Chapter 33 Distributing Income

I. Market Income Data for Many is Stagnating          
II. Stagnation Started After Second Oil Embargo
III. Analyzing the Distribution of Income
IV. Causes of Income Inequality      

V. Defined Poverty and Government's Safety Net
VI. Effectiveness of Government Programs   
VII. Income is Not a Good Measure of Well-being
VIII. Additional Information
For Discussion Current Political Economy Controversies have many questioning capitalism.


I. Median Market Income Data for Many is Stagnating

household income percentile 2011


Mean Income


Middle Class: A Candle 
Burning at Both Ends

According to the Pew Research Center, the national median household income based on four person occupancy is $68,274.  To be considered middle class an individual's household income needs to fall between 66.7 and 200 percent of this national median.  

Since 1971 the overall share of the middle-class as a population has dropped from 61 to 51 percent.  To further segment the class into upper, middle, and lower incomes identifies an increasing divergence from the center.  Since 1971 the upper tier's share has risen from 14 to 20 percent; at the same time the lower tier rose from 25 to 29 percent econintersect 8/30/12




The latter part of the 20th century brought a winner take all income distribution to Western economies. Wealth has always accumulated at the top but now in a Flat World local U.S. winners were now world winners. Movie stars like Adam Sandler would have success
world-wide and accumulate wealth over $300,000,000.

The new century brought an Internet that allowed a speed-up in the transmission of our
move to a winner take all society. This has caused a large increase in the income of
the top 1/10 of 1%. So much so that some think the top 10% are getting too much.


If these most important necessities have dropped so much as a percent of expenditures, can the poor be really that worse off?



Income Inequality in America     
Capitalism in the Twenty-First Century Book Review
Income,  Poverty, and Health Insurance Coverage In the United States: 2010 2011Census
World of Class Warfare The Poor's Free Ride-Is Over Fox looks at raising taxes on poor
Taxes, Transfers and USA vs., Eurozone
People's Budget of UK in 1911 started the redistribution process.

Americas income-who has it? 2012 Social Security data is comprehensive
Household income in the United States from Wikipedia

Middle Class Squeeze Continues  from The Big Picture Blog. According to one 2006 study**, by Dirk Krueger of the University of Pennsylvania and Fabrizio Perri of New York University, consumption inequality as barely budged for several decades, despite a sharp upswing in income inequality.

II. Stagnation Started after Second Oil Embargo

April 26, 2009--The U-Turn
 as printed in economics principles. com


 See The top 1/10 of one-percent not the top 1% are getting more and more of the wealth




Bottom 99% Income Share
Down Dramatically

III. Analyzing the Distribution of Income with  
   Lorenz Curves and Gini Index

       A. A Lorenz curve depicts income inequality by
           plotting the percentage of income (Y)  received
           by different percentages of the population. A 45-
           degree line represents perfect equality as 10% 
           of the population receive10% of the income and
           35% of the population receive 35% of the
           income, etc. Perfect inequality would be close
           to the x-axis as 99% of the population receive
           no income.
       B. The Gini coefficient is a measure of the
            inequality of a distribution, a value of 0
            expressing total equality and a value of 1
            maximal inequality. It has found application
            in the study of inequalities in disciplines as
            diverse as The Gini coefficient is a measure
            of the inequality of a distribution, a value of 0
            expressing total equality and a value of 1
            maximal inequality. It has found application
            in the study of inequalities in disciplines as
            diverse as economics, health scienceecology,
            chemistry and engineering
Gini coefficient of Wikipedia
           1. CIA World Factbook Gini rank order
           2. Gini in a Bottle: Facts on Income Inequality
           3. Transfers Payments and Taxes Decreases
               Inequality    CBO 2011
U.S, Really Fail three GINI Test
       C. American thoughts on Income Inequality from Wall Street Journal's  Real Time Economics Blog
Timothy Noah points to a study that shows Americans underestimate income inequality. “The richest 1 percent account for 35 percent of the nation’s net worth; subtract housing, and their share rises to 43 percent. The richest 20 percent (or “top quintile”) account for 85 percent; subtract housing and their share rises to 93 percent. But when Norton and Ariely surveyed a group whose incomes, voting patterns, and geographic distribution approximated that of U.S. population, the respondents guessed that the top quintile accounted for only 59 percent of the nation’s wealth… Norton and Ariely also asked respondents what they thought the ideal distribution of wealth should be, and found, again, little difference among income groups, or between Bush voters and Kerry voters. Most favored a wealth distribution resembling that in … Sweden! But when you examine Norton and Ariely’s method, that particular finding gets a little shaky. They showed respondents three unlabeled pie charts. One depicted utopian equality, with wealth distributed equally among five groups. The second depicted the United States, with wealth distributed very unequally among five groups (one of which gobbled up 85 percent—Norton and Ariely put it at 84 percent, but let’s not quibble). The third depicted Sweden, where the top quintile accounts for 35 percent of the nation’s wealth. Neither the Swedish pie chart nor the U.S. pie chart was identified by nation. Norton and Ariely were astonished that 47 percent of respondents—remember these were all Americans—chose the pie chart depicting Sweden. But surely most survey-takers, when presented with two extreme options and one that lies in the middle, will instinctively gravitate, like Goldilocks, toward the middle option. More surprising to me was that second place went to Utopia (43 percent). Only 10 percent voted for the pie chart depicting the country the respondents actually live in.”

      D. Income Inequality and It's Costs


Left axis is link between fathers' and sons' earnings. Bottom axis is Income inequality (Gini Coefficient).
Gini coefficient - Wikipedia

IV. Causes of Income Inequality
          A. Personal endowments differ (mental,
            physical, and personal abilities)
       B. Human capital investments differ (education 
            and training)
      C. Job characteristics cause people to accept
           differing amounts of compensation 
           (white vs. blue collar, job prestige, job risk)
      D. Wealth generates income
      E. Market power (unions, associations such as
            AMA, ABA, and AARP)
      F. Discrimination
      G. Willingness to assume risk
      H. Luck 
          1. Recently, 2001-2202, (like 1991, and 1980)
              was not a great time to be graduating from
              college and seeking a job. 
          2 .The worst time was 1929 -1938. My dad
              graduated from Tufts College in 1933. He
              got his first real job in 1937 and because of
              WWII, he didn't get his first new car until
      I. Power CEOs have the power and no one can
          stop them. Business Week, 2/26/07 p 44
 J. Taxes
K.Equality Denial  from 
           takes a different view.
      L. Visit The L-Curve: A Graph of the US

                   Income Distribution for an interesting of
           income distribution in the United States.
      M. Emmanuel Saez, economist, Berkley, 
           studies income distribution of many countries.
      N. Income Distribution by country


Inequality and parenting style

by on October 15, 2014 at 1:50 pm in Data Source, Economics | Permalink

- See more at:

Inequality and parenting style

by on October 15, 2014 at 1:50 pm in Data Source, Economics | Permalink

- See more at:

Inequality and parenting style

by on October 15, 2014 at 1:50 pm in Data Source, Economics | Permalink

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Inequality and Parenting Style

inequality and parenting style

Top Tax Rates Have Gone Downdcj graphic 5/31/23


V. U.S. Government Defined Poverty and Created Safety Net

A. 1990 Poverty Threshold
     1. Originally set at three times a family's
          minimum food requirement
     2. $13,359 annually for a family of four
     3. $6,652 annually for a single person
B. By 2014 inflation had caused the Department
     of Health and Human Services to set
     higher thresholds. See Chart
C. The poverty rate was decreasing until the
     Great Recession
     1. 32.0% of the population lived in poverty
         in 1950.
     2. Just over 11% was the poverty rate
          through the early 1970's.
     3. 15.2% of population during 81-82
          recession which is the most recent
          poverty rate peak.
      4. 14.2% of the population (35.7 million
           people) in 1991 lived in poverty.
      5. Between 1970 and 1990 the percentage
          of children living in poverty increased from
          14.9% to 19.9% with the corresponding
          increases for white, black, and Hispanic
          children being 10.5% to 15.1%, 41.5%
          to 44.2%, and NA to 33.9% respectively.
D. The Great Recession has poverty on the
      increase but government programs
      have helped.
E. Poverty Thresholds are used to define
     Poverty Guidelines are use to determine
     eligibility for programs to help the poor
     SeeTrends in Poverty with an Anchored
   Supplemental Poverty Measure

Poverty Thresholds Defines Poverty
for 2014 by Size of Family data source

Size of family unit

 Related children under 18 years

    None    One    Two   Three   Four
One person (unrelated individual).…..          
  Under 65 years....................……… 12,316        
  65 years and over.................……… 11,354        
Two people.........................………..          
  Householder under 65 years........... 15,853 16,317      
  Householder 65 years and over...…. 14,309 16,256      
Three people.......................……………………… 18,518 19,055 19,073    
Four people........................………………………. 24,418 24,817 24,008 24,091  
Five people........................……………………… 29,447 29,875 28,960 28,252 27,820
Six people.........................……………………….. 33,869 34,004 33,303 32,631 31,633
Seven people.......................…………………….. 38,971 39,214 38,375 37,791 36,701
Eight people.......................……………………… 43,586 43,970 43,179 42,485 41,501
Nine people or more................…………………… 52,430 52,685 51,984 51,396 50,430
Source:  U.S. Census Bureau.          


Should You Believe This Chart Or

46.2 Million People in Poverty for 2010  Robert Oak on Tue, 09/13/2011 - 14:13
" The Census released a comprehensive report on poverty, income and health insurance coverage in the United States for 2010. There were 46.18 million people living in poverty, in the United States. The Census population for 2010 was 305,688,000. This means that 15.1% of people in the United States are below the poverty thresholds, or one in 6.6 people.

This Chart

This chart "...provides a first approximation of how correcting the 2013 poverty rate for noncash food and housing benefits, refundable tax credits, and upward bias in the CPI-U would change the 2013 poverty rate. With these corrections the official poverty rate falls from 14.5 to 4.8 percent, making the 2013 rate roughly a quarter of the 1964 rate (19.0 percent). If we were to lower the poverty threshold for cohabiting couples to match that for married couples the 2013 poverty rate would have fallen even more."

     F. Poverty Demographics



Year Millions of Poor People Percent White Black Hispanic Family of Four Poverty Income Median Couples 
Family Income
Wife Not in the Labor Force, Current Dollars
% increase Wife In 

% increase

1959 39.5 22.4% 18.1% 55.1% NA $2,973        
1970 25.4 12.6 9.9 33.5 NA $3,968 $9,304      
1980 29.3 13.0 10.2 32.5 25.7 $8,414 $18,972 100%    
1990 33.6 13.5 10.7 31.9 28. $13,359 $30,265 60% $46,777  



     11.3 9.4 22.1 21.2












Note: The ratio of nonwhite to white median family income while improving some in the 1960's,  is back to approximately the .55 level it was in the early 1950's. 1992 and 2003 Statistical Abstract of the United States and 2001 Census Bureau Data
from Institute for Research on Poverty: "In 2001 the number of poor and the poverty rate both rose as economic difficulties moved into recession, and the rate has continued to rise; in 2003, 35.8 million people were poor by the official measure of poverty. In 2004, the number rose to 37 million people (12.7 percent of the population)."

Table 699 of the 
2011 Statistical Abstract of the United States


Editors Note: I'm not sure the UN or US does a good job of measuring exactly what US poor people receive.

Graphic shows annual Social Security cost-of-living adjustments; 2c x 3 inches; 96.3 mm x 76 mm;

 Editor's Note: Because the US median income so high and because the official poverty rate in the U.S. excludes non-cash transfers like Food Stamps and School Lunch Help I'm not to sure this is a good analysis.
  Well-being and the Welfare State
  • (but really are not).  Here is a discussion of "wellbeing" and the "welfare state".   Source

The phrase ‘welfare state’ is pejorative to many Americans, but it would be less so if they had a better understanding of what it implies to the rest of the world. In the abstract, a welfare state means a society that has created a system of protecting people against the insecurities of everyday life by socialising risk and reward. This implies not only the staples of social protection – guaranteed access to healthcare, unemployment insurance, and pensions – but benefits unknown in the United States, such as state-mandated sick days (in Germany, six weeks at full pay, and then up to 78 weeks at 70 per cent) and guaranteed vacation days (four weeks at full pay in Germany). More surprising perhaps are ‘family allowances’, or grants paid to all families with children, regardless of income – every German family receives 184 euros (or around $205) per month, per child. Minimum guaranteed earnings are also much higher in countries approaching the welfare state ideal – Denmark’s effective minimum wage is about $20 per hour. It is this sense of shared risk and shared prosperity that prompted the late Swedish Prime Minister Olof Palme to observe that: ‘With all its faults, the welfare state remains the most humane and civilised system ever created.’


From Yahoo News




VI. Effectiveness of Government Poverty Programs

A. Is Government Redistribution enough? Historical Trends in Income Inequality

Transfers payments and taxes decreases inequality CBO 2011

1979-2011 after-tax income for top 1 grew at 3.5%,bottom 20% by 1.2%

Poverty Inc questions the economic efficiency of poverty management 1.06 video


Market Income Plus Transfer
Payments and Minus Federal Taxes

Quintile         1st 2nd 3rd 4th 5th
1979        7,707          19,131        26,596        35,708     78,520
1989        7,392        19,324        28,663        40,254   104,318
1999        8,709        22,344        32,688        46,157   139,325
2007        9,290        24,374        35,985        51,379 166,871
 Change        1,584          5,243          9,390        15,672     88,351
% Change 21% 27% 35% 44% 113%

Social Security and Medicare Helped 
Elderly Have Constantly Improved

VII. Saez income redistribution by taxation video  see Emmanuel Saez  
and The World Top Income Database



   B. Social Security payouts in Major Industrial Countries  
      Editors Note: Countries at top are dropping fast.

Country Share of
 Replacement Income
for Average Workers
Age for Full Benefits Tax rate to finance pensions Share of GDP Analysis
Greece 96% 65 20% 11.9                   Most generous benefits
Italy 65 men, 51 women 66,62 32.7 14.1 Paying as they go?
France 49 65 16.7 12.5 Chasing Greece for first place
Germany 42 67 19.9 20.7 About the same as US
U.S. 39 66 12.4 4.2 Don't cost much so can afford very expensive military and health care.
UK 32 68 General Fund 5.4 Is reason that pensions must compete with other programs for funds?
          data source social-security-cheap-compared-europe

        In Great Britain Attitudes toward welfare vary by
        generation. 6/1/13

         C. War on Poverty at Fiftieth Anniversary is extensive 1/14

     D. Understanding Poverty in America states that America's
         poor are not that poor. 1/5/04


VII. Income is Not an Appropriate  Measure of Well-being.
      A. Many goods, especially since the digital revolution, provide more satisfaction
            than their cost indicates. Income is thus understated. Much of the value provided
            by a smart phone was not available 25 years ago and those that were each cost
            thousand's of dollars. Movies that doesn't need developing that will send results
            anywhere in the world didn't exist.
       B. Government makes our lives better in ways not measured by individual income.
            Curing childhood disease and limiting pollution are just two.
       C. Successful government fosters peace allowing the elimination of a peacetime draft.
       D. Interesting Opinions
           1. Conservative T. Sowell - Is "Income Stagnation" an Economic Myth?
           2. Liberal View The Sad But True Story of Wages in Americans
The Daily Show on Class Warfare
     E. Child Safety is Not Measured but it increase of well-being is immeasurable.
         1.  Physical abuse dropped 55% from 1992-2011 while sexual abuse dropped 64%.
         2.  Abduction by strangers dropped 52% fro 1997 -2012. 
     F. Social Progress Index ranks large industrialized nations as good but below
         smaller rural more northern nations.


VIII. Additional Information
  1. Income - Home for census bureau data and reports.
      2. Millions-of-americans-live-in-extreme-poverty-heres-how-they-get-by
      3. Fight Poverty in the U.S. from save the children
   4. The Bell Curve and Social Stability: from Shrink Wrapped Blog, 
           A Psychoanalyst Attempts to Understand Our World
      5. The Capitalism They Hate  by  Anthony de Jasay
          A. Part I   The Inequality Machine
          B. Part II. Indecent Earnings
      6. Coming Collapse of Middle Class - E. Warren UC Berkeley Graduate Council 1/31/08
  7. Americas-class-system-across-life-cycle has lots of data. 3/25/14
    8. Income Inequality: A Question With No Easy Answer
9. A second opinion of economic well-being of America's middle class
Burkhauser, Jeff Larrimore, and Kosali I. Simon, National Tax Journal) This should be    compared to the very poor "analysis" discussed yesterday (Manhattan Institute: The Myth of Increasing Income Inequality by Diana Furchtgott-Roth). In this case a careful analysis reveals that such things as changes in tax codes, in-kind benefits (such as employer-provided health insurance) and inclusion of household make-up show less of an income disadvantage for the middle class over the last 30 years than simply looking at pre-tax tax unit analysis. But there still is a degradation, not just as much. from econintersection

  Author's editorial! from when he started this project.

       A September 3, 1992 Wall Street Journal editorial by Robert Rector, a policy analyst 
for the Heritage Foundation in Washington, D.C.,
       reported the following concerning 1990 government spending on poverty:

       "Out of a total of $184 billion in welfare spending..." 
"...Census counted only $32.5 billion as income."

     This means that the actual income of those living in poverty is substantially understated. 
It is difficult to lower the number of people living on poverty income
 if much of the money given them does not count as income! 

Editors Note: In 2015 people still see the poverty percent and assume x percent 
are starving when most are receiving food stamps, subsidized lunches ...
Approximate per capita understatement would be calculated as follows:

Administrative costs must be subtracted therefore not all of the $4,328.57 per person was given in direct aid.

Note: Most poverty programs have a finite qualifying amount. 
A family receiving substantial aid that is not counted as income 
may just qualify for aid while another family may earn just above
 the qualifying amount and receive no aid.


Chapter 33 Claps Discussion Questions
Chapter 33 Homework Questions
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C. Other Data
This Bureau of Labor Statistics and Census Bureau have interesting data. Over the last five years the percentage of young people are working has declined as has their real pay. This has happened even though they are investing more time and money  in education. Data from page 13 of the July 2, 2007 issue of Business WeekU.S. Census Bureau  


3. Why Not a Negative Income Tax   and
Against-negative- income-tax-jim-manz
4. Social Mobility is Low Everywhere and Always will be 2/14


Because households can be one person and families can have two workers, this households declined much more than the family stagnation.

From America’s Discouraging Income Story



seekingalpha 4/23/13

The recovery of the stock market after 9/11 and the most  recent housing boom has household wealth up 40%.

Economist Magazine, April 4, 2009 page 11

Wealth Gap Ratios

The Decade Ended Poorly

figure 1-6