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Income Inequality

Income Inequality. November 6, 2013 Ec 10 Trisha Shrum. Announcements. Review Session Monday, 7:40pm -9 :10pm , Room TBA Office Hours: Today 1-3pm, Robinson 205 Friday 1:30-3:30 (extended), Littauer basement lounge Monday 4- 6pm, Littauer basement conference room B

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Income Inequality

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  1. Income Inequality November 6, 2013 Ec 10 Trisha Shrum

  2. Announcements • Review Session Monday, 7:40pm-9:10pm, Room TBA • Office Hours: • Today 1-3pm, Robinson 205 • Friday 1:30-3:30 (extended), Littauer basement lounge • Monday 4-6pm, Littauer basement conference room B • Exam next Wednesday • Units IV-VI (Chapter 10-20)

  3. Income Inequality

  4. Income Inequality • Measuring income inequality • Trends over time • Global Income Inequality • Measuring poverty

  5. Quintiles • Definition: a population segment that contains exactly 20 percent, or one fifth of the population in question • Easily digestible, standardized method of looking at income distribution

  6. Quintiles: Household Income

  7. Wealth Distribution

  8. Lorenz Curve

  9. Gini Coefficient • Single number that measures income inequality • Between 0 and 1 • 0 = Complete Income Equality (everyone has the same income) • 1 = Complete Income Inequality (1 guy has it all, everyone else has nothing)

  10. Lorenz Curve & Gini Coefficient Example What percent of total national income does 0% of the population receive?

  11. Lorenz Curve & Gini Coefficient Example What percent of total national income does 20% of the population receive?

  12. Quintiles: Household Income

  13. Lorenz Curve & Gini Coefficient Example What percent of total national income does the poorest 20% of the population receive?

  14. Quintiles: Household Income

  15. Lorenz Curve & Gini Coefficient Example What percent of total national income does the poorest 40% of the population receive?

  16. Quintiles: Household Income

  17. Lorenz Curve & Gini Coefficient Example What percent of total national income does the poorest 60% of the population receive?

  18. Quintiles: Household Income

  19. Lorenz Curve & Gini Coefficient Example What percent of total national income does the poorest 80% of the population receive?

  20. Lorenz Curve & Gini Coefficient Example What percent of total national income does the poorest 100% of the population receive?

  21. Gini Coefficient=Area A / (Area A + Area B)

  22. Lorenz Curve & Gini Coefficient Example • Starting at 0% of the population… • What percent of total national income does 0% of the population receive? • 0% • 20% Percentile • What percent of total national income does 20% of the population receive?

  23. U.S. Gini Coefficient Over Time

  24. What is driving increasing income inequality??

  25. Income Inequality Around the World: Gini Coefficients

  26. Income Before & After Taxes Source: Bureau of Labor Statistics (http://www.bls.gov/cex/2010/aggregate/quintile.pdf)

  27. Measuring Poverty • Official government definition based on two calculations made in 1960s • First: calculated that a typical family spends 1/3 of income on food • Second: Expenditure for low-cost but nutrionally adequate diet calculated for different family sizes • Multiply cost of food for family times 3 = poverty time • Adjusted for changes in consumer prices • One person: $10,590. Family of four: $21,203. Family of 8: $35,816

  28. Critiques of Poverty Count • Doesn't account for: • How far a person is below the poverty line • poverty gap accounts for this: amount of money needed to bring a person up to the poverty line • Differences in cost of living • Benefits such as food stamps or health insurance. • Taxes paid • Living standards depend on consumption, not income. • AmartyaSen: differences in income requirements to achieve basic functioning. • Ex: If one person has a serious illness, requires a much greater level of income to achieve basic functioning

  29. Wrap-Up • Measurement: Gini Coefficient, Lorenz Curve, Poverty Line, Poverty Gap • Global Trends: • Global Gini = 0.68 • US Gini= 0.41 • Time Trends: • Income inequality: • US: Decreased after Great Depression • US: Increasing since 1970’s • Poverty Count • High in 1960’s • 11-15% since 1970’s

  30. “Income inequality can be measured and compared using something called the Gini coefficient, a century-old formula that measures national economies on a scale from 0.00 to 0.50, with 0.50 being the most unequal.” -Max Fisher, The Atlantic, Sept 19, 2011.

  31. “Income inequality can be measured and compared using something called the Gini coefficient, a century-old formula that measures national economies on a scale from 0.00 to 0.50, with 0.50 being the most unequal.” • Max Fisher, The Atlantic, Sept 19, 2011. • Pop Quiz: Do Max Fisher and his editors need to (re)take Ec 10?

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