20Income Inequality and Poverty.docx

20Income Inequality and Poverty.docx

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20IncomeInequalityandPoverty

INCOMEINEQUALITYANDPOVERTY

“Theonlydifferencebetweentherichandotherpeople,”MaryColumoncesaidtoErnestHemingway,“isthattherichhavemoremoney.”Maybeso.Butthisclaimleavesmanyquestionsunanswered.Thegapbetweenrichandpoorisafascinat-ingandimportanttopicofstudy—forthecomfortablerich,forthestrugglingpoor,andfortheaspiringandworriedmiddleclass.

Fromtheprevioustwochaptersyoushouldhavesomeunderstandingaboutwhydifferentpeoplehavedifferentincomes.Aperson’searningsdependonthesupplyanddemandforthatperson’slabor,whichinturndependonnaturalabil-ity,humancapital,compensatingdifferentials,discrimination,andsoon.Becauselaborearningsmakeupaboutthree-fourthsofthetotalincomeintheU.S.econ-omy,thefactorsthatdeterminewagesarealsolargelyresponsiblefordetermininghowtheeconomy’stotalincomeisdistributedamongthevariousmembersofso-ciety.Inotherwords,theydeterminewhoisrichandwhoispoor.

INTHISCHAPTERYOUWILL...

Examinethedegreeofeconomic

inequalityinoursociety

Considersome

problemsthatarisewhenmeasuring

economicinequality

Seehowpoliticalphilosophersviewthegovernment’s

rolein

redistributingincome

Considerthe

variouspoliciesaimedathelpingpoorfamilies

escapepoverty

437

Inthischapterwediscussthedistributionofincome.Asweshallsee,thistopicraisessomefundamentalquestionsabouttheroleofeconomicpolicy.OneoftheTenPrinciplesofEconomicsinChapter1isthatgovernmentscansometimesim-provemarketoutcomes.Thispossibilityisparticularlyimportantwhenconsider-ingthedistributionofincome.Theinvisiblehandofthemarketplaceactstoallocateresourcesefficiently,butitdoesnotnecessarilyensurethatresourcesareallocatedfairly.Asaresult,manyeconomists—thoughnotall—believethatthegovernmentshouldredistributeincometoachievegreaterequality.Indoingso,however,thegovernmentrunsintoanotheroftheTenPrinciplesofEconomics:

Peo-plefacetradeoffs.Whenthegovernmentenactspoliciestomakethedistributionofincomemoreequitable,itdistortsincentives,altersbehavior,andmakestheal-locationofresourceslessefficient.

Ourdiscussionofthedistributionofincomeproceedsinthreesteps.First,weassesshowmuchinequalitythereisinoursociety.Second,weconsidersomedif-ferentviewsaboutwhatrolethegovernmentshouldplayinalteringthedistribu-tionofincome.Third,wediscussvariouspublicpoliciesaimedathelpingsociety’spoorestmembers.

THEMEASUREMENTOFINEQUALITY

Webeginourstudyofthedistributionofincomebyaddressingfourquestionsofmeasurement:

◆Howmuchinequalityisthereinoursociety?

◆Howmanypeopleliveinpoverty?

“AsfarasI’mconcerned,theycandowhattheywantwiththeminimumwage,justaslongastheykeeptheirhandsoffthemaximumwage.”

◆Whatproblemsariseinmeasuringtheamountofinequality?

◆Howoftendopeoplemoveamongincomeclasses?

Thesemeasurementquestionsarethenaturalstartingpointfromwhichtodiscusspublicpoliciesaimedatchangingthedistributionofincome.

U.S.INCOMEINEQUALITY

Therearevariouswaystodescribethedistributionofincomeintheeconomy.Table20-1presentsaparticularlysimpleway.Itshowsthepercentageoffamiliesthatfallintoeachofsevenincomecategories.Youcanusethistabletofindwhereyourfamilyliesintheincomedistribution.

Forexaminingdifferencesintheincomedistributionovertimeoracrosscoun-tries,economistsfinditmoreusefultopresenttheincomedataasinTable20-2.Toseehowtointerpretthistable,considerthefollowingthoughtexperiment.Imag-inethatyoulinedupallthefamiliesintheeconomyaccordingtotheirannualin-come.Thenyoudividedthefamiliesintofiveequalgroups:

thebottomfifth,thesecondfifth,themiddlefifth,thefourthfifth,andthetopfifth.Nextyoucomputedtheshareoftotalincomethateachgroupoffamiliesreceived.Inthisway,youcouldproducethenumbersinTable20-2.

Thesenumbersgiveusawayofgauginghowtheeconomy’stotalincomeisdis-tributed.Ifincomewereequallydistributedacrossallfamilies,eachone-fifthoffam-ilieswouldreceiveone-fifth（20percent）ofincome.Ifallincomewereconcentratedamongjustafewfamilies,thetopfifthwouldreceive100percent,andtheotherfifthswouldreceive0percent.Theactualeconomy,ofcourse,isbetweenthesetwoextremes.Thetableshowsthatin1998thebottomfifthofallfamiliesreceived4.2percentofallincome,andthetopfifthofallfamiliesreceived47.3percentofallin-come.Inotherwords,eventhoughthetopandbottomfifthsincludethesamenum-beroffamilies,thetopfifthhasabouttentimesasmuchincomeasthebottomfifth.

ThelastcolumninTable20-2showstheshareoftotalincomereceivedbytheveryrichestfamilies.In1998,thetop5percentoffamiliesreceived20.7percentoftotalincome.Thus,thetotalincomeoftherichest5percentoffamilieswasgreaterthanthetotalincomeofthepoorest40percent.

Table20-2alsoshowsthedistributionofincomeinvariousyearsbeginningin

1935.Atfirstglance,thedistributionofincomeappearstohavebeenremarkably

stableovertime.Throughoutthepastseveraldecades,thebottomfifthoffamilies

Lessthan$15,000

11.7%

THEDISTRIBUTIONOFINCOMEIN

THEUNITEDSTATES:

1998

$15,000-$24,999

12.3

$25,000-$34,999

12.7

$35,000-$49,999

16.8

$50,000-$74,999

21.5

$75,000-$99,999

11.7

$100,000andover

13.3

Source:

U.S.BureauoftheCensus.

ANNUALFAMILYINCOMEPERCENTOFFAMILIES

Table20-1

Table20-2

INCOMEINEQUALITYINTHE

YEAR

BOTTOM

FIFTH

SECOND

FIFTH

MIDDLE

FIFTH

FOURTH

FIFTH

TOP

FIFTH

TOP

5PERCENT

UNITEDSTATES.Thistable

showsthepercentoftotalbefore-

1998

4.2%

9.9%

15.7%

23.0%

47.3%

20.7%

taxincomereceivedbyfamilies

1990

4.6

10.8

16.6

23.8

44.3

17.4

ineachfifthoftheincome

1980

5.2

11.5

17.5

24.3

41.5

15.3

distributionandbythose

1970

5.5

12.2

17.6

23.8

40.9

15.6

familiesinthetop5percent.

1960

4.8

12.2

17.8

24.0

41.3

15.9

1950

4.5

12.0

17.4

23.4

42.7

17.3

1935

4.1

9.2

14.1

20.9

51.7

26.5

Source:

U.S.BureauoftheCensus.

hasreceivedabout4to5percentofincome,whilethetopfifthhasreceivedabout

40to50percentofincome.Closerinspectionofthetablerevealssometrendsinthe

degreeofinequality.From1935to1970,thedistributiongraduallybecamemore

equal.Theshareofthebottomfifthrosefrom4.1to5.5percent,andtheshareof

thetopfifthfellfrom51.7percentto40.9percent.Inmorerecentyears,thistrend

hasreverseditself.From1970to1998,theshareofthebottomfifthfellfrom5.5

percentto4.2percent,andtheshareofthetopfifthrosefrom40.9to47.3percent.

InChapter19wediscussedsomeofthereasonsforthisrecentincreaseinin-

equality.Increasesininternationaltradewithlow-wagecountriesandchangesin

technologyhavetendedtoreducethedemandforunskilledlaborandraisethede-

mandforskilledlabor.Asaresult,thewagesofunskilledworkershavefallenrel-

ativetothewagesofskilledworkers,andthischangeinrelativewageshas

increasedinequalityinfamilyincomes.

CASESTUDYTHEWOMEN’SMOVEMENTANDTHEINCOMEDISTRIBUTION

Overthepastseveraldecades,therehasbeenadramaticchangeinwomen’sroleintheeconomy.Thepercentageofwomenwhoholdjobshasrisenfromabout32percentinthe1950stoabout54percentinthe1990s.Asfull-timehomemakershavebecomelesscommon,awoman’searningshavebecomeamoreimportantdeterminantofthetotalincomeofatypicalfamily.

Althoughthewomen’smovementhasledtomoreequalitybetweenmenandwomeninaccesstoeducationandjobs,ithasalsoledtolessequalityinfam-ilyincomes.Thereasonisthattheriseinwomen’slabor-forceparticipationhasnotbeenthesameacrossallincomegroups.Inparticular,thewomen’smove-menthashaditsgreatestimpactonwomenfromhigh-incomehouseholds.Womenfromlow-incomehouseholdshavelonghadhighratesofparticipationinthelaborforce,eveninthe1950s,andtheirbehaviorhaschangedmuchless.

Inessence,thewomen’smovementhaschangedthebehaviorofthewivesofhigh-incomemen.Inthe1950s,amaleexecutiveorphysicianwaslikelytomarryawomanwhowouldstayathomeandraisethechildren.Today,thewifeofamaleexecutiveorphysicianismorelikelytobeanexecutiveorphysicianherself.Theresultisthatrichhouseholdshavebecomeevenricher,apatternthatraisesinequalityinfamilyincomes.

Asthisexampleshows,therearesocialaswellaseconomicdeterminantsofthedistributionofincome.Moreover,thesimplisticviewthat“incomeinequal-ityisbad”canbemisleading.Increasingtheopportunitiesavailabletowomenwassurelyagoodchangeforsociety,evenifoneeffectwasgreaterinequalityinfamilyincomes.Whenevaluatinganychangeinthedistributionofincome,pol-icymakersmustlookatthereasonsforthatchangebeforedecidingwhetheritpresentsaproblemforsociety.

EQUALITYFORWOMENHASMEANTLESSEQUALITYFORFAMILYINCOMES.

CASESTUDYINCOMEINEQUALITYAROUNDTHEWORLD

HowdoestheamountofincomeinequalityintheUnitedStatescomparetothatinothercountries?

Thisquestionisinteresting,butansweringitisproblematic.Formanycountries,dataare