Measuring Inequality within a population
- Lorenz curve measures inequality
- Gini Coefficient is two times the area between the 45 degrees line and the Lorenz curve. Higher Gini=higher inequality
Poverty in the US
- A state in which a household’s income is too low to be able to buy the quantities of food, shelter, and clothing that are deemed necessary. The current poverty line for a family of four is $25,100. In 2018, 43.1 million Americans (12.1%) live in poverty. While Whites represent a higher percentage of people in poverty, a greater total percentage of Black and Hispanic families are in poverty. The poverty rate of whites is around 10% and is 27% for Blacks and Hispanics. Almost 50% of poverty lasts between 2 to 4 months, while 20% lasts for more than a year.
Poverty Worldwide
- 3 billion people live off of $2.50 per day=$900 per year or less.
- 22,000 children die from poverty each day
- 750 million people do not have access to clean water
- Poverty Worldwide is Declining Rapidly
Measuring International Inequality
- Per capita GDP is GDP/number of people
- Human Development Index measures standard of living based on life expectancy, education, and per capita income
Why is there Inequality?
- Education
- Financial Capital
- Physical Capital
- Discrimination
- Laws and Property Rights
- Education levels differ greatly within and across populations. More educated workers are able to do high-skilled jobs that pay more than low-skilled jobs.
- People with better access to financial capital (loans) are better able to improve their economic situation. Easily available financial capital lets people buy houses (which appreciate in value over time) or start a business. Without access to capital, there just aren’t as many opportunities to invest for future gain.
- Countries with better physical capital provide people with better business opportunities. Trade is extremely difficult without access to a good road system or without access to the ocean, making landlocked countries oftentimes extra depressed.
- Discrimination affects inequality especially within a population. Racial and sexual discrimination are especially prevalent in the US.
- Good laws and strong enforcement of property rights leads to better living conditions. Investment is the key factor behind economic growth and improvement in living standards. Without property rights, there would be no point in spending time or money investing in an asset that is not a person’s property or might not be his/her property for much longer. There would be no point in developing land. Likewise, in the First World, Research and Development would be pointless if patents did not exist because others could free ride off of the original research. Countries with better property rights have better standards of living and a better ability to grow (compared to third world countries without clear property rights).