Chapter 2: 
Economic Inequality Flashcards Preview

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Economic Inequality

Unequal distribution of income is an indicator of economic inequality



the amount of money one earns from employment, business, investments, and other economic activities



the value of all the assets one owns subtracted by the debts one owes.


The Very Rich

Old Rich:
families that have been wealthy for generations
(the Rockefellers, the Vanderbilts, and the DuPonts)

New Rich:
self-made individuals who have created their own wealth
(Bill Gates, Warren Buffet, Oprah Winfrey)

The New Rich outnumber the Old Rich by more than 2 to 1
(Thibault, 2009)


What Is Poverty?

The American poverty line for a family of 4 is an income of $22,025 or less per year

However, the state of being impoverished is subjective.


Absolute Poverty

The government decided that the typical family spends 1/3 of its income on food

Therefore to find the poverty line multiply the cost of food times 3

Absolute Poverty: the lack of minimum food and shelter necessary for maintaining life, the condition of families living below the poverty line


Absolute Poverty:

Conservatives contend that the figures overestimate the extent of poverty because they do not count as income the many noncash benefits

Liberals argue that the rate underestimates the extent of poverty because nowadays the typical family spends only 1/5 of its income on food, due to increases in nonfood costs

National Academy of Sciences poverty experts suggest that both deducting nonfood costs and adding noncash benefits to the income will provide a more accurate poverty line

This calculation will increase the official poverty because the nonfood costs are higher than the noncash benefits.


nonfood costs are higher than the noncash benefits.

nonfood costs are higher than the noncash benefits.


Relative Poverty

Relative Poverty: a state of deprivation resulting from having less than the majority of the people in their society

When relative poverty is included, the percentage of the impoverished Americans doubles


The Faces of Poverty

According to the U.S. Census Bureau (2010), a little over 13%, or nearly 40 million Americans, live in poverty today

Children under 18, single mothers, the less educated, the unemployed, low-wage workers, racial/ethnic minorities, women, the homeless, and rural & inner-city residents are more likely to fall into poverty



About 19% of the children 17 and younger are poor, while the poverty rate of all the other age groups falls below the national average of 13%

50 years ago, seniors age 65 years or older had the highest rate of poverty

Due to substantial increase in government support of Medicare and Social Security benefits, the elderly now have the lowest poverty rate of all age groups

Similar assistance is needed for children


Single Mothers

The poverty rate of single mothers is 29%, nearly 5x's higher than the rate for married parent

Usually unemployed because they have to care for their children

Single mothers are much more likely than married couples to be poor, largely because they are unemployed due to having to care for their children.


The Less Educated

Those who have not completed high school are 2x's as likely as high school graduates to be poor, and 5x's as likely as college graduates to be poor.

Before 1970, it was relatively easy for a high school dropout to find employment and earn a decent wage, but much less so today.


The Unemployed

As many as half of all poor adults do not work.

The disabled, welfare recipients, and individuals with little skill or education.

Compared to the employed, the unemployed are less likely to be married and more likely to live alone or with relatives (Stewart, 2006).

The Underclass:
a term conjuring up images impoverished criminals, drug addicts, welfare mothers, or able-bodied men on welfare who are too lazy to work.


The Underclass

a term conjuring up images impoverished criminals, drug addicts, welfare mothers, or able-bodied men on welfare who are too lazy to work.


Low-Wage Workers

Working Poor:
Individuals who work for a wage that makes them fall below the official poverty line

These individuals often work two jobs and are usually unskilled.

They could have escaped poverty if they were paid a living wage (above $10/hour) rather than the minimum wage ($7.25/hour)


Racial/Ethnic Minorities

African Americans and Hispanics are twice as likely to be poor as whites.

The poverty rate of whites is 11%, African Americans is 25% and Hispanics is 23%

The greater prevalence of poverty among these minorities can be attributed to discrimination against them and the massive loss of manufacturing jobs in the inner city


Feminization of Poverty

Since 1970 about 9% of men and 13% of women have lived below the poverty line

Feminization of Poverty:
the persistent and pervasive phenomenon of women living in poverty at higher rates than men

Increases in the rates of divorce, separation, out of wedlock birth, divorced fathers not paying child support, along with the reduction in government support for welfare have caused many women to become single mothers or heads of poor households.

The fact that women live longer than men has further contributed to a growing number of older women living alone in poverty


The Homeless

There are about 672,000 homeless people, many of which are families with children, alcohol & drug abusers, and the mentally ill.

Reasons include the increased shortage of inexpensive housing for the poor, the declining demand for unskilled labor and the erosion of public welfare benefits that has taken place over the last two decades.


Rural and Inner-City Residents

Globally, developing countries have higher poverty rates than do developed ones

Among the developed countries, the Southern United States has the highest rate of poverty because it has a lot of rural people.

People who live in the rural areas are more likely to fall below the poverty line.

Within the urban areas, the inner city has an exceptionally high poverty rate because of the scarcity of jobs (U.S. Census Bureau, 2009b).


Percent of Persons in Poverty, by State:

Poverty rates are highest in the South and lowest in the Northeast.

Poverty rates are more than 3x's higher in Mississippi, which has the highest rates of poverty in the U.S., than in New Hampshire, which boasts the lowest.


Explanations of Poverty

There are 2 kinds of explanation for the existence of poverty:

One is based on the popular belief that the poor are to blame for their poverty.

The other sociologically attributes poverty to the positive functions it performs for society.


Blaming the Poor

Most people assume America is a land of opportunity where hard workers prosper

Anthropologist Oscar Lewis (1961) and Edward Banfield (1974) both claimed that the poor were fatalistic, lived for the moment, and unconcerned about the future.

However, in 60% of all poor families, at least one person works (Ehrenreich, 2001)

The discoveries that Banfield & Lewis found among the poor may well be the effect rather than the cause of poverty.


Defending the Poor

According to sociologist Herbert Gans (1971), poverty exists because poor people serve useful functions for society:
--The poor make it possible for society’s dirty work to be done (washing dishes, scrubbing floors, hauling garbage,etc)
--By working as maids and servants, poor people make it easier for the affluent to pursue their business and professional careers.
--Poor people create jobs for social workers and other professionals who serve the poor.
--Poor people also produce jobs for police and other law enforcers, because the majority of criminals they deal with come from the ranks of the poor.


Sociological Theories of Economic Inequality

Functionalist Theory attributes economic inequality to the positive functions it performs for society

Conflict Theory blames the inequality on the exploitation of the powerless by the powerful.

Symbolic Interaction Theory focuses on how inequality influences the interaction between the powerful and the powerless that reinforces the gulf between rich and poor.


Functionalist Theory
 of Economic Inequality

Inequality serves a very important positive function for society.

According to Kingsley Davis & Wilbert Moore (1945), inequality motivates people to work hard by promising them such rewards as money, power, and prestige.

The amount of reward one gets depends on 2 things:
--How important a job is to society
--How much training and skill are required to perform that job

Inequality is necessary for society because it ensures that “the most important positions are conscientiously filled by the most qualified persons” (Davis & Moore, 1945).


Conflict Theory
 of Economic Inequality

Suggests that inequality is an unfair system of differential rewards, which harms society

Inequality limits the opportunities of those who are poor, making them unable to take advantage of their full range of talent

According to classic theory by Karl Marx (1818–1883), inequality originates from the conflict between capitalists and workers

The capitalists are driven to maximize profit meaning they pay their workers as low wages

The capitalists’ desire for profit further leads them to cut the cost of running a business by moving their factories to labor-cheap countries, thereby causing many Americans to lose their jobs.


Symbolic Interaction Theory
 of Economic Inequality

Suggests that inequality influences how people of different statuses interact with each other, which in turn reinforces the inequality

In the interaction, higher-status persons tend to show off their power and superiority, while lower-status persons are likely to feel resentful or inferior.

Antagonistic interactions between the rich & poor is common in highly unequal societies such as Great Britain and the U.S. than in more equal societies such as Japan and the Scandinavian countries (Wilkinson & Pickett, 2009).


Social Policies

The U.S. government tries to reduce economic inequality by taxing the rich more than the poor

The government also attempts to decrease inequality by providing the poor with more financial benefits


Progressive Taxation

The government’s attempt to reduce economic inequality by taxing the rich more than the poor.

People who annually earn over $1,000,000, should pay 30% of their incomes in taxes and those who make less than $5,000 pay 3%

However the rich find various tax loopholes

The poor spend more on sales tax because they spend a much larger proportion of their income on consumer goods.