries ( Source data from Census Bureau Table . Other data from The World Bank Poverty and Inequality Data Base ,

374 15 Poverty and Economic Inequality Country Survey Year First Quintile Second Quintile Third Quintile Fourth Quintile Fifth Quintile Brazil 2019 Mexico 2018 China 2016 India 2011 Russia 2018 2018 TABLE Income Distribution in Select Countries ( Source data from Census Bureau Table . Other data from The World Bank Poverty and Inequality Data Base , LINK up Visit this website met to watch a video of wealth inequality across the world . Causes of Growing Inequality The Changing Composition of American Households In 1970 , 41 of married women were in the labor force , but by 2019 , according to the Bureau of Labor Statistics , of married women were in the labor force . One result of this trend is that more households have two earners . Moreover , it has become more common for one high earner to marry another high earner . A few decades ago , the common pattern featured a man with relatively high earnings , such as an executive or a doctor , marrying a woman who did not earn as much , like a secretary or a nurse . Often , the woman would leave paid employment , at least for a few years , to raise a family . However , now doctors are marrying doctors and executives are marrying executives , and mothers with careers are often returning to work while their children are quite young . This pattern of households with two high earners tends to increase the proportion of households . According to data in the National Journal , even as couples have increased , so have households . Of all families , in 2021 , about 23 were headed by single mothers . The poverty rate among households tends to be relatively high . These changes in family structure , including the growth of families who tend to be at the lower end of the income distribution , and the growth of couples near the top end of the income distribution , account for roughly half of the rise in income inequality across households in recent decades . LINK up Visit this website US wealth to watch a video that illustrates the distribution of wealth in the United States . Causes of Growing Inequality A Shift in the Distribution of Wages Another factor behind the rise in income inequality is that earnings have become less equal since the late . In particular , the earnings of labor relative to labor have increased . Winner labor markets result from changes in technology , which have increased global demand for Access for free at

Income Inequality Measurement and Causes stars , the best CEO , doctor , basketball player , or actor . This global demand pushes salaries far above productivity differences associated with educational differences . One way to measure this change is to take workers earnings with at least a college bachelors degree ( including those who went on and completed an advanced degree ) and divide them by workers earnings with only a high school degree . The result is that those in the age bracket with college degrees earned about times as much as high school graduates in 2020 , up from times in 1995 , according to Census data . labor market theory argues that the salary gap between the median and the top percent is not due to educational differences . Economists use the demand and supply model to reason through the most likely causes of this shift . According to the National Center for Education Statistics , in recent decades , the supply of workers with college degrees has increased substantially . For example , bachelor degrees were conferred on Americans in 1970 . In , million such degrees were increase of over 138 . In Figure , this shift in supply to the right , from to , by itself should result in a lower equilibrium wage for labor . Thus , we can explain the increase in the price of labor by a greater demand , like the movement from to . combining both the increase in supply and in demand has resulted in a shift from to , and a resulting higher wage . A Quantity of Labor FIGURE Why Would Wages Rise for Labor ?

The proportion of workers attending college has increased in recent decades , so the supply curve for labor has shifted to the right , from So to . If the demand for labor had remained at , then this shift in supply would have led to lower wages for skilled labor . However , the wages for labor , especially if there is a large global demand , have increased even with the shift in supply to the right . The explanation must lie in a shift to the right in demand for labor , from Do to . The shows how a combination of the shift in supply , from to , and the shift in demand , from Do to , led to both an increase in the quantity of labor hired and also to a rise in the wage for such labor , from to . What factors would cause the demand for labor to rise ?

The most plausible explanation is that while the explosion in new information and communications technologies over the last several decades has helped many workers to become more productive , the have been especially great for workers like top business managers , consultants , and design professionals . The new technologies have also helped to encourage globalization , the remarkable increase in international trade over the last few decades , by making it more possible to learn about and coordinate economic interactions all around the world . In turn , the rising impact of foreign trade in the economy has opened up greater opportunities for workers to sell their services around the world , and workers have to compete with a larger supply of similarly skilled workers around the globe .

376 15 Poverty and Economic Inequality We can view the market for labor as a race between forces of supply and demand . Additional education and training will tend to increase the labor supply and to hold down its relative wage . Conversely , new technology and other economic trends like globalization tend to increase the demand for labor and push up its relative wage . We can view the greater inequality of wages as a sign that demand for skilled labor is increasing faster than supply . Alternatively , if the supply of lower skilled workers exceeds the demand , then average wages in the lower of the income distribution will decrease . The combination of forces in the and labor markets leads to increased income disparity . Government Policies to Reduce Income Inequality LEARNING OBJECTIVES By the end of this section , you will be able to Explain the arguments for and against government intervention in a market economy Identify ways to reduce the economic inequality in a society Show the tradeoff between incentives and income equality No society should expect or desire complete equality of income at a given point in time , for a number of reasons . First , most workers receive relatively low earnings in their , higher earnings as they reach middle age , and then lower earnings after retirement . Thus , a society with people of varying ages will have a certain amount of income inequality . Second , people preferences and desires differ . Some are willing to work long hours to have income for large houses , fast cars and computers , luxury vacations , and the ability to support children and grandchildren . These factors all imply that a snapshot of inequality in a given year does not provide an accurate picture of how people incomes rise and fall over time . Even if we expect some degree inequality at any point in time , how much inequality should there be ?

There is also the difference between income and wealth , as the following Clear It Up feature explains . CLEAR IT UP How do you measure wealth versus income inequality ?

Income is a flow of money received , often measured on a monthly or an annual basis . Wealth is the sum of the value of all assets , including money in bank accounts , investments , a pension fund , and the value of a home . In calculating wealth , one must subtract all debts , such as debt owed on a home mortgage and on credit cards . A retired person , for example , may have relatively little income in a given year , other than a pension or Social Security . However , if that person has saved and invested over time , the person accumulated wealth can be quite substantial . In the United States , the wealth distribution is more unequal than the income distribution , because differences in income can accumulate over time to make even larger differences in wealth . However , we can measure the degree of inequality in the wealth distribution with the same tools we use to measure the inequality in the income distribution , like quintile measurements . Once every three years the Federal Reserve Bank publishes the Survey of Consumer Finance which reports a collection of data on wealth . Even if they can not answer the question of how much inequality is too much , economists can still play an important role in spelling out policy options and . Ifa society decides to reduce the level of economic inequality , it has three main sets of tools redistribution from those with high incomes to those with low incomes trying to assure that a ladder of opportunity is widely available and a tax on inheritance . Redistribution Redistribution means taking income from those with higher incomes and providing income to those with Access for free at

Government Policies to Reduce Income Inequality lower incomes . Earlier in this chapter , we considered some of the key government policies that provide support for people experiencing poverty the welfare program , the earned income tax credit , SNAP , and Medicaid . If a reduction in inequality is desired , these programs could receive additional funding . The federal income tax , which is a progressive tax system designed in such a way that the rich pay a higher percent in income taxes than the poor , funds the programs . Data from household income tax returns in 2018 shows that the top of households had an average income of per year in income and paid an average federal tax rate of . The effective income tax , which is total taxes paid divided by total income ( all sources of income such as wages , interest , rental income , and government transfers such as veterans ) was much lower . The effective tax paid by that top of paid was , while the bottom two actually paid negative effective income taxes , because of provisions like the earned income tax credit . News stories occasionally report on a person who has managed to pay very little in taxes , but while such individual cases exist , according to the Congressional Budget , the typical pattern is that people with higher incomes pay a higher average share of their income in federal income taxes . Of course , the fact that some degree of redistribution occurs now through the federal income tax and government antipoverty programs does not settle the questions of how much redistribution is appropriate , and whether more redistribution should occur . The Ladder of Opportunity Economic inequality is perhaps most troubling when it is not the result of effort or talent , but instead is determined by the circumstances under which a child grows up . One child attends a grade school and high school and heads on to college , while parents help out by supporting education and other interests , paying for college , a first car , and a house , and offering work connections that lead to internships and jobs . Another child attends a poorly run grade school , barely makes it through a high school , does not go to college , and lacks family and peer support . These two children may be similar in their underlying talents and in the effort they put forth , but their economic outcomes are likely to be quite different . Public policy can attempt to build a ladder of opportunities so that , even though all children will never come from identical families and attend identical schools , each child has a reasonable opportunity to attain an economic niche in society based on their interests , desires , talents , and efforts . Table shows some of those initiatives . Children College Level Adults Improved day Widespread loans and grants for those in Opportunities for retraining and acquiring care need new skills Enrichment Public support for a range of institutions from Prohibiting discrimination in job markets programs for community colleges to large research and housing on the basis of race , gender , preschoolers universities age , and disability Improved public schools TABLE Public Policy Initiatives

378 15 Poverty and Economic Inequality Children College Level Adults After school and community activities Internships and TABLE Public Policy Initiatives Some have called the United States a land of opportunity . Although the general idea of a ladder of opportunity for all citizens continues to exert a powerful attraction , are often quite controversial . Society can experiment with a wide variety of proposals for building a ladder of opportunity , especially for those who otherwise seem likely to start their lives in a disadvantaged position . The government needs to carry out such policy experiments in a spirit of , because some will succeed while others will not show positive results or will cost too much to enact on a widespread basis . Inheritance Taxes There is always a debate about inheritance taxes . It goes like this Why should people who have worked hard all their lives and saved up a substantial nest egg not be able to give their money and possessions to their children and grandchildren ?

In particular , it would seem if children were unable to inherit a family business or a family home . Alternatively , many Americans are far more comfortable with inequality resulting from people who earned their money by starting innovative new companies than they are with inequality resulting from people who have inherited money from rich parents . The United States does have an estate is , a tax imposed on the value of an suggests a willingness to limit how much wealth one can pass on as an inheritance . However , in 2022 the estate tax applied only to those leaving inheritances of more than million and thus applies to only a tiny percentage of those with high levels of wealth . The Tradeoff between Incentives and Income Equality Government policies to reduce poverty or to encourage economic equality , if carried to extremes , can injure incentives for economic output . The poverty trap , for example , a situation where guaranteeing a certain level of income can eliminate or reduce the incentive to work . An extremely high degree of redistribution , with very high taxes on the rich , would be likely to discourage work and entrepreneurship . Thus , it is common to draw the economic output and equality , as Figure ( a ) shows . In this formulation , if society wishes a high level of economic output , like point A , it must also accept a high degree of inequality . Conversely , if society wants a high level of equality , like point , it must accept a lower level of economic output because of reduced incentives for production . This view of the economic output and equality may be too pessimistic , and Figure 1510 ( presents an alternate vision . Here , the tradeoff between economic output and equality slopes up , in the vicinity of choice , suggesting that certain programs might increase both output and economic equality . For example , the policy of providing free public education has an element of redistribution , since the value of the public schooling received by children of families is clearly higher than what families pay in taxes . A population , however , is also an enormously powerful factor in providing the skilled workers of tomorrow and helping the economy to grow and expand . In this case , equality and economic growth may complement each other . Access for free at

Government Policies to Reduce Income Inequality Moreover , policies to diminish inequality and soften the hardship may sustain political support for a market economy . After all , if society does not make some effort toward reducing inequality and poverty , the alternative might be that people would rebel against market forces . Citizens might seek economic security by demanding that their legislators pass laws forbidding employers from ever laying off workers or reducing wages , or laws that would impose price and price ceilings and shut off international trade . From this viewpoint , policies to reduce inequality may help economic output by building social support for allowing markets to operate . A Lu Lu Equality Equality ( a ) Greater equality always reduces output ( Equality and output rise together but then face a FIGURE The Tradeoff between Incentives and Economic Equality ( a ) Society faces a where any attempt to move toward greater equality , like moving from choice A to , involves a reduction in economic output . Situations can arise like point , where it is possible both to increase equality and also to increase economic output , to a choice like It may also be possible to increase equality with little impact on economic output , like the movement from choice to However , at some point , too aggressive a push for equality will tend to reduce economic output , as in the shift from to The tradeoff in Figure ( then out in the area between points and , which the pattern that a number of countries that provide similar levels of income to their United States , Canada , European Union nations , Japan , and different levels of inequality . The pattern suggests that countries in this range could choose a greater or a lesser degree of inequality without much impact on economic output . Only if these countries push for a much higher level of equality , like at point , will they experience the diminished incentives that lead to lower levels output . In this view , while a danger always exists that an agenda to reduce poverty or inequality can be poorly designed or pushed too far , it is also possible to discover and design policies that improve equality and do not injure incentives for economic output by very even improve such incentives . BRING IT HOME Occupy Wall Street The Occupy movement took on a life of its own over the last few months of 2011 , bringing to light issues that many people faced on the lower end of the income distribution . The contents of this chapter indicate that there is a amount of income inequality in the United States . The question is What should be done about it ?

The Great Recession caused unemployment to rise and incomes to fall . Many people attribute the recession to mismanagement of the system by bankers and in the of the income those in lower bore the greater burden of the recession through unemployment . This seemed to present the picture of inequality in a different light the group that seemed responsible for the recession was not the group that seemed to bearthe burden of the decline in output . A burden shared can bring a

380 15 Poverty and Economic Inequality society closer together . A burden pushed off onto others can polarize it . On one level , the problem with trying to reduce income inequality comes down to whether you still believe in the American Dream . If you believe that one day you will have your American large income , large house , happy family , or whatever else you would like to have in you do not necessarily want to prevent anyone else from living out their dream . You certainly would not want to run the risk that someone would want to take part of your dream away from you . Thus , there is some reluctance to engage in a redistributive policy to reduce inequality . However , when those for whom the likelihood of living the American Dream is very small are considered , there are sound arguments in favor of trying to create greater balance . As the text indicated , a little more income equality , gained through programs like increased education and job training , can increase overall economic output . Then everyone is made better off , and the will not seem like such a small group any more . Access for free at

15 Key Terms 381 Key Terms earned income tax credit ( a method of assisting the working poor through the tax system effective income tax percentage of total taxes paid divided by total income estate tax a tax imposed on the value of an inheritance income a of money received , often measured on a monthly or an annual basis income inequality when one group receives a disproportionate share of total income or wealth than others curve a graph that compares the cumulative income actually received to a perfectly equal distribution of income it shows the share on the horizontal axis and the cumulative percentage of total income received on the vertical axis Medicaid a joint program enacted in 1965 that provides medical insurance for certain ( not all ) people with a , including those near the poverty line as well as those below the poverty line , and focusing on families with children , the elderly , and people with disabilities poverty the situation ofbeing below a certain level of income one needs for a basic standard of living poverty line the amount of income one requires for a basic standard of living poverty rate percentage of the population living below the poverty line poverty trap antipoverty programs set up so that government decline substantially as people earn more a result , working provides little gain progressive tax system a tax system in which the rich pay a higher percentage of their income in taxes , rather than a higher absolute amount quintile dividing a group into , a method economists often use to look at distribution of income redistribution taking income from those with higher incomes and providing income to those with lower incomes safety net the group of government programs that provide assistance to people at or near the poverty line Supplemental Nutrition Assistance Program ( SNAP ) a federally funded program , started in 1964 , in which each month poor people receive SNAP cards they can use to buy food wealth the sum of the value of all assets , including money in bank accounts , investments , a pension fund , and the value ofa home Key Concepts and Summary Drawing the Poverty Line Wages are by Supply and demand in labor markets wages . This can lead to very low incomes for some people and very high incomes for others . Poverty and income inequality are not the same thing . Poverty applies to the condition of people who can not afford the necessities of life . Income inequality refers to the disparity between those with higher and lower incomes . The poverty rate is what percentage of the population lives below the poverty line , which the amount of income that it takes to purchase the necessities of life determines . Choosing a poverty line will always be somewhat controversial . The Poverty Trag A poverty trap occurs when payments decline as the recipients earn more income . As a result , the recipients do not end up with much more income when they work , because the loss of government support largely or completely offsets any income that one earns by working . Phasing out government more slowly , as well as imposing requirements for work as a condition of receiving and a time limit on can reduce the harshness of the poverty trap . The Safety Net We call the group of government programs that address poverty the safety net . In the United States , prominent safety net programs include Temporary Assistance to Needy Families ( the Supplemental Nutrition Assistance Program ( SNAP ) the earned income tax credit ( Medicaid , and the Special Supplemental Food Program for Women , Infants , and Children (

382 15 Questions Income Inequality Measurement and Causes Measuring inequality involves making comparisons across the entire distribution of income . One way of doing this is to divide the population into groups , like , and then calculate what share of income each group receives . An alternative approach is to draw curves , which compare the cumulative income actually received to a perfectly equal distribution of income . Income inequality in the United States increased substantially from the late and early into the . The two most common explanations that economists cite are changes in household structures that have led to more couples and parent families , and the effect of new information and communications technology on wages . Government Policies to Reduce Income Inequality Policies that can affect the level of economic inequality include redistribution between rich and poor , making it easier for people to climb the ladder of opportunity and estate taxes , which are taxes on inheritances . Pushing too aggressively for economic equality can run the risk of decreasing economic incentives . However , a moderate push for economic equality can increase economic output , both through methods like improved education and by building a base of political support for market forces . Questions . Describe how each of these changes is likely to affect poverty and inequality a . Incomes rise for and workers , but rise more for the earners . Incomes fall for and workers , but fall more for earners . is a single father with one child . He can work as a server for per hour for up to hours per year . He is eligible for welfare , and so if he does not earn any income , he will receive a total of per year . He can work and still receive government , but for every of income , his welfare stipend is less . Create a table similar to Table that shows Jonathan options . Use four columns , the showing number of hours to work , the second showing his earnings from work , the third showing the government he will receive , and the fourth column showing his total income ( earnings government support ) Sketch a diagram opportunity set with and without government support . Imagine that the government the welfare policy that was affecting Jonathan in question , so that for each dollar someone like Jonathan earns at work , his government benefits diminish by only 30 cents . Reconstruct the table from question to account for this change in policy . Draw Jonathan opportunity sets , both for before this welfare program is enacted and after it is enacted . We have discovered that the welfare system discourages recipients from working because the more income they earn , the less welfare they receive . How does the earned income tax credit attempt to loosen the poverty trap ?

How does the attempt to loosen the poverty trap ?

A group of 10 people have the following annual incomes , Calculate the share of total income that each quintile receives from this income distribution . Do the top and bottom in this distribution have a greater or larger share of total income than the top and bottom of the income distribution ?

Access for free at . 10 . 11 . 12 . 13 . 15 Review Questions 383 Table 159 shows the share of income going to each quintile of the income distribution for the United Kingdom in 1979 and 1991 . Use this data to calculate what the points on a curve would be , and sketch the curve . How did inequality in the United Kingdom shift over this time period ?

How can you see the patterns in the in the curves ?

Share of Income 1979 1991 Top quintile Fourth quintile Middle quintile Second quintile Bottom quintile TABLE Income Distribution in the United Kingdom , 1979 and 1991 Using two demand and supply diagrams , one for the labor market and one for the labor market , explain how information technology can increase income inequality if it is a complement to workers like salespeople and managers , but a substitute for workers like file clerks and telephone receptionists . Using two demand and supply diagrams , one for the labor market and one for the labor market , explain how a program that increased educational levels for a substantial number of skill workers could reduce income inequality . Here is one hypothesis A social safety net can increase economic equality but will reduce economic output . Explain why this might be so , and sketch a production possibility curve that shows this tradeoff . Here is a second hypothesis A social safety net may lead to less regulation of the market economy . Explain why this might be so , and sketch a production possibility curve that shows this tradeoff . Which set of policies is more likely to cause a tradeoff between economic output and equality policies of redistribution or policies aimed at the ladder of opportunity ?

Explain how the production possibility frontier tradeoff between economic equality and output might look in each case . Why is there reluctance on the part of some in the United States to redistribute income so that greater equality can be achieved ?

Review Questions 14 . 15 . 16 . 17 . 18 . 19 . How is the poverty rate calculated ?

What is the poverty line ?

What is the difference between poverty and income inequality ?

How does the poverty trap discourage people from working ?

How can the effect of the poverty trap be reduced ?

How does the government support elderly people experiencing poverty ?

384 15 Critical Thinking Questions 20 . 21 . 22 . 23 . 24 . 25 . 26 . 27 . 28 . 29 . What is the safety net ?

explain the differences between , the earned income tax credit , SNAP , and Medicaid . Who is included in the top income quintile ?

What is measured on the two axes of a curve ?

country had perfect income equality what would the curve look like ?

How has the inequality of income changed in the economy since the late 19705 ?

What are some reasons why a certain degree of inequality of income would be expected in a market economy ?

What are the main reasons economists give for the increase in inequality of incomes ?

Identify some public policies that can reduce the level of economic inequality . Describe how a push for economic equality might reduce incentives to work and produce output . Then describe how a push for economic inequality might not have such effects . Critical Thinking Questions 30 . 31 . 32 . 33 . 34 . 35 . 36 . 37 . 38 . 39 . What goods and services would you include in an estimate of the basic necessities for a family of four ?

family of three earned , would they be able to make ends meet given the poverty threshold ?

Exercise and Exercise asked you to describe the tradeoff for . Since , in the first example , there is no monetary incentive for to work , explain why he may choose to work anyway . Explain what the opportunity costs of working and not working might be for in each example . Using your tables and graphs from Exercise and Exercise , analyze how the government welfare system affects Jonathan incentive to work . Explain how you would create a government program that would give an incentive for labor to increase hours and keep labor from falling into the poverty trap . Many critics of government programs to help individuals argue that these programs create a poverty trap . Explain how programs such as , SNAP , and Medicaid will affect individuals and whether or not you think these programs will families and children . Think about the business cycle during a recession , unemployment increases it decreases in an expansionary phase . Explain what happens to , SNAP , and Medicaid programs at each phase of the business cycle ( recession , trough , expansion , and peak ) Explain how a country may experience greater equality in the distribution of income , yet still experience high rates of poverty . Hint . Look at the Clear It How do governments measure poverty in countries ?

and compare to Table . The demand for skilled workers in the United States has been increasing . To increase the supply of skilled workers , many argue that immigration reform to allow more skilled labor into the United States is needed . Explain whether you agree or disagree . Explain a situation using the supply and demand for skilled labor in which the increased number of college graduates leads to depressed wages . Given the rising cost of going to college , explain why a college education will or will not increase income inequality . What do you think is more important to focus on when considering inequality income inequality or wealth inequality ?

Access for free at 40 . 41 . 42 . 43 . 15 Problems 385 To reduce income inequality , should the marginal tax rates on the top be increased ?

Redistribution of income occurs through the federal income tax and government antipoverty programs . Explain whether or not this level of redistribution is appropriate and whether more redistribution should occur . How does a society or a country make the decision about the tradeoff between equality and economic output ?

Hint Think about the political system . Explain what the and consequences are of not promoting equality or working to reduce poverty . Problems 44 . 45 . 46 . 47 . In country A , the population is 300 million and 50 million people are living below the poverty line . What is the poverty rate ?

In country , the population is 900 million and 100 million people are living below the poverty line . What is the poverty rate ?

Susan is a single mother with three children . She can earn per hour and works up to hours per year . However , if she does not earn any income at all , she will receive government totaling per year . For every of income she earns , her level of government support will be reduced by . Create a table , patterned after this one . The column should show Susan choices of how many hours to work per year , up to hours . The second column should show her earnings from work . The third column should show her level of government support , given her earnings . The column should show her total income , combining earnings and government support . Based on the table you created , what are the likely impacts of this kind of assistance program on Susan incentive to work ?

Are there additional opportunity costs that may reduce her incentive to work ?

A group of 10 people have the following annual incomes , Calculate the share of total income each quintile of this income distribution received . Do the top and bottom in this distribution have a greater or larger share of total income than the top and bottom of the income distribution for 2005 ?