1 income distribution of income the way income is allocated among the population the way income is...
TRANSCRIPT
11
IncomeIncome
Distribution of IncomeDistribution of Income The way income is allocated among The way income is allocated among
the populationthe population
22
IncomeIncome
Income sourcesIncome sources Payment for a factor of productionPayment for a factor of production GiftsGifts Government transfersGovernment transfers
33
IncomeIncome
Lorenz CurveLorenz Curve A geometric representation A geometric representation
of the distribution of incomeof the distribution of income A Lorenz curve that is perfectly straight A Lorenz curve that is perfectly straight
represents complete income equalityrepresents complete income equality The more bowed a Lorenz curve, the more The more bowed a Lorenz curve, the more
unequally income is distributedunequally income is distributed
44
The Lorenz CurveThe Lorenz Curve
Figure 30-1
55
Lorenz Curves of Income Distribution, Lorenz Curves of Income Distribution, 1929 and 19961929 and 1996
Figure 30-2
66
IncomeIncome
Criticisms of the Lorenz curveCriticisms of the Lorenz curve It does not include It does not include income in kindincome in kind..
Income received in the form of goods and Income received in the form of goods and servicesservices
It does not account for the differences in It does not account for the differences in size of households or the number of wage size of households or the number of wage earners they contain.earners they contain.
77
IncomeIncome
Criticisms of the Lorenz curveCriticisms of the Lorenz curve It does not account for age differences.It does not account for age differences. It ordinarily reflects money income It ordinarily reflects money income before before
taxes.taxes. It does not measure unreported income.It does not measure unreported income.
88
Income Group 1996 1973 1960 1947
Lowest fifth 4.5 5.5 4.8 5.1
Second fifth 10.5 11.9 12.2 11.8
Third fifth 17.1 17.5 17.8 16.7
Fourth fifth 24.1 24.0 24.0 23.2
Highest fifth 43.9 41.1 41.3 43.3
Percentage Share of Money IncomePercentage Share of Money Incomefor Households Before Direct Taxesfor Households Before Direct Taxes
Does not include food stamps,housing, education, etc.
Source: U.S. Bureau of the Census
99
International Example:International Example:Relative Income Inequality Relative Income Inequality
Throughout the Richest of CountriesThroughout the Richest of Countries
According to the World Bank, the United According to the World Bank, the United States has the greatest amount of income States has the greatest amount of income inequality of any of the major industrialized inequality of any of the major industrialized nations.nations.
Should something be done about such Should something be done about such income inequality?income inequality?
1010
Relative Income Inequality in the WorldRelative Income Inequality in the World
Figure 30-3 Source: World Bank
1111
IncomeIncome
The distribution of wealthThe distribution of wealth The distribution of income is not the same as the The distribution of income is not the same as the
distribution of wealth.distribution of wealth. A complete concept of wealth would include A complete concept of wealth would include
tangible objects, such as buildings, machinery, tangible objects, such as buildings, machinery, cards, houses—nonhuman wealth—as well as cards, houses—nonhuman wealth—as well as people who have skills, knowledge, initiative, people who have skills, knowledge, initiative, talents, and so on—human wealth.talents, and so on—human wealth.
1212
Measured Total Wealth DistributionMeasured Total Wealth Distribution
Figure 30-4 Source: Board of Governors of the Federal Reserve
1313
Determinants of Income Determinants of Income DifferencesDifferences
AgeAge Age-Earnings CycleAge-Earnings Cycle
The regular earnings profile of an individual The regular earnings profile of an individual throughout his or her lifetimethroughout his or her lifetime
1414
Determinants of Income Determinants of Income DifferencesDifferences
Age-earnings cycleAge-earnings cycle At age 18, earnings from wage are relatively At age 18, earnings from wage are relatively
low.low. Earnings gradually rise until they peak at Earnings gradually rise until they peak at
about age 50.about age 50. Earnings then fall until retirement, when they Earnings then fall until retirement, when they
become zero.become zero.
1515
Typical Age-Earnings ProfileTypical Age-Earnings Profile
Figure 30-5
1616
Determinants of Income Determinants of Income DifferencesDifferences
Marginal productivityMarginal productivity TalentTalent ExperienceExperience TrainingTraining Investment in human capitalInvestment in human capital
1717
Determinants of Income Determinants of Income DifferencesDifferences
InheritanceInheritance 10% of inequality traced to inheritance10% of inequality traced to inheritance
DiscriminationDiscrimination Different pay for equal MRPDifferent pay for equal MRP Equal pay for different MRPEqual pay for different MRP
1818
Determinants of Income Determinants of Income DifferencesDifferences
Access to educationAccess to education Non-white urban males income is reduced Non-white urban males income is reduced
23–27% because of low quality education23–27% because of low quality educationDiscriminationDiscrimination
1919
Removing Racial Barriers:Removing Racial Barriers:The Colourful but Colour-Blind The Colourful but Colour-Blind
InternetInternetThe Internet can be anonymous so far as The Internet can be anonymous so far as the racial, gender, or ethnic characteristics the racial, gender, or ethnic characteristics of buyers and sellers are concerned.of buyers and sellers are concerned.
For African-American entrepreneurs the For African-American entrepreneurs the Internet is providing a means of avoiding Internet is providing a means of avoiding lost income opportunities based on their lost income opportunities based on their race.race.
2020
Removing Racial Barriers:Removing Racial Barriers:The Colourful but Colour-Blind The Colourful but Colour-Blind
InternetInternetCultural affinity hypothesisCultural affinity hypothesis An explanation of why race or other factors An explanation of why race or other factors
might affect people’s choicesmight affect people’s choicesLenders may find it less costly to evaluate persons Lenders may find it less costly to evaluate persons who share similar backgrounds.who share similar backgrounds.
Borrowers may prefer to apply at banks that are Borrowers may prefer to apply at banks that are owned and managed by persons who have similar owned and managed by persons who have similar characteristics.characteristics.
2121
Determinants of Income Determinants of Income DifferencesDifferences
Doctrine of Comparable WorthDoctrine of Comparable Worth The belief that women should receive The belief that women should receive
the same wages as men if the levels the same wages as men if the levels of skill and responsibility in their jobs of skill and responsibility in their jobs are equivalentare equivalent
2222
Theories of Desired Income Theories of Desired Income DistributionDistribution
ProductivityProductivity ““To each according to what he or she To each according to what he or she
produces.”produces.”
EqualityEquality ““To each exactly the same.”To each exactly the same.”
2323
Poverty Poverty and Attempts to Eliminate Itand Attempts to Eliminate It
Mass poverty can no longer be said to be Mass poverty can no longer be said to be a problem in the Western world.a problem in the Western world.
2424
Official Number Official Number of Poor in the United Statesof Poor in the United States
Figure 30-6 Source: U.S. Department of Labor
2525
International Example:International Example:Poverty Rates in the European UnionPoverty Rates in the European Union
European Union (EU)European Union (EU) Poverty ratePoverty rate
17% of 330 million or 57 million people17% of 330 million or 57 million people
United StatesUnited States Poverty ratePoverty rate
13–15% of 265 million 13–15% of 265 million
2626
Poverty Poverty and Attempts to Eliminate Itand Attempts to Eliminate It
Defining povertyDefining poverty Official poverty level in 2001 for an urban Official poverty level in 2001 for an urban
family of four was $17,650.family of four was $17,650.Adjusted annually for inflationAdjusted annually for inflation
Does not include transfer paymentsDoes not include transfer payments
Higher than the average income Higher than the average income in many countriesin many countries
2727
Relative Poverty: Comparing Household Relative Poverty: Comparing Household Income and Household SpendingIncome and Household Spending
Source: Bureau of Labor Statistics; U.S. Bureau of the CensusFigure 30-7
2828
Poverty Poverty and Attempts to Eliminate Itand Attempts to Eliminate It
Absolute povertyAbsolute poverty What do you think?What do you think?
Can we eliminate absolute poverty?Can we eliminate absolute poverty?
Relative povertyRelative poverty What do you think?What do you think?
Can we eliminate relative poverty?Can we eliminate relative poverty?
2929
Health CareHealth Care
America’s health care situationAmerica’s health care situation 14% of total annual income created is 14% of total annual income created is
accounted for by spending on health care.accounted for by spending on health care. Per capita spending on health care is greater Per capita spending on health care is greater
in the United States than anywhere else in the in the United States than anywhere else in the world.world.
3030
Percentage of Total National IncomePercentage of Total National IncomeSpent on Health Care in the United StatesSpent on Health Care in the United States
Figure 30-8Source: U.S. Department of Commerce; U.S. Department of Health
and Human Services; Deloitte and Touch LLP; VHA, Inc.
3131
Health CareHealth Care
Moral hazard as it affects physicians and Moral hazard as it affects physicians and hospitalshospitals Due to third-party payments, patients do not Due to third-party payments, patients do not
have to worry about the cost of operations have to worry about the cost of operations and medical procedures.and medical procedures.
Physicians and hospitals order more of them Physicians and hospitals order more of them since they are reimbursed on the basis of since they are reimbursed on the basis of medical procedures.medical procedures.
3232
Health CareHealth Care
Countering the moral hazard problem: a Countering the moral hazard problem: a medical savings account (MSAs)medical savings account (MSAs) Combating moral hazardCombating moral hazard
How would MSAs reduce moral hazard?How would MSAs reduce moral hazard?
Could MSAs reduce the quality of health care?Could MSAs reduce the quality of health care?