Chapter 7 Poverty and Discrimination: Why Are So Many Still Poor? Copyright © 2010 by the McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin.

Chapter 7Poverty and Discrimination: Why

Are So Many Still Poor?

Copyright © 2010 by the McGraw-Hill Companies, Inc. All rights reserved.

McGraw-Hill/Irwin

7-2

Poverty

7-3

What Is Poverty?

7-4

Criticisms of How Poverty Is Measured

• Omission of in-kind benefits

• Food budget multiplier

• Regional differences in the cost of living

7-5

Who Are the Poor?

• Temporary versus Hardcore poverty

• Family Structure

• Age

• Race and Ethnicity

• Regional differences

7-6

Household Income Inequality - 2007

Households Share of Income

Income Limit

Mean Income

Lowest Fifth 3.4% $11,551

Second Fifth 8.7% $20,291 $29,442

Third Fifth 14.8% $39,100 $49,968

Fourth Fifth 23.4% $62,000 $79,111

Highest Fifth 49.7% $100,000 $167,971

Median $50,233 Mean $67,609

Source: U.S. Bureau of the Census

7-7

Trends in Household Income Inequality

Share of Household Income by Quintile

Households 1970 1980 1990 2000 2007

Lowest Fifth 4.1 4.2 3.8 3.6 3.4

Second Fifth 10.8 10.2 9.6 8.7 8.7

Third Fifth 17.4 16.8 15.9 14.6 14.8

Fourth Fifth 24.5 24.6 24.0 23.0 23.4

Highest Fifth 43.3 44.2 46.6 49.8 49.7

7-8

Economic Causes of the Increase in Inequality

• Decline in well-paying manufacturing jobs

• Decline in unionization rates

• Decline in real value of the minimum wage

• Tax cuts

7-9

Determinants of Resource Prices and Employment

Labor–person-hours

D

D

S

S

w0

w1

w2

q0q1 q2 Capital

Rental rate

D

D

S

S

r0

K0

Rate

7-10

Determination of Individual or Family Income

Income = w * L + r * K

7-11

Determinants of Income Distribution

• Income Differences due to Differences in Labor Resources and Their Use Differences in Brawn

and Brains Differences in the

Capital Workers have to Work with

Differences in taste for leisure

Differences in Marginal Revenue Across Firms

• Causes of Differences in Capital Resource Ownership Inheritance Luck Propensities to

Accumulate

7-12

The Effects of Discrimination on Income

• What is discrimination?

• Market discrimination

• Power to discriminate Monopoly power in product market Monopsony power in factor market Exploitation

• Desire to discriminate Prejudice

7-13

Evidence of Discrimination in Our Economy

• Legitimate Causes of Wage Differentials

• Wage Discrimination

• Employment Discrimination

• Occupational Discrimination

7-14

Government Attempts to Alleviate Poverty

• The Old Federal Welfare System Income Support – AFDC and SSI Health Care Support - Medicaid Food and Nutrition Assistance – Food

Stamps and School Lunch program Housing Assistance – Subsidies and

Vouchers Other Social Services Training and Employment

7-15

Problems with the Old Welfare System

• Work Incentives

• Family Structure Incentives

• Welfare Dependency

7-16

Adjusted Gross Income (AGI) - Exemptions - Deductions Taxable Income * tax rate Tax liability before credits - Credits Tax liability after credits

How Tax Credits Work

7-17

Welfare Reform

• Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA) – 1996 “end welfare as we have known it”

• Income Support – TANF

• Medicaid

• Food Stamps

• SSI and Other Social Services

7-18

Earned Income Tax Credit

Earnings

Tax Credit

$10,500 $14,750 $34,700

$4,200

7-19

Negative Income Tax

$ Income

$ TaxLiability Taxes Paid

Subsidy ReceivedG

B

Income tax

7-20

What Can Be Done About Discrimination?

• Reduce Tastes for Discrimination Education Legislation

Equal Pay Act of 1963Civil Rights Act of 1964

Government Subsidies• Reducing Market Imperfections• Reduce Discrimination in Development of Human

Capital• Reduce Occupational Segregation

7-21

Characteristic Poverty Rate

All People 12.5

Family Structure

Married-Couple 4.9

Female Householder, No Husband Present

28.3

Male Householder, No Wife Present 13.6

Poverty by Family Structure 2007

7-22

Characteristic Poverty Rate

All People 12.5

Age

Under 18 years 18.0

18-64 years 10.9

65 years and older 9.7

Poverty by Age 2007

7-23

Characteristic Poverty Rate

All People 12.5

Race and Ethnicity

White 10.5

White, not Hispanic 8.2

Black 24.5

Asian 10.2

Hispanic origin 21.5

Poverty by Race and Ethnicity 2007

7-24

Poverty by Family

Structure, Race and Ethnicity

2007

Characteristics Percent

All Family Types

All 9.8

White 5.9

Black 22.1

Asian 7.9

Hispanic 19.7

Married Couples

All 3.2

White 4.5

Black 6.8

Asian 6.6

Hispanic 13.4

Female Householders, No Husband Present

All 28.3

White 20.7

Black 37.3

Asian 16.1

Hispanic 38.4

Male Householder, No Wife Present

All 13.6

White 10.3

Black 25.7

Asian 7.6

Hispanic 15.3

7-25

Characteristic Poverty Rate

All People 12.5

Regional Differences

Northeast 11.4

Midwest 11.1

South 14.2

West 12.0

Poverty by Region, 2007