Chapter 33 Distributing Income
A more concise
One-Page Quick Review-Chapter 33 may help with exams.   

Return to Quick Economics Notes Updated 4/16/18   Please link to, use to educate and     

I. Some Market Income Data Indicates Stagnant Median Income
II. Income Stagnation Began After the Second Oil Embargo  
III. Analyzing the Distribution of Income

IV. Causes of Income Inequality   
V. Defined Poverty and Created Safety Net

VI. Bush2 Tried To Help
VII. Effectiveness of Government Programs
VIII. Market Income is Not a Good Measure of Well-being

IX. Income Inequality Affects Growth
X. Are Americans Better Off Than They Were a Decade or Two Ago

XI. Additional Information
XII. U.S. Economic Normality 1945-2015 cause and economic effect of politics page 2 

XIII Income Inequality 2017
XIV. Income Inequality Analysis and Cures

XV Low_Income_Quintile_Improved_from_1989_to_2015 The Other Side of the Story!
See Our Many 1p Studies of Key Economic Issues

I. Some Market Income Data Indicates Stagnant Median Income

A. Yes Middle Class Incomes Have Been Pretty Stagnant Since 1979

Editor's Note: Data Collection Method is important.
Census Income Report has 5 reasons data bases on CPI is skewed low.

 C. Class Structure
Upper Aristocracy, Really Wealth People
Upper Middle Very Successful Professionals and  business owners
Middle Middle Successful Professionals and  business owners
Lower Middle Low Paying White Collar service workers
Lower Laborers

D. Urban Institute Believes Upper Middle Class is the Big Winner
The Growing Size and Incomes of the Upper Middle Class 6/16   
   See  Why is Poverty So Controversial?


B. Other Analysis Reveals All Income Groups Doing Better

More Analysis  econintersect 8/30/12 and Middle Class: A Candle Burning at Both Ends

Elderly poverty is even lower because of SSI, food assistance programs,
 other federal programs and state programs

Is One Person Making $57,734 Middle Class?

Are Their Upper Middle Class Limits of $100,000 to $349,000 Too High? Too Low?



   D. High Income allows for wealth accumulation

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.

    E. More Analysis
This was so much that some think the top .01% are getting too much. This group received so much income that they couldn't spend it so their wealth accumulated. 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%
 You Didn't Build It




U.S. Welfar State Bigger Than You Think, Who Are They Helping?

But here’s your trouble: When you combine the distribution of federal benefits and tax expenditures, you find that $32,000 goes to the top 20% versus $24,000 a year to the bottom 20%. And a big reason for that is that wealthier Americans get a lopsided benefit from tax breaks. More than half of the combined benefits of the 10 largest tax expenditures go to that top fifth of households, with 17% going to households in the top 1%.

Profits are Beating Wages



Low Corporate Taxes are the Reason

Income Inequality in America    
America is Not Always Like the Rest of the World
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.
Liberals and Conservatives Fail to Understand the Welfare State
April 26, 2009--The U-Turn  as printed in economics principles. com
The top 1/10 of one-percent not the top 1% are getting much more wealth
future/work jobs careers is part of a series

The Week Debate On Inequality Video 1:42

II. Income Stagnation Began After the Second Oil Embargo  


Before Stagnation: New Normal #1 Rising Income
WW 2 generated savings, pent-up demand and few foreign few competitors generated 25 years of high profits higher wages and cooperative unions.

For Normal's 2 and 3 see US Economic Normality 1945-2015

and page 2 Bailouts, Poverty, Profits vs. Wages and Wellbeing

Oil Embargos and Competition Began early 1970's Wage Stagnation Japan's competitive manufacturing sector increased competition which caused stagnate Rust Belt wages and employment plus it put pressure on profit. Japan manufacturers got lucky when gas efficient small green cars required a change in the U.S. manufacturing process. Detroit  responded by protecting profits with less product quality improving capital investment. Unions leaders protect their positions and current worker wages by accepting a two-tier wage system

. It minimized new worker wages. Feeling political pressure Japan built many modern U.S. plants. See American Income Inequality Perfectly Explained (Mark Blyth Interview)


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.
           1. 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. 
           2. 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 for
            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
            from Gini coefficient of Wikipedia
            1.  CIA World Factbook Gini rank order
            2. Gini in a Bottle: Facts on Income Inequality
            3. Transfers and Taxes Decreases Inequality
            4. U.S, Really Fail three GINI Test
            5. Aging and Wealth Inequality in a neoclassical
               growth model is a mathematical look by the FED

.    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
          expresses total equality and a value of 1 maximum
          inequality. It has found application in the study of
          inequalities in disciplines as diverse as economics,
          health scienceecology,  chemistry and engineering.
          from 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 
          4. U.S, Really Fail three GINI Test
          5. Aging and Wealth Inequality in a neoclassical
               growth model is a mathematics look by the FED.   

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.

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. Recently, 2001-2202, (like 1991, and 1980)
           was not a great time to be graduating from
           college and seeking a job. A worse
           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 1947.
        I. Power CEOs have the power and no one can
           stop them. Business Week, 2/26/07 p 44
       J. Income Inequality Analysis and Cures
a. Public Policy Affects Income Inequality
        b. Income Inequality Exposed

      K. Readings
           1. The Rich and the Poor
           2. Equality Denial takes a different view.
           3. The L-Curve: A Graph of the US Income Distribution
           4. Emmanuel Saez, economist, Berkley, 
               studies income distribution of many countries.
           5. Income Distribution by country
 6. Inequality and economic policy is extensive.
Taxing the Rich One page of f Data
           8. How Income Inequality Is Affected by Labor Share 
           9. Inequality and Parenting Style
         10. How to Help the Working Poor

Relative Wealth of Billionaires is Increasing






inequality and parenting style


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

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

A. 1990 Poverty Threshold
     1. Originally set at  3 times family minimum food needs
     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 during the early 70'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 See Trends in Poverty
    with an Anchored Supplemental Poverty Measure

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

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.



Or 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 Update 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


G. Poverty Editorials
1. Means Tested Welfare Programs is a must.
    2. Helping the Working Poor from EPI
    3. Presidential Issue Poverty
    4. Why is Poverty Controversial?

    5. Everyone is on Welfare
    6. The Resurgence Of Universal Basic Income

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. The Real Problem is there are few good jobs and education won't help.
Solving the Lack of Good Jobs  

World Changed and Good Jobs Disappeared

Why is Poverty Controversial?


Maximum Duration of Unemployment Insurance

Source has more information

Well-being and the Welfare State

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 socializing 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 civilized system ever created.’



VI. Bush 2 Tried To Help

Economist Magazine, April 4, 2009 page 11

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



Wealth Gap Ratios

The Decade Ended Poorly

The Poor Were Left Out

figure 1-6

Editor's Note: This shoes how true data can misrepresent reality.

I will give the HS or college class that comes with why this is so misleading $5,000

The class teacher using a school e-mail should contact

Wealthy Were Not

High-Income Households Gained the Most from Bush Tax Cuts

VII. Effectiveness of Government Poverty Programs

     A. Population Dependency by Country
Millions of Americans Lifted Out of Poverty
       C. Welfare-to-Work Flexibility Can Increase Upward Mobility
       D. Market Income Plus Transfer Payments and Minus Federal Taxes

Social Security and Medicare Helped Elderly
Who Have Constantly Improved


Poor Live Longer but Not as long as wealthy

Young and Old Receive Benefits


See Taxing the Rich 1p
Historical Trends in Income Inequality
Kludgeocracy in America

 Middle Age Workers Pay

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.




Food Stamps and Incentives to Work

Georgia Number of People Enrolled in SNAP Benefits (Food Stamps), January 1981 through March 2017

See Georgia sees huge drop in people on food stamps



* Philip Armour, Richard V. Burkhauser, and Jeff Larrimore, “Deconstructing Income and Income Inequality Measures: A Crosswalk from Market Income to Comprehensive Income” American Economic Review (May, 2013). ** Congressional Budget Office, “The Distribution of Household Income and Federal Taxes, 2010” (Government Printing Office, 2013).



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















Income Redistribution by taxation video 
 Emmanuel Saez  

The World Top Income Database

 War on Poverty at Fiftieth Anniversary is extensive 1/14

Understanding Poverty in America believes
 that America's poor are not that poor.


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


VIII. Market 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 market income. Curing childhood disease and limiting
            pollution are just two economist's unmeasured item
       C. Successful government fosters peace allowing the
            elimination of a peacetime draft.
D. Interesting Opinions
           1. Conservative Is "Income Stagnation" a Myth?
           2. Liberal View Sad Story of Wages in Americans
           3. 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% from
             1997 -2012. 
     F. Social Progress Index ranks large industrialized
         nations as good but below smaller rural more
          northern nations.

G. Additional Information
     1. Income - Home for census bureau data and reports.

     2. Millions live in extreme poverty here is how they get by

     3. Fight Poverty in the U.S. from save the children

     4. The Bell Curve and Social Stability: 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

     7. Americas-class-system-across-life-cycle has lots of data. 3/25/14

     8. Income Inequality: A Question With No Easy Answer

        9. Second opinion of economic well-being of America's middle class.
      Burkhauser, Jeff Larrimore, and Kosali I. Simon, Nat. 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

      See Income Inequality Analysis and Cures
           Election Issues 2016
           Inequality and Economic Policy
           Conversation with Mark Blyth: Economics and Social Justice


  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 not given in direct aid.

Editor's Note: It has been 25 years since this analysis and still in 2017 most people do not realize
that the U.S. Government publish poverty rate is before noncash transfers like SNAP (food stamps).
One Columnist used the rate during the Great Recession to report 50 million mostly children were starving.  "Stupid is as stupid does."

Cato Institute's 2018 Agrees


Reassessing the Facts Inequality, Poverty, and Redistribution

Income Adjusted for Governments

Bottom quintile earnings share rose from  2.2% to 12.9%
Second quintile share rose from 7% 13.9%
quintile middle-income quintile rose from 12.6% to only 15.4%
Fourth quintile’s share fell from 20.5% to 18.6%
Top quintile share fell from 57.7% to 39.3%

Top to bottom multiple dropped from 26 times to three times

In addition work effort increased moving up the income ladder as more family members worked and more worked two jobs. Calculations




IX. Income Inequality Affects Growth


X. Are Americans Better Off than they were a Decade or Two-Ago B. Bernanke

Table 1 confirms the conventional view that, broadly measured, American living standards are comparable to those of the richest Western European nations but much higher than living standards in emerging-market economies. For example, this calculation puts economic welfare in the United Kingdom at 97 percent of U.S. levels, but estimates Mexican well-being at 22 percent. Interestingly, this comparison shows Western European countries (like the U.K., France, and Italy) as considerably closer to the U.S., in terms of economic welfare, than differences in per capita income or consumption would suggest, reflecting the fact that Western European countries do relatively well on the other criteria considered (leisure, life expectancy, inequality). For emerging and developing economies, however, differences in income or consumption per person generally understate the advantage of the United States, according to this measure, largely due to the greater levels of inequality and lower life expectancies in those countries.


Table 2 shows that economic welfare improved at quite a rapid pace over the two decades before the crisis (1995-2007), at more than 3 percent per year, notably faster than the growth rate of per capita GDP, at about 2 percent.[8] As shown by the four rightmost columns of Table 2 and, graphically, in Figure 1, the gains in welfare were driven primarily by increases in per capita consumption and by improvements in life expectancy, which rose by 2.3 years over the period, from 75.8 to 78.1 years. Rising consumption inequality subtracted between 0.1 and 0.2 percentage points from the annualized growth rate in welfare during the pre-crisis period, and changes in leisure/work hours per person (which were stable) made only a very small contribution.






XI. Additional Information

                                                     Whites Without College Degree Are Largest


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


Is $100,000 Middle Class? October 30, 2017 6:30am by 













 Winter 2018 edition 

ceo worker pay ratio america first study





Income of the 10%, 1%, and .1%

Percentile Threshold 10.00% 1.00% 0.10%*
Individual Income $108,033 $300,800 $1,099,999
Household Income $170,432 $430,600 $1,135,421
Female Workers $88,005 $212,799 $800,000
Male Workers $128,100 $387,853 $1,099,999

*Note that IPUMS-CPS microdata is top-coded and pruned for privacy reasons,