Assignment:
Future Poverty Level
1) What do you expect to see happening with the poverty level in the future?
https://www.ssa.gov/policy/docs/ssb/v64n3/v64n3p23.html
Notes from class
The Poverty Rate
A commonly used gauge of the distribution of income is the poverty rate. The poverty rate is the percentage of the population whose family income falls below an absolute level called the poverty line. The poverty line is set by the federal government at roughly three times the cost of providing an adequate diet. This line is adjusted every year to account for changes in the level of prices, and it depends on family size.
To get some idea about what the poverty rate tells us, consider the data for 2008. In that year, the median family had an income of $61,521, and the poverty line for a family of four was $22,025. The poverty rate was 13.2 percent. In other words, 13.2 percent of the population were members of families with incomes below the poverty line for their family size.
Policies to Reduce Poverty
As we have just seen, political philosophers hold various views about what role the government should take in altering the distribution of income. Political debate among the larger population of voters reflects a similar disagreement. Despite these continuing debates, most people believe that, at the very least,
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the government should try to help those most in need. According to a popular metaphor, the government should provide a "safety net" to prevent any citizen from falling too far.
Poverty is one of the most difficult problems that policymakers face. Poor families are more likely than the overall population to experience homelessness, drug dependence, health problems, teenage pregnancy, illiteracy, unemployment, and low educational attainment. Members of poor families are both more likely to commit crimes and more likely to be victims of crimes. Although it is hard to separate the causes of poverty from the effects, there is no doubt that poverty is associated with various economic and social ills.
Suppose that you were a policymaker in the government, and your goal was to reduce the number of people living in poverty. How would you achieve this goal? Here we examine some of the policy options that you might consider. Each of these options helps some people escape poverty, but none of them is perfect, and deciding upon the best combination to use is not easy.
Minimum-Wage Laws
Laws setting a minimum wage that employers can pay workers are a perennial source of debate. Advocates view the minimum wage as a way of helping the working poor without any cost to the government. Critics view it as hurting those it is intended to help.
The minimum wage is easily understood using the tools of supply and demand, as we first saw in Chapter 6. For workers with low levels of skill and experience, a high minimum wage forces the wage above the level that balances supply and demand. It therefore raises the cost of labor to firms and reduces the quantity of labor that those firms demand. The result is higher unemployment among those groups of workers affected by the minimum wage. Those workers who remain employed benefit from a higher wage, but those who might have been employed at a lower wage are worse off.
The magnitude of these effects depends crucially on the elasticity of demand. Advocates of a high minimum wage argue that the demand for unskilled labor is relatively inelastic so that a high minimum wage depresses employment only slightly. Critics of the minimum wage argue that labor demand is more elastic, especially in the long run when firms can adjust employment and production more fully. They also note that many minimum-wage workers are teenagers from middle-class families so that a high minimum wage is imperfectly targeted as a policy for helping the poor.
Welfare
One way for the government to raise the living standards of the poor is to supplement their incomes. The primary way the government does this is through the welfare system. Welfare is a broad term that encompasses various government programs. Temporary Assistance for Needy Families (TANF) is a program that assists families with children and no adult able to support the family. In a typical family receiving such assistance, the father is absent, and the mother is at home raising small children. Another welfare program is Supplemental Security Income (SSI), which provides assistance to the poor who are sick or disabled. Note that for both of these welfare programs, a poor person cannot qualify for assistance simply by having a low income. He or she must also establish some additional "need," such as small children or a disability.
Negative Income Tax
Whenever the government chooses a system to collect taxes, it affects the distribution of income. This is clearly true in the case of a progressive income tax, whereby high-income families pay a larger percentage of their income in taxes than do low-income families. As we discussed in Chapter 12, equity across income groups is an important criterion in the design of a tax system.
Many economists have advocated supplementing the income of the poor using a negative income tax. According to this policy, every family would report its income to the government. High-income families would pay a tax based on their incomes. Low-income families would receive a subsidy. In other words, they would "pay" a "negative tax."