Spring, 2017 Income Inequality and Poverty Instructor: Xi Wang
Inequality Should people earn the exact same income? Not really... Averagely, 1/3 of the income comes from capital income. 2/3 from labor income People has different education level, different working hour, different occupation... It is hard to conclude that people should earn the same amount.
How to measure Inequality Imagine that you lined up all the families in the economy according to their annual income. Then you can divide them into five or ten or one hundred brackets. Take five as an example Then here is their average income Top/Bot = 9 Rich people occupy a larger fraction out of our aggregate income
How to measure Inequality Let's check how large this fraction is This is for five bracket. Income inequality If we have a finer bracket, say 10. What is the fraction of top 10% earn?
10% Percent
0.1% Percent
How to understand Inequality: Does 10% mean a lot? For example, we have 1000 people in this society, we are operating a firm together. We earn $1000 together. If the leader take $100, the rest get $0.9. So the top 0.1% get income fraction 100/1000=10% Yes, 10% is a small number, but what is the Top income/ Bottom income ratio?
Poverty Rate Poverty is not necessarily linked to inequality We can have a society filled with poor ones. Inequality is a relative concept. Poverty is more like a absolute standard: poverty line. Poverty line is set at roughly three times the cost of providing an adequate diet. For example, in U.S poverty line for a family of four was $23,021. The poverty rate was 15.0 percent
Poverty Rate, U.S Poverty is correlated with race. Blacks and Hispanics are about three times more likely to live in poverty than are whites. Poverty is correlated with family composition. Families headed by a female adult without a spouse present are about five times as likely to live in poverty as families headed by a married couple.
Mismeasured? We refer to the rich and the poor as if these groups consisted of the same families year after year. But actually, they are not the same! Economic mobility, the movement of people between income classes, is significant in the U.S. economy. Family income changes over time, temporary poverty is more common than the poverty rate suggests.
Policy to fight Poverty Minimum wage Welfare system. For example, Supplemental Security Income (SSI) provides assistance to the poor who are sick or disabled. Negative Income Tax: Usually, every family would report its income to the government. High-income families would pay a tax based on their incomes. Low-income families would receive a subsidy---- negative tax In-Kind Transfers; For example, charities provide the needy with food, clothing, shelter, and toys at Christmas. Work Incentive: Earned Income Tax Credit (EITC).allows poor working families to eceive income tax refunds greater than the taxes they paid during the year. Because the EITC applies only to the working poor, it does not discourage recipients from working
Policy to fight Poverty Teaching them how to fish is better than just give them a fish
Constructing and Interpreting Graphs Bar Charts: uses bars (no surprise there) of different heights or lengths to indicate the properties of different groups. Bar charts make it easy to compare a single variable across many groups.
Constructing and Interpreting Graphs x-axis, independent variable, labels the group y-axis, dependent variable, labels the variable we would like to investigate Here Inequality indexes of different countries.
Constructing and Interpreting Graphs With bar graphs, we can summarize how a variable is broken up into different groups(cross-section), but what if we want to understand how a variable changes over time? A time series graph displays data at different points in time.
Constructing and Interpreting Graphs
Constructing and Interpreting Graphs In this section, I state that income is related to education. You may ask, really? How I should show evidence? scatter plot: independent and dependent variable are the two variable we feel interested in. One oberservation will stand for a point. Scatter plot can only show correlation!
Constructing and Interpreting Graphs Any other way to establish income is increasing with education? Yes, Bar graphs. I group people in to different education bracket.
Constructing and Interpreting Graphs
Constructing and Interpreting Graphs