Reading: Schiller, Chapter 1: Views of Inequality and Poverty

1
Introduction

• Reading Schiller, Chapter 1 Views of Inequality
  and Poverty

2
Todays Topics

• Hot issues
• Analytical framework for causes of poverty
• How poverty is related to inequality
• The complexities of measuring well-being

3
Hot Issues

• What is economic inequality?
• What is economic justice?
• What is poverty?
• Are there really poor Americans?
• If so, are they deserving of our assistance?
• What form should assistance take and who should
  provide it?
• Is there an optimal level of redistribution? Are
  we providing too much or too little assistance?

4
Analytical Framework for Identifying the Causes
of Poverty

• Flawed Character
• Personal characteristics responsible for poverty
• Human Capital theory supports this perspective
• Individuals can enhance with labor market value
  with investments in education and training
• Effects supply side of labor market

5
Representation of Supply in the Labor Market

• Upward sloping supply curve represents workers
  willing to work at each wage rate.
• Within a single market (eg. accountants),
  workers are ranked by their reservation wages.
• Reservation wages are positively correlated with
  ability and skills

S
Wages
Workers
6
Analytical Framework for Identifying the Causes
of Poverty

• Restricted Opportunity
• Obstacles restrict opportunities for earnings
• Effects demand side of the labor market

7
Representation of Supply and Demand in the Labor
Market

• Upward sloping supply curve represents workers
  willing to work at each wage rate.
• Downward sloping demand curve represents number
  of jobs available at each wage rate.

S
Wages
D
Workers
8
Analytical Framework for Identifying the Causes
of Poverty

• Big Brother
• Government policies induce undesirable but
  rational behaviors that keep people poor
• Work disincentives
• Encourage births outside of marriage
• Encourage family breakup
• Effects supply side of the market

9
Analytical Framework for Identifying the Causes
of Poverty

• Caveats
• Schillers Causes are not mutually exclusive.
  Avoid the mistake of choosing sides
• Not everyone employs Schillers framework
• How policymakers perceive the causes of poverty
  influences the design of policies
• Flawed Character--supply side policies to change
  personal characteristics
• Restricted Opportunities--demand side policies to
  increase employment and earnings
• Big Brother--eliminate government programs

10
How is poverty related to economic inequality?

• The poor take their place in the lower extremes
  of the distribution of income and wealth
• Poverty and inequality share causal factors

11
Complexities of Measuring Well-being

• Should well-being be measured in material terms
  alone? Can money buy happiness? What other
  dimensions should be considered? Should we focus
  the social as well as the material dimensions of
  well-being?
• If we agree upon a single material measure of
  poverty, how should this measure be defined?
  Should we focus on income or wealth?

12
Complexities of Measuring Well-being

• Once we agree upon a measure, what is the
  relevant time period for assessing inequality and
  poverty? A month? A year? 5 years? Over a life
  time?
• Should our measure include the value of publicly
  provided goods and services?