Chapter 20 Sect 4: Income Inequality

Question 1

How is poverty typically measured?

Answer 1

As a percentage of median income

Question 2

If everyone in a population experiences a 10% income decline, what happens to poverty rates? What happens to income inequality?

Answer 2

The poverty rate rises

Income inequality stays the same

Question 3

If a large number of wealthy people in a population experience a rise in incomes, what happens to poverty rates? What happens to income inequality?

Answer 3

No change in poverty rate

Income inequality increases

Question 4

What are the two primary factors that have increased income inequality in the US?

Answer 4

1. Changing composition of American households, including more single parent families and more double-career high-earner couples
2. Wage inequality, or “winner take all” labor markets

Question 5

Quintile

income inequality

Answer 5

Any of five equal groups into which a population is divided, based on income

Question 6

What is a common way of measuring income inequality?

Answer 6

Measuring what share of the total income is earned by each Quintile group. It is also common to use the top 5% as a measure.

Question 7

Lorenz Curve

Answer 7

Presentation of Quintile data
X Axis: cumulative share of population (0-100)
Y-Axis: cumulative percentage of total income received (0-100)
Perfect equality is a 45 degree slope
The more unequal & favoring the wealthy, the more the curve bows downward below perfect equality, towards the X-Axis

Question 8

What does perfect income equality look like on the Lorenz Curve?

Answer 8

A 45 degree upward sloping straight line. This represents each Quintile getting 20% of the total income in the population.

Question 9

How has the composition of US families changed since the 1970s, in a way that influences household income inequality?

Answer 9

1. More women in the labor force, so more double-earner households
2. More common for high-earners to marry each other (doctors marry doctors, etc)
3. Single-parent households have increased

Question 10

How have wage equality levels changed since the 1970s?

Answer 10

The earnings of high-skilled labor relative to low-skilled labor have increased. Technology has increased global demand for “stars” in professions, pushing salaries far above productivity & educational differences

Question 11

What does winner-take-all labor market theory argue about wages between the median and the top 1%?

Answer 11

Argues that the salary gap is not due to educational differences

Question 12

How does new technology and globalization affect high-skilled labor?

Answer 12

Increase demand for high-skilled labor

Push up its relative wage

Question 13

What event caused & accelerated global inequality between countries?

Answer 13

Industrial Revolution

Question 14

Mollie Orshansky

Answer 14

Defined a poverty line based on the cost of a healthy diet