Poverty and Income Distribution

"I regularly teach a course on inequality, most recently using the developing manuscript of Ed Wolff's revised text. This work comprehensively (and fascinatingly) covers the central topics of poverty and of income and wealth distribution. I plan to use it for years to come." Frank Thompson, University of Michigan-Ann Arbor "The text is clearly written, with a comprehensive and up-to-date coverage and summarization of a very wide range of literature." Lars Osberg, Dalhousie University I would certainly use this text in my income distribution course. It is much more comprehensive and useful than anything else on the market, and provides the foundation for an engaging and interesting course. Michael Sattinger, SUNY Albany Students will benefit from this texts broad coverage of empirical evidence on the distribution of income and wealth, its clear description of the technical measures of inequality, and its easily accessible language. Dean Lillard, Cornell University "The quality of this text is outstanding, both as a textbook and as a reference for professional economists." Keith Bender, University of Wisconsin-Milwaukee "Wolffs expertise in the study of wealth and inequality is evident in his meticulous provision of interesting and informative footnotes and the comprehensive nature of the coverage. The textbook has enough introductory material for the typical sophomore in college. At the same time, Wolff provides a substantial dose of more advanced material to satisfy and challenge upper-level students with superior background or capability in economics." Wendy Rayack, Wesleyan University

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

Preface xiv Chapter 1 Introduction: Issues and Scope of Book 1 1.1 Recent trends in living standards 1 1.1.1 Income and earnings stagnate while poverty remains unchanged 1 1.1.2 Inequality rises sharply 4 1.1.3 Middle-class debt explodes 5 1.1.4 What has happened to tax rates? 6 1.1.5 Rising profits is the key 7 1.1.6 Yet schooling has continued to rise 8 1.1.7 Some conclusions 11 1.2 Causes of rising inequality 12 1.2.1 Skill-biased technology change 12 1.2.2 The shift to services 13 1.2.3 Declining unionization 13 1.2.4 Globalization 13 1.2.5 Downsizing and outsourcing 13 1.2.6 Public policy changes 14 1.3 General description of the textbook 14 Notes 17 Part I Inequality, Poverty, and Mobility: Measurement and Trends 19 Chapter 2 Income, Earnings, and the Standard of Living 21 2.1 Introduction 21 2.2 The composition of personal income in the United States 22 2.3 The standard of living 24 2.3.1 Real versus nominal 25 2.3.2 Trends in living standards in the United States 26 2.4 Factor shares 29 2.4.1 Historical studies on factor shares* 31 2.5 International comparisons of living standards 32 2.5.1 Per capita income 32 2.5.2 The Human Development Index 33 2.6 Household production and well-being 35 2.6.1 Defining household work 37 2.6.2 The market cost approach 37 2.6.3 The opportunity cost approach 38 2.6.4 Empirical work on household production 38 2.7 Summary 39 2.8 References, bibliography, and data sources 40 2.9 Discussion questions and problem set 42 Appendix 2.1 An introduction to the National Income and Product Accounts* 44 A2.1.1 The relation to the national accounts 46 A2.1.2 The sources of personal income 47 A2.1.3 The derivation of factor shares 48 A2.1.4 Miscellaneous issues in national accounting 49 A2.1.4.1 Treatment of international trade 49 A2.1.4.2 National income at factor costs 51 A2.1.4.3 The treatment of capital gains 51 Notes 52 Chapter 3 Income Inequality: Its Measurement, Historical Trends, and International Comparisons 55 3.1 Introduction 55 3.2 A review of basic statistics 55 3.2.1 Mean, variance, and standard deviation 56 3.2.2 Distributions 56 3.2.3 Percentile ranking 59 3.3 Inequality measures 60 3.3.1 Concentration measures 61 3.3.2 Coefficient of variation 61 3.3.3 The Lorenz curve 63 3.3.4 Gini coefficient 64 3.3.5 Log variance of income* 66 3.3.6 The Theil entropy index* 67 3.3.7 Atkinsons measure* 69 3.3.8 Lorenz dominance* 70 3.4 Time trends in income inequality in the United States 70 3.5 International comparisons of inequality 74 3.5.1 Inequality comparisons among high-income countries 74 3.5.2 The Kuznets curve 80 3.5.3 The world distribution of income* 84 3.6 Summary 85 3.7 References and bibliography 86 3.8 Discussion questions and problem set 90 Notes 91 Chapter 4 Poverty: Definitions and Historical Trends 93 4.1 Introduction 93 4.2 The measurement of poverty 93 4.2.1 The official U.S. poverty standard 94 4.2.2 Absolute versus relative poverty thresholds 95 4.2.3 Subjective poverty lines 96 4.2.4 Other concepts of poverty 99 4.3 Measurement of poverty incidence 99 4.3.1 The poverty rate and the poverty gap ratio 99 4.3.2 Composite measures of poverty* 100 4.4 Poverty trends in the United States 101 4.4.1 Composition of the poor 103 4.5 Other dimensions of poverty 107 4.5.1 Poverty spells and the permanence of poverty 107 4.5.2 The underclass 108 4.5.3 International comparisons of poverty rates 109 4.6 Other issues in the measurement of poverty 112 4.6.1 Equivalence scales 113 4.6.2 Choice of a price index 114 4.6.3 The treatment of taxes 115 4.6.4 The treatment of noncash government benefits 116 4.6.5 The role of household wealth 119 4.6.6 Consumption-based measures of poverty 120 4.6.7 The accounting period 121 4.6.8 Other issues 122 4.7 Summary 123 4.8 References and bibliography 125 4.9 D