Chapter 3 section 4 Providing a Safety Net

• Income and Poverty• In a Market economy, income depends

primarily on earnings, which depend on the value of each person’s contribution to production.

• Some people are not able to contribute much value to production.

• Mental or physical disabilities

Limited job choices and reduce wage b/c

• Advanced age

• Poor health

• Little education

• Discrimination

• Bad luck

• Demands of caring for small children

Why Household Incomes Differ

• The median income of households is the middle income when incomes are ranked from lowest to highest.

• In any given year, half the households are above the median income and half are below its

• Number of household members who are working differs.

examples

• Median income for two earners is nearly double that for households with only one earner and about four times that for households w/ no earners

• Labor earnings differ• Education, ability, job experience• More educated earn more• Professionals w/ education earn 4 times more than

a high school graduate.

Official Poverty Rate

• US poverty level of income is many times greater than the average income for most of the world’s population.

• Other countries set a much lower income level as their poverty level.

Poverty and Marital Status

• Families headed by females w/ no husband• Families headed by males w/ no wife present• Married couples1st trend. Poverty rates among female-headed families 5

to 6 times greater than rates among married couples2nd trend. Poverty rates among female-headed families

are 2 to 3 times greater than those for male-headed families.

3rd trend. mid 1990s poverty rates trend down slightly until 2001 recession.

Social Insurance

• Social insurance programs are designed to help make up for the lost income of people who worked but are now retired, temporarily unemployed, or unable to work because of disability or work-related injury.

• Social Security provides retirement income for those with a work history and a record of making payments to the program.

Medicare

• Another social insurance program, provides health insurance for short-term medical care, most for 65 & older, regardless of income.

• Redistribute income from rich to poor.• Receive more benefits than they paid into the

program.• Other programs workers compensation, injured

workers.

Income-Assistance programs

• Income-assistance- (welfare programs)• Assistance of goods and services.• Programs that pay money directly to

recipients are called cash transfer program.• No work history required• Means-tested program, a household’s

income and assets must fall below a certain level to qualify for benefits.

Cash Transfer Program

• Temporary Assistance for Needy (TANF) provides cash to poor families with dependent children.

• Supplemental Security Income (SSI), which provides cash to the elderly poor and the disabled.

• Each state has a fixed grant to help fund TANF program.

continued

• SSI program provides support for the elderly and disabled poor, people addicted to drugs, children w/ learning disabilities, and homeless.

• In-Kind Transfer Program- provide goods and services such as food stamps, health care, housing assistance, and school lunches to the poor.

In-Kind Transfer Programs

• Medicaid- funds medical care for those with incomes below a certain level who are elderly, blind, disabled, or are living in families with dependent children.

• Largest program, cost twice as much as other programs.

• To get some idea of how much the federal government spends on programs to help help the poor, also called income redistribution programs.

• This figure shows the composition of federal outlays since 1960s.

Earned-Income Tax Credit

• Earned-income tax credit supplements wages of the working poor.

• Ex. Family w/ two children and earning $13,000 in 2001would not pay federal income income tax and would receive a cash transfer of about $4,000.