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AP Economics

AP Economics. Mr. Bernstein Module 78: Income Distribution and Income Inequality January 8, 2014. AP Economics Mr. Bernstein. Poverty First arbitrary definition attempted in 1960’s Rises and falls with changes in economy No trend line – poverty higher in 2009 than 1973

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AP Economics

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  1. AP Economics Mr. Bernstein Module 78: Income Distribution and Income Inequality January 8, 2014

  2. AP EconomicsMr. Bernstein Poverty • First arbitrary definition attempted in 1960’s • Rises and falls with changes in economy • No trend line – poverty higher in 2009 than 1973 • Not spread evenly across population demographics • Caused by anything creating a barrier to full-time job with decent pay • Education or training opportunities • Language • Discrimination • Bad Luck • Consequences for Health, Learning

  3. AP EconomicsMr. Bernstein Poverty

  4. AP EconomicsMr. Bernstein Income Inequality: Quintile Analysis

  5. AP EconomicsMr. Bernstein Income Inequality: Gini Coefficient • Developed by CorradoGini in 1912 • Gini Coefficient = 0, income is distributed equally, as in column 3 • Gini Coefficient = 1, all income goes to one person (!)

  6. AP EconomicsMr. Bernstein Income Inequality: Gini Coefficient

  7. AP EconomicsMr. Bernstein Income Inequality: Gini Coefficient

  8. AP EconomicsMr. Bernstein Economic Insecurity and Antipoverty Programs • To avoid families falling into poverty, welfare state provides temporary assistance programs • Means-tested programs • Criteria determines eligibility for benefits (ie income) • Social Security, Unemployment Insurance • Progressive Taxes + Welfare System • Redistributes income (reduces Gini Coefficient)

  9. AP EconomicsMr. Bernstein The Debate Over Income Redistribution • Is this a legitimate role of the government? • Higher taxes to fund programs create DWL • Means-tested programs and “The Notch” • Example: Single Mom earns $5,000 in benefits if income < $15,000 and zero benefits if >$15,000 • If she currently earns $14,900, will she work overtime and earn an additional $1,000? • Phase-out levels reduce Notch effects • Are disincentives larger than consequences of poverty? • Economics can help calculate numbers but it often winds up being a question of values and philosophy (Normative)

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