Poverty and Income Distribution

The problems of poverty and inequality are related but not the same. Inequality can exist without anyone being poor, according to most definitions. 

Poverty lines are estimated by four principal criteria: amenities, proportionality, budgetary, and public opinion. The results and implications differ. The budgetary criterion is the one most widely used.

Certain characteristics of families and single individuals increase the probability of living below the poverty line. These characteristics include being nonwhite, very young, physically or mentally handicapped, having little formal education or training, records of criminal conduct or mental illness, no regular employment, being members of households headed by females, or having been reared in economic backwaters. In general, the more of these handicaps that apply, the more likely is the family or individual concerned to be poor.

Antipoverty policies received great attention in the United States starting in the 1960s. Major programs include Aid for Families with Dependent Children, food stamps, subsidies for housing and medical care, and guaranteed minimum Social Security patents. These programs are controversial because of abuse, high costs, and adverse effects on work incentives.

Negative income tax proposals are among the reform suggestions for antipoverty programs. Three key elements in negative income taxes are a guaranteed minimum income to fight poverty, a rate of negative tax designed to preserve work incentives, and a breakeven income level " that strongly influences the overall cost of the program. Conflicts exist among these elements. Besides these problems, there are political and administrative difficulties that might arise from negative income taxation.

Antipoverty programs that involve compulsory labor and/or training for aid recipients are controversial. Training programs may be expensive, while compulsory labor raises questions of the suitability of the work and the care of dependent children when the parent or parents must work.

A poverty underclass exists when there is little mobility in or out of the poverty group, so that poverty extends over several generations of the same family. In this circumstance, a cultural gap tends to arise between the general population and the underclass. The gap increases the difficulty of esolving poverty problems.

Homelessness and panhandling are aspects of poverty that have increased in severity in part because of reduced availability of housing that is affordable to the poor. Factors contributing to the reduced availability of affordable housing for the poor include urban renewal, rent controls, and increasing construction costs. The release of near normal persons from psychiatric hospitals has added to the demand for affordable housing for the poor.

Economists are interested in both the functional and the personal distributions of income, though there are many other ways of measuring  inequality that apply to particular areas of study.  The functional distribution is by income types, and the personal distribution is by income-size classes. 

In the functional distribution, labor income amounts to over 75 percent of American national income and property income amounts to less than 25 percent. In the personal distribution, over 40 percent of personal income goes to the top fifth of recipients, and less than 5 percent goes to the bottom fifth.

Inequality of the personal income distribution is commonly measured in America and Western Europe by Gini ratios, based on Lorenz curves. In Eastern Europe, it is commonly measured by quantile ratios.

Changes in American inequality over time seem to depend more on the difference between the wages of skilled and unskilled labor than on the size of the labor share of total income.

There are many factors that may explain the continued existence of income inequality. Among these are genetic endowments, environmental endowments, inheritances, discrimination, and pure blind luck.

Income statistics based on race and gender suggest that discrimination has contributed to lower incomes for women, blacks, and Hispanics in the United States.

Comparable worth is the name given to systems that attempt to specify pay for various jobs based on their arduousness and their requirements for skills, education, and so on. If adopted, comparable worth systems probably would lead to labor shortages in those occupations that were downgraded and to labor surpluses in those that were upgraded.

Several varieties of maldistribution can be identified, including individual maldistribution, economic maldistribution, and ethical maldistribution. There are many theories about whether particular income distributions are ethically justified.

Among the instruments for redistributing income, progressive taxation and regressive government expenditures are the most widely practiced in the United States. Price fixing and rationing are sometimes suggested as redistributional devices though they typically fail in practice to accomplish this objective. Socialization of wealth sometimes is advocated as a redistributive measure, but this may have adverse effects on real income growth and is not necessarily a major aim in socialist systems.