INEQUALITY AND POVERTY DRAKE HIGH SCHOOL MAY 8, 2017 OUTLINE Income inequality Define it Measure it How does it happen? Why it matters What to do about it Poverty Define it Measure it How does it happen? Why it matters What to do about it 1
INCOME INEQUALITY Definition: The extent to which the distribution of income deviates from complete equality. The dispersion of income throughout the economy. NATIONAL INCOME INEQUALITY Image Source: Inequality for All, a documentary by Robert Reich 2
INCOME AND WEALTH INEQUALITY 50.0 40.0 30.0 Income Inequality (Gini) US: 48.2% 20.0 1960 1970 1980 1990 2000 2010 Year: Through 2013 Income Inequality Wealth Inequality Source: US Census Bureau and the Survey of Consumer Finances INCOME INEQUALITY is measured as the Gini Coefficient. WEALTH INEQUALITY is the ratio of mean wealth in the top decile to median overall wealth. Wealth data are only available for 1962, and at three year intervals beginning in 1989. CA: 48.8% Marin: 53.1% THE GINI COEFFICIENT 100% % of 50% All Income A B Extreme 50% % of Population Inequality 100% Gini = A A + B x 100 Bigger A: More inequality Smaller A: Less inequality 3
FORMING THE GINI CURVE: 2015 100 90 80 70 60 50 40 30 20 10 0 Quintile Shares of Income 51.1 23.2 14.3 8.2 3.1 1 2 3 4 5 100 90 80 70 60 50 40 30 20 10 0 CUMULATIVE Quintile Shares of Income 1 2 3 4 5 INCOME SHARE CHANGES BETWEEN 1970 AND 2015 60 50 43.3 51.1 40 30 24.5 23.2 20 10 4.1 3.1 10.8 8.2 17.4 14.3 0 1 2 3 4 5 4
OF WINNERS AND LOSERS Bottom 80% of Households WHAT CAUSES INEQUALITY Personal choices Educational attainment Effort Priorities Structural elements Age distribution Policy Access to good education Competition policy Income support Tax rates Labor protections Globalization Technological change 5
LABOR PROTECTIONS IN DECLINE Unionization Rates 1983: 20% 2015: 11% WHAT ABOUT TAX RATES? 6
WHY DOES IT MATTER? Is it a problem? Equality = slow growth Extreme inequality = slow growth Both low and high inequality reduce incentives to achieve Optimal level lies between, but where? Excessive Inequality Also: Divides society Distorts political environment Reduces political participation Reduces investments in public goods E.g., education Environmental protections ADDRESSING INEQUALITY: IMMEDIATELY AVAILABLE Redistribution Tax and transfer programs PRedistribution Reverse anti-union bias Minimum wages Collective bargaining 7
ADDRESSING INEQUALITY: IMMEDIATELY AVAILABLE (CON T) Other Enforce anti-trust laws, reverse trends in market power Locally Employment services: job training, interview skills, or assistance with day to day issues, such as child care Cognizance of the potential for technologies to affect worker/employer power dynamics Uber, Lyft, etc. ADDRESSING INEQUALITY: LONG TERM It s all about access to resources: Education, in particular Improve public education Reduce disparities in quality of public education Improve counseling in low income schools With respect to college paths to success and funding Investments are needed in early education, not later Universal pre-k Upgrade quality of elementary schools in low income areas 8
POVERTY Definition: Living in poverty means that you lack the financial resources to provide minimal necessary amounts of food, clothing, and shelter POVERTY RATE: 2015 % OF POPULATION LIVING IN POVERTY 25 20 Poverty Rates 15 US: 13.5% (42.1 million) 10 CA: 15.3% (5.8 million) 5 Marin: 7.1% (18 thousand) 0 1959 1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2014 Child poverty: 21% (15 million kids) 9
HOW DOES IT HAPPEN? Individually: Bad luck Job loss Divorce Major/mental illness Circumstances of birth Lack of education or skills Substance abuse Structurally (policy): Declining wages for low skilled work Worker exploitation Lack of worker protections Financial exploitation Payday lending Mortgages WHY DOES IT MATTER? Economic performance Underutilized resources Compassion Crime Cost of government support programs 10
ADDRESSING POVERTY: IMMEDIATELY AVAILABLE Redistribution Tax and transfer programs TANF, Food Stamps, EITC PREdistribution Reverse anti-union bias Minimum wages Collective bargaining Employment services: job training, interview skills, or assistance with day to day issues, such as child care Housing programs ADDRESSING POVERTY: LONG TERM It s all about access to resources: Education, in particular Improving access to college is too late Investing in college level entrepreneurship programs is too late Investments are needed in early education, not later 11
SUMMARY Income inequality and poverty are two sides of the same coin There is an awful lot of both in the United States today 1 in 8 in US are living in poverty 1 in 6 in California 1 in 5 Kids Inequality is the real pressing social and economic issue of our time Leading to social unrest and slow economic growth 12