TAILIEUCHUNG - Lecture Economics: The basics (2/e): Chapter 17 - Michael Mandel

Chapter 17 - The distribution of income. After reading the material in this chapter, you should be able to: Summarize the basics of income distribution, identify some reasons why income inequality and poverty have risen in recent years, list and discuss the arguments for and against government action to reduce inequality,. | Chapter 17 The Distribution of Income McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved. Learning Objectives Summarize the basics of income distribution. Identify some reasons why income inequality and poverty have risen in recent years. List and discuss the arguments for and against government action to reduce inequality. Explain how the tax system can be used to redistribute income. Give examples of labor market discrimination. 17- Basics of Income Distribution Data on the nation’s income distribution is produced each year by the Census Bureau. Each year, the Census surveys households about how much money they received from various sources. There seems to be a growing gap between the people at the top of the income distribution and everyone else. 17- Quintiles Economists look at income distribution in terms of quintiles. A quintile represents 20% of households. Thus, the bottom quintile is the 20% of families with the lowest income. The table on the following slide shows the minimum income needed to get into each quintile. 17- The Quintiles of Household Income, 2009 $0 Bottom quintile $20,450 Second quintile $38,530 Third quintile $61,800 Fourth quintile $100,000 Top quintile $180,000 Top 5% Lower limit Quintiles 17- Measures of Inequality The income level that marks the dividing line between the bottom quintile and the second quintile is called the 20th percentile because 20% of households fall below that level. The income level that marks the dividing line between the top quintile and everyone else is called the 80th percentile because 80% of households have incomes below that level. 17- Measures of Inequality The 80/20 ratio (the 80th percentile divided by the 20th percentile) measures the spread between high-income and low-income households. In 2009, the 80th percentile was equal to $100,000. In 2009, the 20th percentile was equal to $20,450. Thus, the 80/20 ratio is $100,000/$20,450, which .

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