Notice the tremendous variation in compensation among different individuals and occupations presented on page 769.

The share distribution of income approach is normally presented with a table and then a graph. See the Lorenz curve at the top of page 771. Households are first ranked from lowest to highest in terms of income. Then they are divided by twenty percent groupings, or quintiles. See the table on page 771. Each quintile's share of income is cumulated to provide the information necessary to draw a Lorenz curve. Study the Lorenz curves presented at the top of page 772 and in the middle of page 775. When graphing a Lorenz curve, the percentage of households should be on the horizontal axis; the cumulative percentage of income held by the quintiles should be on the vertical axis. Make sure you calculate the cumulative percentage of income held by each quintile or your graph will be invalid. In other words, in the table on page 771, the right-hand column contains the necessary numbers.

To view additional Lorenz curves, go to the Index of Course Materials and click on Graphs and Charts/Unit Four/Assignment Three.

Study the official definition of poverty near the bottom of p. 772. Be aware of the possible flaws in data and methodology presented on p. 773. Economics statistics in this area are subject to varying interpretations.

The distribution of wealth, as distinct from income, is discussed on pp. 776-777. Notice the Lorenz curve for wealth distribution at the top of page 777. According to the data presented on page 777, the wealthiest 20% of U.S. households control about 84% of the wealth.

Study the tables at the top of page 778 and follow the author?s presentation of the types and causes of discrimination in the workplace. This begins at the bottom of page 777.

The issue of redistribution of income is discussed on pp. 783-785. This may be thought of as a trade-off between pure efficiency and concessions to "equity", or "fairness". That is, pure efficiency would provide for no social insurance or public assistance programs. In order to survive and prosper, one would have to be productive in the workplace (or have rich relatives). The tax system and government transfer payments would not be used for the purpose of redistributing income.

But there may be valid reasons for paying taxes that are used for transfer payments. Supporting a permanently and totally disabled person or a very elderly individual who has few assets and little income are examples of why transfer payments are needed in some cases. Most people support the idea that there should be some income maintenance programs. This is where the fairness issue offsets a pure efficiency approach. The question is: how deep and how wide should our system of transfer payments be? What should be the eligibility requirements for public assistance and other transfers?

Returning to the efficiency perspective, too many transfers result in a socialistic economy and create disincentives for individuals to be productive. If too much of what one earns has to be paid to government in taxes or if transfer payments are so easy to obtain that one does not have to be a contributor in the workforce in order to live comfortably, then we have excessive transfer payments.

Look at the before taxes and transfers Lorenz curve and the after taxes and transfers Lorenz curve shown on the top of page 785.