Income Inequality and Poverty

Income Inequality and Poverty

• Poverty Rate - the percentage of the population whose family income falls below an absolute level called the poverty line.
• Poverty Line - an absolute level of income set by the federal government for each family size below which a family is deemed to be in poverty. Example: In the USA in 2011, the poverty line for a family of four was $23,021 and the poverty rate was 15.0 percent
• Poverty is correlated (connected) with race, age, family composition (families with single parents have higher chance of being under poverty line).
• Life Cycle - the regular pattern of income variation over a person’s life.
• At a young age you earn less (and may have to borrow money), then income rises when you're middle-age, then it drops a lot when you retire.
• A lot of people have saved up for retirement, so there may be

  big

  ---

  differences in income between retired people and middle aged people but

  small

  ---

  differences in standards of living.

• Transitory versus Permanent Income - permanent income is your normal income.
• Transitory income is when your income goes up and down due to unforeseen circumstances (like farmers' income falls during a particularly rough season).
• You can borrow during tough times and save up during good times, so standard of living might not change much.
• Economic Mobility - moving between income classes.
• Gini Coefficient - Most commonly used measure of inequality.
• If it is zero, it represents exact equality (every person in the society has the same amount of income).
• If it is one, it represents total inequality, meaning one person has all the income and the rest of the society has none
• In 2019, the Gini Coefficient in USA was 0.48.
• LICO (Low Income Cut Off) - the level of income at which a household of a given size in a community with a given population spends 20% more than the average family on food, shelter, and clothing.
• The problem is that this is a measure of poverty defined in relation to average income and is not an absolute measure of poverty
• Market Basket Measure (MBM)- the cost of goods and services needed for a typical family of four to eat a nutritious diet, buy clothing, house themselves in their community, and pay for other necessary expenditures.