ECONOMICS TOPIC 7 LESSON 6

ECONOMICS TOPIC 7 LESSON 6

Poverty and Income Distribution

ESSENTIAL QUESTION

Why should we care how the economy is doing?

Living in Poverty

Statistically, you are at greater risk for living in poverty if you come from a single-parent home, live in the inner city, or do not have at least a high school education. Other factors, including the way that income is distributed, also affect the poverty rate.

What is Poverty?

According to the government, a poor family is one whose total income is less than the amount required to satisfy the family’s minimum needs. The Office of Management and Budget determines the income level, known as the poverty threshold, required to meet those minimum needs. The poverty threshold is the income level below which income is insufficient to support a family or household.

Open Ended

Draw Conclusions Is it possible for someone to work full time and still be poor?

What is Poverty?

The poverty threshold, or poverty line, varies with the size of the family. For example, in 2013, the poverty threshold for a single parent under age 65 with one child was $15,510.

Measuring Poverty

The poverty rate is the percentage of people who live in households with income below the official poverty threshold.

Measuring Poverty

Race and ethnic origin The poverty rate among African Americans, Hispanics, and Native Americans is more than twice the rate for white Americans.

Measuring Poverty

Type of family Families with a single mother have a poverty rate more than four times greater than that of two-parent families.

Measuring Poverty

Age The percentage of children living in poverty is significantly larger than that for any other age group. Adults between the ages of 18 and 64 are the next largest group.

Measuring Poverty

Residence Inner-city residents have double the poverty rate of those who live outside the inner city. People who live in rural areas also have a higher poverty rate, especially in regions where job prospects are limited.

Open Ended

Analyze Graphs Which group in each category has the highest poverty rate? Which groups have the lowest?

Multiple Choice

Explain What is one reason for the high poverty rate in rural areas?

• Most adults over 65 live in rural areas.

• There are not enough jobs.

• Most children live in rural areas.

• There is too much competition.

What Causes Poverty?

Put simply, a family is poor when the adults in the family fail to earn enough income to provide for its members’ basic needs. This failure to earn adequate income is often the result of unemployment.

What Causes Poverty?

Changes in Family Structure

Where People Live

Low-Wage Service Jobs

Lack of Education

Open Ended

Analyze Charts What are the three largest employment sectors for the working poor?

Multiple Choice

Draw Conclusions What is one factor that led to the decline of manufacturing jobs for people with less education?

• single-parent households

• discrimination factories

• moved to rural areas

• globalization

Household Income

To fully understand poverty in this country, you also need to understand income distribution, or how the nation’s total income is distributed among its population.

Income Distribution

Income distribution figures do not reflect the effects of taxes or non-cash government aid such as housing subsidies, healthcare, or food stamps. The food stamp program helps low-income people buy food. Benefits are provided on an electronic card that is accepted at most food stores.

LORENZ CURVE

the numbers for shares of total income, when they are plotted on a graph, form a curve. This graph, called the Lorenz Curve, illustrates the distribution of income in the economy.

Differences in Income

The wealthiest fifth of American households earned more income (50.2 percent) than the bottom four fifths combined. Why are there such differences in income among Americans?

Differences in Income

Differences in skills and education 

Inheritances 

Field of work 

The Economic Goal of Equity

The government spends billions of dollars on programs designed to reduce poverty. This money is spent mainly on cash assistance, education, medical benefits, and non-cash benefits such as food stamps and subsidized housing.

The Economic Goal of Equity

The goal of these programs is not to provide equal distribution of wealth. It is to ensure a basic standard of living for all and to provide an opportunity to improve their condition.

The Economic Goal of Equity

Critics of antipoverty programs argue that the programs themselves harm some of the people they are intended to help by encouraging people to remain dependent on government programs.

The Earned Income Tax Credit

One of the government’s most successful antipoverty programs is the Earned Income Tax Credit (EITC). The EITC is a refundable tax credit that low-income families with children receive when they file their federal income tax return.

Enterprise Zones

Areas where companies can locate and be free of certain state, local, and federal taxes and restrictions on business operations called enterprise zones, became popular in the 1980s. Zones benefit businesses by lowering their costs. They help local people by making it easier for them to find work. By providing jobs, these zones can help revitalize areas such as inner cities.

Job Training

In recent decades, federal and state governments have designed job-training programs to help workers who lack the skills to earn an adequate income. 

Affordable Housing

The government also has programs to help poor people obtain affordable housing. In one approach, the government makes payments to landlords who then lower the rent they would otherwise charge. In another program, poor people receive vouchers that cover part of the rent they pay. The third approach is government-owned housing, which charges low rental fees.

Welfare to Workfare

Poor people often cannot afford basic needs such as food and medical care. The United States has long had a welfare system that provides for those basic needs, especially for children and the elderly. That system underwent major reform when President Bill Clinton signed the Personal Responsibility and Work Opportunity Reconciliation Act of 1996.

Open Ended

Analyze Information Based on the information in the table, which program has education as its primary goal?

Welfare to Workfare

The federal government provides block grants, or lump sums of money, to the states. The states designing and implementing programs to move most poor adults from welfare dependence to employment. TANF also set a five-year limit on receipt of benefits.

The plan calls for a shift from welfare to workfare—a program requiring work in exchange for temporary assistance from the government.

Addressing Poverty

The federal government has several major types of redistribution programs to help the poor, elderly, and disadvantaged. State and federal governments provide cash transfers, or direct payments of money to poor, disabled, or retired people.

Addressing Poverty

Temporary Assistance for Needy Families (TANF) Launched in 1996

Social Security The Social Security program was created in 1935

Unemployment insurance Unemployment insurance is funded by taxes paid by employers.

Addressing Poverty

Workers’ compensation This program is an insurance program for workers injured or disabled on the job. It is mandated, or required, by state law. Most employers pay workers’ compensation insurance to cover future claims by employees.

Addressing Poverty

In-Kind Benefits

The government also provides poor people with in-kind benefits, goods and services provided for free or at greatly reduced prices. One example is the food stamp program. People who qualify receive a debit card or smart card that they can use to help meet food expenses.

Addressing Poverty

Another type of in-kind benefit is subsidized housing. Poor people are allowed to rent housing for less than the regular rent. The government pays the difference to the landlord.

Addressing Poverty

Legal aid is legal advice given at no charge. This in-kind benefit covers contracts and other business matters. Poor people charged with a crime may be represented in court by public defenders, who are paid with tax dollars. The right of an accused person to have legal counsel is guaranteed by the Sixth Amendment.

Addressing Poverty

Another social service that the U.S. government provides is medical benefits, meaning health insurance for children and people who are elderly, disabled, or poor. Medicare covers Americans over age 65 and disabled people. Medicaid covers some poor people who are unemployed or not covered by their employer’s insurance plans.

Addressing Poverty

A program called the Children’s Health Insurance Program (CHIP) provides health insurance for children who are uninsured. CHIP is funded by both state and federal governments. States write the rules for the program within federal guidelines. The program covers more than 6.5 million children.

Addressing Poverty

Education Programs

Federal, state, and local governments all provide educational opportunities to those who need aid. The federal government funds programs from preschool to college. State and local programs aid students with learning disabilities.

Multiple Choice

Classify The food stamp program is an example of a(n)

• enterprise zone.

• in-kind benefit.

• welfare reform.

• medical benefit.

Charitable Donations

In addition to providing direct assistance to the needy, federal and state governments also encourage private action to help people in need. Federal tax law allows both individuals and corporations to take tax deductions for charitable donations. This policy provides an economic incentive to give money and property to relief organizations, as well as to other nonprofit groups such as churches, hospitals, colleges, libraries, or museums.

Charitable Donations

The government may also provide grants and other assistance to organizations that provide social services. A grant is a financial award given by a government agency to a private individual or group in order to carry out a specific task.

Open Ended

Why should we care how the economy is doing?