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Income Inequality

When Karl Marx began to hypothesize that an economic revolution would occur, one of his primary concerns was the unequal distribution of wealth. He saw a capitalist society where there was terrible inequality. A small amount of people possessed a high percentage of all the money and income. What this did was create a larger and larger poor underclass. Marx theorized that this unequal division of wealth would eventually lead to a class revolution. While Marx's revolution failed his essential problem still exists. In America about 5% of the people possess 95% of the wealth. This leads to certain problems, foremost among them poverty and income equality. All of this eventually leads to the problem of lack of spending in an economy.

Analyzing the Problem

The most common method of analyzing economic distribution is to use the family as the basic income unit and then rank all families from lowest to highest. After the incomes are ranked, they are then divided into fifths, and then examined. This data is then plotted on the Lorenz curve- a curve that shows how much the actual distribution of income varies from an equal distribution- by adding the percentage the lowest fifth earned to that of the next highest fifth, and then plotted as the first point of the graph. This number is then added to the middle fifth and plotted as the second point. This process continues until the cumulative values of all fifths are plotted. If all families earned the same income then the graph for the Lorenz curve would be a diagonal line beginning in the lower left-hand corner and moving towards the upper right hand corner. But because all families don't receive the same income, the curve showing the actual income distribution is curved. Thus the area between the ideal diagonal line and the curve shows the degree of income inequality.

Reasons for Income Inequality

There are numerous amounts of reasons as to why incomes of various groups may be different. The first reason has to do with education. Some people have higher incomes than others do because they obtained a higher level of education. Thus they are put in better positions to get higher paying jobs that require higher levels of skills.

The second reason for income inequality has to do with the fact that some people hold more wealth than others and that the distribution of wealth is more uneven than that of income. This inequality gives the wealthy the advantage to send their children to expensive colleges and universities, and to set their children up in business so they can earn a better income.

Discrimination is another reason that there is an inequality with regards to income. Women may not be promoted to the higher positions in their business because of the "glass ceiling". Certain unions may deny immigrants or minorities membership o the grounds that certain groups are not fit for certain professions.

Another factor that influences the distribution of income is the ability that some people possess. Professional athletes and popular performers all have natural abilities that allow them to earn more income.

Finally, another reason for differences in the distribution of income is the amount of monopoly power certain groups hold. Unions have considerable power and have been able to obtain higher wages for their members. Therefore these workers are more likely to earn higher wages than a person in the same profession who is not a union member is. For white-collar workers, monopoly power comes in the form of quotas placed on the number that can enter a profession. The American Medial Association, for example, has been successful in limiting the number of people in its profession by limiting enrollments in medical schools.

Solving The Problem

There are six types of antipoverty programs, all with different channels to help the poor.

Income assistance is the first type. Basically is provides direct cash assistance to those in need. One such program is Aid to Families with Dependent Children (AFDC) under which a family in need because of the death, continuous absence, or permanent disability of a parent can receive cash payments. Individual states can determine whether a family is eligible for benefits and how large the benefits should be; this is done under the guidelines of the federal government. Another income assistance program in the Supplemental Security Income (SSI), which makes payments to blind or disabled persons age 65 or older.

The second type of antipoverty program is General Assistance, which contains programs that assist poor people but do not provide direct case assistance. One example is the food stamp program because a person will pay a fraction of the worth of a coupon administered by the government. Another general assistance program is Medicaid. Under this, the federal government pays a majority of healthcare costs and the state governments pay the rest.

The third type of antipoverty program are the social service programs. These include areas as child abuse prevention, foster care, family planning, job training, child welfare, and day care. Although the state has final say in the kids of services provided by the programs, the federal government matches part of the cost. To be eligible for federal funds, a state is free to select the social issues it wishes to address, set the eligibility requirements, and decides how the program is to be carried out.

The fourth antipoverty program is the negative income tax, which would make cash payments to certain groups below the poverty line. Under the negative income tax, the federal government would establish an income level below which people do not have to pay taxes. Then, the government would pay a certain amount of money to any person who earned less than that level. Such a program would be more cost-effective for the government than the current welfare programs are.

The fifth type of antipoverty program is enterprise zones, which are areas where companies can locate free of certain local, state, and federal tax laws and operating restrictions. The zones benefit businesses and are residents because people can find work without traveling far and rundown areas can begin to grow.

The final antipoverty program is the state-controlled workfare program. Under workfare, welfare recipients are required to exchange some of their labor for benefits. People on workfare often assist law enforcement officials or sanitation and highway crews. In New York City, many people on workfare clean subway cars and stations. The work is required of almost everyone except those with very young children, the disabled, and the elderly.

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