Poverty and the Income Distribution

1. Poverty and the Income Distribution Wendy A. Stock, Ph.D. Professor and Department HeadDepartment of Agricultural Economics and Economics

2. Income Distribution Questions • How much $$ does it take to be “rich” in the U.S.? • How much $$ does it take to be in the top 1/2 of households in earnings? • How much $$ does it take to be in the top 1/5 of households in earnings?

3. Income Distribution Questions • How equally do we share our earnings? • Are the rich getting richer and the poor getting poorer?

4. Poverty Questions • What does it mean to be “living in poverty”? • Is poverty worse now than it was 20-50 years ago? • Why are some people and countries poor and others not?

5. Income Distribution Income Distribution shows the levels of income in an economy and the percentage of households earning those income levels.

6. Income Distribution Questions • How much $$ does it take to be “rich” in the U.S.? • How much $$ does it take to be in the top 1/2 of households in earnings? • How much $$ does it take to be in the top 1/5 of households in earnings?

7. US Median Household Income Values are adjusted for inflation to reflect 2008 dollars

8. Income Distribution Questions • How much $$ does it take to be “rich” in the U.S.? • How much $$ does it take to be in the top 1/2 of households in earnings? • How much $$ does it take to be in the top 1/5 of households in earnings?

9. Median U.S. Household Income by Quintile, 2012

10. Income Distribution Questions • How equally do we share our earnings? • Are the rich getting richer and the poor getting poorer?

11. U.S. Household Annual Income by Quintile Numbers in parentheses show average household incomes for each quintile

12. How Equally do We Share our Wealth? Source: Michael Norton and Dan Ariely, "Building a Better America - One Wealth Quintile At A Time"

13. How is income distributed inother countries?

15. How is world income shared across countries?

16. Global Income Distribution

17. Global Income Distribution

18. Income Distribution Questions • How equally do we share our earnings? • Are the rich getting richer and the poor getting poorer?

19. Are the Rich getting Richer? U.S. Household Annual Income by Quintile

20. Are Rich Countries Getting Richer?

21. Poverty

22. Poverty Questions • What does it mean to be “living in poverty”? • Is poverty worse now than it was 20-50 years ago? • Why are some people and countries poor and others not?

23. Poverty Threshold or Poverty Line U.S. poverty line 2012 single householder: $11,170 family of four: $23,050 specific level of income, below which a person is in poverty - varies by time, place, and family size Would that provide a comfortable lifestyle?

24. Poverty Rate % living below the poverty threshold

25. What about world poverty?

26. Percentage of Population Living onLess Than $1.25 Per Day, 2007-2008 • Source: http://en.wikipedia.org/wiki/File:Percentage_population_living_on_less_than_1_dollar_day_2007-2008.png From UN Human Development Statistics, licensed under the Creative Commons Attribution ShareAlike 3.0 license

27. Poverty Questions • What does it mean to be “living in poverty”? • Is poverty worse now than it was 20-50 years ago? • Why are some people or countries poor and others not?

28. Causes of Individual Poverty • Individual-level • Demographics • Skills, motivation, intelligence • Restricted opportunities educational quality, discrimination, health status

29. U.S. Poverty Rates by Demographic Characteristics, 2011

30. Causes of Individual Poverty • Structural or Macro-level • Recessions • Resource availability clean water, land, rainfall, animal health, roads, conflict

31. Causes of Country Poverty & Economic Growth Proximate Causes Fundamental Causes Physical Capital 2. Human Capital 3. Technology • Geography • climate, soil quality • Culture • Slow v. rapid change in religious beliefs, nationalistic ideas, etc. • Institutions • rule of law, property rights Source: DaronAcemoglu, MIT, “Why Nations Fail” http://economics.mit.edu/files/7850

32. How do we combat poverty?

33. U.S. Poverty Policy • Many Approaches • Direct payments • Food, health, and housing • Training and education • Tax policy (EITC) • Regulation (Minimum Wage)

34. Global Poverty Policy • UN Millennium Development Goals: • Combat global poverty • Combat global disease (AIDS, TB, Malaria) • Increase educational attainment • Improve women’s status • Promote environmental sustainability

35. Is poverty policy effective?

36. Poverty Policy Effectiveness?

37. Poverty Policy Effectiveness? Percentage of people living on less than $1.25/day, 1990, 1999, 2005

38. Discussion Questions What are the costs and benefits of having an unequal income distribution? What are the tradeoffs associated with providing income support to the poor?

39. Discussion Questions Suppose that a direct payment anti-poverty program provides a base payment of $10,000 per year to poor families. At the same time, however, the value of the base payment is reduced by $1.00 for every $1.00 of income the family earns. How would such a program affect a household’s incentive to work? Would the effect on work incentives be different if the base payment were reduced by only $0.50 for each dollar of income earned?

40. Other Sources for Discussion The PBS program, “The New Heroes” highlights social entrepreneurs, including those focused on problems of global poverty and disease. http://www.pbs.org/opb/thenewheroes/whatis/ Ehrenreich, Barbara (2001) Nickel and Dimed: On (Not) Getting By in America. New York, NY: Henry Holt and Company http://www.henryholt.com/holt/nickelanddimed.htm describes the author’s experience with living on the minimum wage for one year

41. Poverty and the Income Distribution Wendy A. Stock, Ph.D. Professor and Department HeadDepartment of Agricultural Economics and Economics