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LIST OF CONTENTS

LIST  OF CONTENTS  2

LIST  OF FIGURES  3

1.  Introduction  4

2.  The distribution of income  7

2.1.  The role of age on the income distribution  7

2.2.  Income inequality in the .US. society  7

2.3.  Reasons for income inequality  9

2.3.1.  Further factors contributing to income inequality  10

3.  Famine in the United States of America  11

4.  How to define poverty ?  12

4.1.  The poverty line  13

4.2.  The poverty rate  14

4.3.  Which demographic groups are especially affected  

by  poverty ?  16

5.  Conclusion  18

LIST  OF LITERATURE  19

U.S. Census Bureau, Washington, DC., September 2002 :

Figure 1: Households by total money income 1970 to 2001 page 6

Figure 2: Share of aggregate income received by each fifth and top 5 percent of families 1970 to 2001 page 8

Figure 3: Development of poverty rate from 1959 to 2001 in the USA page 15

Figure 4: People and families in poverty by selected characteristics: 2001 page 17

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Introduction 1.

It can be thought, that poverty does not really exist in society in times of prosperity and technical progress in industrialised and high developed countries. The great prosperity is often celebrated in speeches by governments of high industrialised states and their goods are advertised through all channels of marketing. These countries have the highest living standards in the world. For example the United States of America, on the one hand they spend a lot of money for aerospace technologies, for the defence industry and other innovative technologies but on the other hand the country has to face a high rate of poverty within its population. Poverty is expanding quickly caused due to the raise of unemployment and is not longer only a problem for developing countries in the third world. Poverty and income distribution data are a very important indicator in order to evaluate the economic well-being of a state. Income inequality and poverty data must be differed regarding characteristics such as race, level of education, age, etc.

2. The distribution of income

There is a very different distribution of income in the U.S. society but as well as in the whole world. It can be said, that the income is distributed to all groups of the population, but not in a fair and equal way. Ernest Hemingway once said, that the difference between the rich and poor people is just, that the rich group of society has more money than the poor group.

In this sense it must be discussed the difference between money and income. These two words are often used in the same content, but this is a mistake and must be distinguished from eachother. The difference can be explained in the following example : it must be asked how much money a persons has at any point of time. For example, person A has right now in this moment 50.000 US dollars on his account with the bank. In this sense it is spoken of money. But for example, if person A earns a special amount of income, then it is said, that person A receives for example 1.500 US dollars per month. This means, that

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income is a special amount of money which a person receives over a period of time. It does not matter, if it is spoken of a period of a week, month or a year. A typical family can earn 40.000 US dollars per year, but on its account at any time it only can have 2.000 US dollars.

But nevertheless, what are the specific factors that define a person`s income ? Individual income = labour income + asset income + transfer payments - taxes Labour income is the wage of a person depending on how many hours he/she works, the asset income is the return of money, which a person gets from the bank because of his/her account as return on savings or return on investment, etc., transfer payments are payments from governmental welfare programs, such as food stamps or medical assistance in form of goods or services or payments in form of money, such as direct monetary welfare assistance and Social Security Programs, and taxes are a special amount of money that persons have to pay to the government. 1

There are different ways to show the distribution of income in the economy. Following figure shows the percentage of the families, which belong to a specific category of annual income measured by household during the last thirty years. This presentation gives already an outline about how many percentage of the population are richer families, how many belong to the poor group and how many are in the bigger middle field.

Figure 1: Households by total money income 1970 to 2001

¹ cf.: Mankiw, Gregory N., Principles of Economics, Second Edition, Fort Worth 2001, page 437-439

Arnold, Roger A., Economics, fourth Edition, Cincinnati, Ohio 1998, page 634, 636

Baumol, William J.; Blinder, Alan S., Macroeconomics, Orlando 2001, page 257

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All data from the U.S. Census Bureau are based on money income before taxes, they do not include fringe benefits for employees as well as governmental non-cash benefits, such as food stamps, medicare, etc. Money income includes earnings (consists of money wage or salary income including tips, comissions and cash bonuses, etc.), unemployment compensation, social security, public assistance, pension or retirement income, interests, dividends, child support or educational assistance, just to mention some of them. The average household money income in 2000 was 43.162 US dollars and declined by 2,2 percent to 42.228 US dollars in 2001. Foreign-born households had to realize a 5,3 percent decline in median income between 2000 and 2001 to 37.948 US dollars. There was no change regarding the median income of Hispanic-origin households between 2000 and 2001 (33.565 US dollars), but all other races had to face a decline in their median income. There was a decline of 1,3 percent for non-Hispanic Whites, 3,4 percent for Blacks and 6,4 percent decline for Asians and Pacific Islanders. The Northwest region was the only region with no decline in real median household income between 2000 and 2001, there was also a decline for households living in metropolitan areas down to 45.219 US dollars between 2000 and 2001. During the same time the median income for women worked full time all year long raised to 29.215 US dollars, while men with similar working hours had no change in median income (38.275 US dollars). 2

² cf.: U.S. Census Bureau, www.census.gov/hhes/www/income.html , Washington, DC., September

2002 , page 1-2