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This chapter introduces you to the distribution of income and wealth in our economy, and problems that arise for society as a whole when some people have insufficient income. You will also learn what systems are used to address the problem of poverty. | Income Distribution Slide 16 - What is Chapter 16 about? Slide 16 - I. Recent Trends in Inequality Slide 16 - Trends in Income Distribution Since the early 1980s, some countries have seen an increase in inequality In the U.S., incomes of the poorest 20% decreased in absolute $ terms Incomes of Bottom 50% have stagnated Gains of growth have gone to top 10% & 1% Income distribution in Canada has followed a different path up to now Slide 16 - Table 16.1 Share of Aggregate Income Received by Each Quintile of Families and Unattached Individuals Slide 16 - Fig. 16.1 Canada’s Income Distribution before Taxes, 1997: A Lorenz Curve Slide 16 - How much inequality is there? If everyone had the same income, Lorenz = line of perfect equality (OY) If one person had all the income, Lorenz = line of perfect inequality (OPY) Actual societies are in between Gini index = ratio of area E to OPY Canada: Gini = 0.287 USA: Gini = 0.371 Finland & Norway: Gini = 0.22 Slide 16 - . | Income Distribution Slide 16 - What is Chapter 16 about? Slide 16 - I. Recent Trends in Inequality Slide 16 - Trends in Income Distribution Since the early 1980s, some countries have seen an increase in inequality In the U.S., incomes of the poorest 20% decreased in absolute $ terms Incomes of Bottom 50% have stagnated Gains of growth have gone to top 10% & 1% Income distribution in Canada has followed a different path up to now Slide 16 - Table 16.1 Share of Aggregate Income Received by Each Quintile of Families and Unattached Individuals Slide 16 - Fig. 16.1 Canada’s Income Distribution before Taxes, 1997: A Lorenz Curve Slide 16 - How much inequality is there? If everyone had the same income, Lorenz = line of perfect equality (OY) If one person had all the income, Lorenz = line of perfect inequality (OPY) Actual societies are in between Gini index = ratio of area E to OPY Canada: Gini = 0.287 USA: Gini = 0.371 Finland & Norway: Gini = 0.22 Slide 16 - Poverty Most common criterion of poverty in Canada: Statistics Canada’s “low income cut-off” Poverty rate: Percentage of population below the poverty line Average poverty gap: Average shortfall between actual incomes of the poor and the poverty line (as % of poverty line) Poverty intensity: (Poverty rate) x (Average poverty gap) x (Inequality in poverty gaps) Slide 16 - Fig. 16.2 Poverty Box, before Tax and Transfer and after Tax and Transfers, Seniors and Non-Seniors, 1997 Slide 16 - Wealth Inequality Wealth = Stock; Income = Flow Income – Consumption = Savings = Change in Wealth Income & Wealth are imperfectly correlated E.g. elderly, new NHL player Wealth Inequality is considerably greater than Income Inequality Bottom 30% have approx zero net worth Middle 60% pay off home mortgage over work life Top 10% start to have significant financial assets 1984-1999: nil gains for bottom 50%; top 10% - up 47% to average net worth of $980,000 Slide 16 - II. Concerns Raised by Income .
