~ Income gap b/t rich and poor is widest than any time since WW2
~ Should US govt. take action to reduce this gap?
Poverty in US
~ 1998: 34.5 million people (12.7% of population)
were living in poverty
~ Poverty level is determined by govt;
~ It represents the income required to meet basic
needs
~ 2000 poverty level: $17,603 for a family of four
~ first poverty model created by Social Security
Administration (SSA)
~ found that average family of three or more spent
1/3 of after-tax income on food; SSA then designed food plans for different
size
families and multiplied the cost
by 3; this equaled the poverty level
~ Poverty Rate: percentage of population living
in poverty
~ Poverty rate has been dropping: 1999 = 11.8% of
individuals and 9.3% of families
Distribution of Income
~ Why the large gap?
~ Different starting points in life
~ Different talents (some are in demand, others
are not)
~ Misplaced American values?
Measuring Inequality
~ 1995: richest 20% of families earned 49% of wealth;
poorest 20% earned 5% of wealth
~ Lorenz Curve: shows distribution of income
Growing Income Gap
~ Is the gap getting larger? Yes. Why?
~ Changes in Households
~ Well-off people are more likely to marry, which combines their resources
~ Poorer people are more likely to be single parents and get divorced
~ Changes in the Labor Market
~ Corporate "downsizing" of late 80s and early 90s increased unemployment
~ Many settled for lower-paying jobs (often temporary jobs too)
~ Inflation increased more than minimum wage = decline in real value of
min. wage
~ Decrease in power of labor unions since 1970s = loss of negotiating power
~ Changes in Technology
~ Less
demand for low-skill workers
~ income
levels reflect education levels
~ Growth of Global Economy
~ US companies relocate to other countries b/c costs are lower
~ Led to further decrease in low-skilled jobs
Narrowing the Income Gap: what to do?
~ Increase training for low-skilled workers (where
does $ come from?)
~ Redistribute income by increasing taxes for the
wealthy and spending on programs that serve low-income families (is this
fair?)
~ Raise minimum wage (could lead to loss of jobs)
~ Limit opportunities for companies to relocate
abroad (aren't we a capitalistic society that believes in free trade?)