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Poverty and Income Distribution, 2nd Edition


Written by a leading scholar in the field, this textbook provides a thorough introduction to the topic of income distribution and poverty, with additional emphasis on the issues of inequality and discrimination. This book features an empirical focus, and includes sections on basic statistics, as well as optional econometric studies and more advanced mathematical handling of inequality measurement. Utilizing data from various countries around the globe, including the US and Europe, this textbook is international in its scope and provides a comparative element that will aid students in their studies. Up-to-date and comprehensive in its coverage, this new edition supplies a self-contained course on income distribution and poverty.

Edward Wolff received his Ph.D. from Yale University in 1974 and is professor of economics at New York University, where he has taught since 1974, and a Senior Scholar at the Levy Economics Institute of Bard College. He is also a Research Associate at the National Bureau of Economic Research and a council member of the International Association for Research in Income and Wealth since 1987. He served as Managing Editor of the Review of Income and Wealth from 1987 to 2004 and was a Visiting Scholar at the Russell Sage Foundation in New York (2003-04), President of the Eastern Economics Association (2002-2003), and a council member of the International Input-Output Association (1995-2003), and has acted as a consultant with the Economic Policy Institute, the World Bank, the United Nations, the WIDER Institute, and Mathematica Policy Research. His principal research areas are productivity growth and income and wealth distribution. He is the author (or co-author) of 10 books, and the editor of 8. He is also the author of many articles published in books and professional journals and provides frequent commentary on radio and television.

1. Introduction: issues and scope of book.

1.1 Recent trends in living standards.

1.1.1 Income and earnings stagnate while poverty remains unchanged.

1.1.2 Inequality rises sharply.

1.1.3 Middle class debt explodes.

1.1.4 What has happened to tax rates?.

1.1.5 Rising profits is the key.

1.1.6 Yet schooling has continued to rise.

1.1.7 Some conclusions.

1.2 Causes of rising inequality.

1.2.1 Skill-biased technology change.

1.2.2 The shift to services.

1.2.3. Declining unionization.

1.2.4. Globalization.

1.2.5 Downsizing and outsourcing.

1.2.6. Public policy changes.

1.3 Plan of the textbook.

Part I.Inequality, poverty, and mobility: measurement and trends.

2. Income, earnings, and the standard of living.

2.1 Introduction.

2.2 The composition of personal income in the United States.

2.3 Measuring the standard of living.

2.3.1 Real versus nominal.

2.3.1 Real versus nominal.

2.3.2. Trends in living standards in the U.S.

2.4 Factor shares.

2.4.1 Historical studies on factor shares*.

2.5 International comparisons of living standards.

2.5.1 Per Capita income.

2.5.2 The Human Development Index.

2.6 Household production and well-being*.

2.6.1 Defining household work.

2.6.2 The market cost approach.

2.6.3 The opportunity cost approach.

2.6.4 Empirical work on household production.

2.7 Summary.

2.8 References, bibliography, and data sources.

2.9 Discussion questions and problem set.

Appendix 2.1 An introduction to the national income and product accounts*.

A2.1.1 The relation to the national accounts.

A2.1.2 The sources of personal income.

A2.1.3 The derivation of factor shares.

A2.1.4 Miscellaneous issues in national accounting.

A2.1.4.1 Treatment of international trade.

A2.1.4.2 National income at factor costs.

A2.1.4.3 The treatment of capital gains.

3. Income inequality: Its measurement, historical trends, and international comparisons.

3.1 Introduction.

3.2 Review of basic statistics.

3.2.1 Mean, variance and standard deviation.

3.2.2 Distributions.

3.2.3 Percentile ranking.

3.3 Inequality measures.

3.3.1Concentration measures.

3.3.2 Coefficient of variation.

3.3.3 The Lorenz curve.

3.3.4 Gini coefficient.

3.3.5 Log variance of income*.

3.3.6 The Theil entropy index*.

3.3.7 Atkinson's measure*.

3.3.8 Lorenz dominance*.

3.4 Time trends in income inequality in the United States.

3.5 International comparisons of inequality.

3.5.1. Inequality comparisons among high-income countries.

3.5.2 The Kuznets curve.

3.5.3 The world distribution of income*.

3.6 Summary.

3.7 References and bibliography.

3.8 Discussion questions and Problem Set.

4. Poverty: Definitions and historical trends.

4.1 Introduction.

4.2 The measurement of poverty.

4.2.1 The official U.S. poverty standard.

4.2.2 Absolute versus relative poverty thresholds.

4.2.3 Subjective poverty lines. Formal derivation of the Leyden poverty line*.

4.2.4 Other concepts of poverty.

4.3. Measurement of poverty incidence.

4.3.1 The poverty rate and the poverty gap ratio.

4.3.3 Composite measures of poverty.

4.4 Poverty trends in the U.S.

4.4.1 Composition of the poor.

4.5 Other dimensions of poverty.

4.5.1 Poverty spells and the permanence of poverty.

4.5.2 The underclass.

4.5.3 International comparisons of poverty rates.

4.6 Other Issues in the measurement of poverty.

4.6.1 Equivalence scales.

4.6.2 Choice of a price index.

4.6.3 The treatment of taxes.

4.6.4 The treatment of non-cash government benefits.

4.6.5 The role of household wealth.

4.6.6 Consumption-based measures of poverty.

4.6.7 Choice of the accounting period.

4.6.8 Other issues.

4.7 Summary.

4.8 References and bibliography.

4.9 Discussion questions and problem set.

5. Household wealth.

5.1 Introduction.

5.2 What is household wealth?.

5.2.1 Wealth and well-being.

5.2.2 Marketable wealth.

5.2.3 Other definitions of household wealth.

5.3 Historical time-series data on household wealth and its composition.

5.3.1 Trends in average wealth.

5.3.2 Changes in wealth composition.

5.3.3 Homeownership rates.

5.4. Wealth inequality in the United States.

5.4.1 Methods used to estimate wealth inequality. Estate tax data. Household survey data. Income capitalization techniques. Wealth tax data.

5.4.2 Long-term trends in household wealth inequality in the U.S. Comparisons with income inequality. Movements in stock and housing prices.

5.4.3 Changes in wealth inequality, 1962-2004. Changes in average wealth holdings. Trends in wealth inequality. Portfolio composition by wealth and age class. Relation between income and wealth.

5.4.4 The Forbes 400.

5.5. International comparisons of household wealth distribution.

5.5.1 Comparisons of long-term time trends.

5.5.2 Comparisons of recent trends.

5.6 Summary.

5.7 References and bibliography.

5.8 Discussion questions and problem set.

6. Economic Mobility.

6.1 Introduction.

6.2 Mobility measures.

6.2.1 Measuring intergenerational mobility.

6.2.2 The Shorrocks measure and other measures of lifetime mobility. Standard measures. More advanced mobility indices*.

6.3 Mobility over time.

6.3.1 Income mobility.

6.3.2 Earnings mobility.

6.3.3 Other dimensions of mobility.

6.4 Intergenerational mobility.

6.4.1 Results for the United States.

6.4.2 Mechanisms of transmission.

6.4.3 International comparisons.

6.5 Wealth mobility.

6.6 Summary.

6.7 References and bibliography.

6.8 Discussion questions.

Part II. Explanations of inequality and poverty.

7. The labor force, employment, and unemployment.

7.1 Introduction.

7.2 Basic concepts of the labor force, employment, and unemployment.

7.2.1 Employment.

7.2.2 Unemployment.

7.2.3 The labor force.

7.2.4 Estimating employment statistics.

7.3 Labor force participation rates (LFPR).

7.3.1 LFPR by gender, race, and age.

7.3.2 Two-earner households.

7.3.3 Educational attainment of the labor force.

7.4 The industrial and occupational composition of employment.

7.5 Measures of unemployment and historical trends.

7.6 The incidence of unemployment.

7.6.1 Jobless rates by demographic characteristic.

7.6.2 Unemployment by industry, occupation, and region.

7.7 Types of unemployment.

7.7.1 Frictional unemployment.

7.7.2 Seasonal unemployment.

7.7.3 Structural unemployment.

7.7.4 Deficient demand (Keynesian) unemployment.

7.7.5 The debate over the causes of unemployment.

7.8 Summary.

7.9 References and bibliography.

7.10 Discussion questions.

8: The role of education and skills.

8.1 Introduction.

8.2 The human capital model.

8.2.1 The rate of return to human capital. The internal rate of return.

8.2.2 On-the-job training.

8.2.3 Additional implications of the human capital model. Basic assumptions of the model. A theory of relative earnings. Policy implications. The formation of an equilibrium in the human capital model*.

8.3 Earnings, schooling and experience.

8.3.1 Rates of return to schooling. Policy implications.

8.3.2 Lifetime earnings.

8.4 The Schooling-earnings function*.

8.4.1 The extended earnings function*.

8.5 Ability and earnings.

8.5.1 Estimates of the ability effect*.

8.5.2 The nature vs. nurture controversy.

8.6 Productivity and earnings.

8.6.1 Experience, productivity, and earnings.

8.6.2 Other interpretations of the relation between schooling and earnings. Education as a screening device. Family background. Schooling as a socializing mechanism.

8.7 Earnings inequality and human capital*.

8.8 Summary and concluding remarks.

8.9 References and bibliography.

8.10 Discussion questions and problem set.

9 Unions, dual labor markets and structural models of earnings.

9.1 Introduction.

9.2 The role of labor unions.

9.2.1 A brief history of trade unionism in the U.S. The formation of the American Federation of Labor (AFL). The Great Depression and its aftermath.

9.2.2 Trends in union membership. The decline in trade unionism.

9.2.3 The economic role of labor unions. Union organization. Collective bargaining. Strikes and other union weapons. Labor market impact of trade unions. Marshall's rules*.

9.2.4 The effect of unions on wages: the evidence. The "threat effect". Inequality of earnings.

9.3 Segmented labor markets.

9.3.1 Internal labor markets. The structure of internal labor markets. Rationale for internal labor markets.

9.3.2 The dual labor market model. Rationale for a secondary labor market. The make-up and consequences of the secondary labor market. Extensions of the dual labor market model.

9.3.3 An evaluation of labor market segmentation.

9.4 Industrial composition and earnings inequality*.

9.4.1 State and regional differences in inequality.

9.4.2 Regional differences in income levels.

9.4.3 Industrial composition and rising earnings inequality in the 1980s.

9.5 Industry wage differentials*.

9.5.1 Explanations of inter-industry wage differences. The later literature. The effects of firm and plant size.

9.5.2 Recent trends and efficiency wage theory.

9.6 Occupational wage differentials.

9.6.1 Historical studies.

9.6.2 Trends in the U.S. in the twentieth century.

9.6.3 Rising skewness at the top.

9.7 Summary.

9.8 References and bibliography.

9.9 Discussion questions.

10 The role of savings and intergenerational transfers in explaining wealth inequality.

10.1 Introduction.

10.2 The basic life cycle model.

10.2.1 Age-wealth profiles.

10.2.2 Longitudinal analyses*.

10.2.3 Simulation and regression analysis*.

10.3 Extensions of the life cycle model.

10.3.1 The role of uncertainty about death and lifetime annuities.

10.3.2 The role of pension and Social Security wealth.

10.3.3. The bequest motive.

10.3.4 Precautionary savings and liquidity constraints.

10.4 Intergenerational equity.

10.4.1 Social Security annuity and transfer wealth.

10.4.2 Private intergenerational transfers.

10.4.3 Generational accounting.

10.5 Summary and overall assessment.

10.6 References and bibliography.

10.7 Discussion questions.

11. Sources of rising earnings inequality*.

11.1 Introduction.

11.2 Skill-biased technological change.

11.3 The IT “Revolution”.

11.4 Growing international trade and immigration.

11.5 The shift to services.

11.6 Institutional factors.

11.7 Outsourcing and downsizing.

11.8 Changes in the distribution of schooling and ability.

11.9 Time trends in key explanatory variables.

11.10 Econometric results.

11.11 Summary and concluding remarks.

11.12 References and bibliography.

Appendix 11.1 Data Sources and Methods.

Part III. Discrimination.

12 Discrimination: meaning, measurement, and theory.

12.1 Introduction.

12.2 The meaning of discrimination.

12.2.1 The Blinder-Oaxaca decomposition*.

12.2.2 Pre-labor market discrimination.

12.3 Theories of discrimination: an overview.

12.4 Taste for discrimination.

12.5 Statistical discrimination.

12.6 The racial stigma model.

12.7 The Marxian model.

12.8 Overcrowding model of occupational segregation.

12.9 Summary.

12.10 References and bibliography.

13 Racial discrimination: progress and reversal for African-Americans.

13.1 Introduction.

13.2 Trends and status report on racial inequality.

13.2.1 The earnings gap: have African-American workers made gains on whites?. Changes over time.

13.2.2 Labor force participation and unemployment.

13.2.3 Family income, poverty, and wealth.

13.2.4 Hispanics.

13.3 Migration from the South.

13.4 Progress in educational attainment.

13.4.1 The role of educational gains on the earnings gap*.

13.4.2 Quality of schooling*.

13.4.3 Returns to schooling for blacks and whites*.

13.4.4 Hispanic Americans*.

13.5 Changes in family structure among African-Americans.

13.6 Public policy and discrimination.

13.6.1 Public policy programs. Brown v. Board of Education of Topeka, Kansas, 1954. Executive order 10925, 1961. Equal Pay Act, 1963. Civil Rights Act of 1964. Executive Order 11246, 1965.

13.6.2 The Effectiveness of the anti-discrimination programs. Civil Rights Act of 1964. Affirmative action programs.

13.7 Summary and conclusion.

13.8 References and bibliography.

13.9 Discussion questions and problem set.

14. The gender wage gap and occupational segregation.

14.1 Introduction.

14.2 The wage gap and labor force participation trends.

14.2.1 Time trends.

14.2.2 Labor force participation patterns.

14.2.3 Explanations of the rising LFPR of women*.

14.3 Explanations of the wage gap.

14.3.1 Human capital differences. Differences in experience. Schooling differences. Effects of human capital differences on the gender wage gap*. Effects of work interruption on earnings*.

14.3.2 Occupational segregation. Duncan and Duncan index. Occupational segregation and the change in the gender wage gap. Explanations of occupational segregation.

14.4 The role of public policy.

14.4.1 Effectiveness of the anti-discrimination programs.

14.4.2 Comparable worth.

14.5 Other Issues*.

14.5.1 Effects of wives' earnings on family income inequality.

14.5.2 The feminization of poverty.

14.5.3 International comparisons.

14.6 Summary.

14.7 References and bibliography.

14.8 Discussion questions and problem set.

Part IV. The role of public policy on poverty and inequality.

15. Public policy and poverty alleviation.

15.1 Introduction.

15.2 A brief history of income maintenance programs.

15.2.1 Early developments.

15.2.2 The New Deal.

15.2.3 Post-war developments.

15.2.4 Housing assistance.

15.2.5 Public expenditures on major federal programs.

15.3 Unemployment Insurance (UI).

15.3.1 A brief description of the UI system.

15.3.2 Time trends in UI benefits.

15.3.3 Incentive effects of the UI system.

15.4 The Social Security system.

15.4.1 Determination of the Social Security benefit.

15.4.2 Incentive effects on labor supply.

15.5 The welfare system.

15.5.1 The workings of AFDC and TANF.

15.5.2 Incentive effects of the welfare system. Labor supply effects. Welfare participation rates. Marital status and child-bearing. Other issues.

15.6 Work Programs.

15.6.1 Effectiveness of the jobs programs.

15.7 The minimum wage.

15.8 Conclusion and overall assessment of government programs.

15.8.1 Effects on poverty.

15.8.2 Proposals for reform.

15.9 References and bibliography.

15.10 Discussion questions and problem set.

16 The redistributional effects of public policy.

16.1 Introduction.

16.2 Equality as a social goal.

16.2.1 Arguments in favor of promoting equality.

16.2.2 Arguments against promoting greater equality.

16.3 The Structure of tax systems.

16.3.1 Proportional, progressive, and regressive tax structures.

16.3.2 Inequality measures and the tax system.

16.3.3 Vertical versus horizontal equity.

16.4 Distributional consequences of the American tax system.

16.4.1 Tax schedules for the personal income tax.

16.4.2 Effective tax rates for the personal income tax.

16.4.3 The payroll tax.

16.4.4 Other federal taxes.

16.4.5 State and local government taxes.

16.4.6 The overall tax bite?.

16.4.7 International comparisons of taxation.

16.4.8 The overall effective tax rate structure in the United States.

16.5 The negative income tax and the EITC.

16.6 The distributional effects of government expenditures.

16.7 Summary and conclusion.

16.8 References and bibliography.

16.9 Discussion questions and problem set.



Note: * Section contains more advanced material or special topics that may be omitted without losing continuity in the book.