InCome Inequality and Political Philosophies

Income Inequality and Political Philosophies

It is known that a dollar in the US won’t buy the same thing as a Dominican peso and the amount of work citizens put out to receive a dollar in their home country is also very different.  That being said, there is also a difference in the income distribution within countries.  How many citizens are living in poverty?  Are citizens able to move up in their income class?  All of this is influenced by a country’s political philosophy and their policies used to redistribute income.

One way economist commonly measure the distribution of income is known as the poverty rate.  To be considered living in poverty, a person or family must not have the means to satisfy their basic needs for food, clothing, shelter, or transportations.  The poverty rate, as defined in Principles of Microeconomics, 7e, is the percentage of the population whose family income falls below an absolute level called the poverty line (Mankiw, 2015).  The poverty line is decided by the government, but it is approximately three times what it costs to provide an adequate diet.  Due to the rising and falling of price levels and varying average family size, the poverty line is adjusted each year.  In 2004, a U.S. individual who received less than $9,645 a year, a family of four who made less than $19,307 a year, or a family of six that made less than $25,785 a year was considered to be living in poverty.  That year, 37 million Americans were considered to be living in poverty, which was equivalent to a poverty rate of 12.7 percent (McConnell & Brue, 2008).  In 2011, the poverty line for a U.S. family of four was $23,021 which leads to a poverty rate of 15.0 percent (Mankiw, 2015).  Figure 1 shows the number of U.S. citizens in poverty and the poverty rate from 1959-2013.[pic 1][pic 2]

Poverty can be caused by numerous factors including low wages or a lack of jobs.  Poverty can be found in all areas of the nation and even the world. Poverty is seen in all races, ethnicities, geographic locations, and ages, however, poverty is not necessarily evenly or fairly distributed among citizens.  In fact, while the overall poverty rate in 2011 was 15 percent, the poverty rate for a single female household was 31.2 percent, an African-American household in 2011 faced a poverty rate of 27.6 percent, and a Caucasian faced only a 9.8 percent poverty rate (U.S. Bureau of Census, 2012).  Table 1 shows the poverty rate per year by different groups.  Even though the average income has increased over the years, the poverty rate has not fallen below the level it reached in 1973.  This lack of progress is due to the inequality of the poverty rates that can be seen in Table 1.  This information reveals 3 facts about the poverty rate inequality:[pic 3]

1.  Poverty is correlated with race.

2.  Poverty is correlated with age.

3.  Poverty is correlated with family composition.

An African- American is roughly 3 times more likely to live in poverty than a Caucasian while a female headed household without a spouse is roughly five times as likely to live in poverty as a married couple (Mankiw, 2015).  In 2005, the average U.S. woman earned 76 cents for each dollar a man earned (Ayres & Collinge, 2005).

The poverty rate is not a perfect system for measuring those who are truly in poverty.  When using the poverty rate system, it is important to consider that the poverty rate is based on a household’s annual income and not necessarily their ability to maintain a quality standard of living.  When you find the poverty line using typical family or household consumption, instead of income, you find that the poverty rate is lower than reported.  This is because of “in-kind” transfers or government programs for the poor that provided nonmonetary items such a paid medical care, welfare, and food stamps.  These in-kind transfers typically go towards the poorest people and are not considered part of income.  Since poverty is defined as not having the means to satisfy basic their basic needs for food, clothing, shelter, or transportations, and these in-kind transfers often provide basic needs for the poor free of charge, it is predicted that the true poverty level is around 10 percent lower than the poverty rate suggests (Mankiw, 2015).