CHAPTER 13 Inequality, Social Insurance, and Redistribution

They’re all studying for the same test, but are they all equal?

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Chapter Objective

Understand inequality, poverty, the tools government uses to address them, and the trade-off between efficiency and equity.

• 13.1 Measuring Inequality

  Measure the extent of economic inequality in the United States.

• 13.2 Poverty

  Assess the prevalence and implications of poverty.

• 13.3 Social Insurance, the Social Safety Net, and Redistributive Taxation

  Discover the ways in which government redistributes.

• 13.4 The Debate About Income Redistribution

  Be prepared to join the debate about income redistribution.

Jamil and Alexis are both sophomores at the University of Illinois, where they are each double majoring in economics and psychology. They each dream of running their own company someday, they both love video games, and they are both looking to gain work experience during the summer that will help build their resumes.

In many ways, Jamil and Alexis are similar. But there’s an important difference. Jamil’s parents are successful physicians. He never experienced financial struggles growing up and, while his parents repeatedly tell him that college is a big investment, they are paying for his education. He hasn’t had to take out any student loans, and when he considers options for summer employment, he is able to focus on the long-term benefits for his career.

Alexis grew up with a single mother who worked two jobs to make ends meet. As soon as she was old enough, Alexis worked part time. One of her worst childhood memories is being evicted. Financial aid has made paying for college possible for her, but she’s anxious about the amount of debt she is accumulating. When she considers her options for summer employment, how much the job pays is an important factor. An unpaid internship is simply out of the question.

In many respects, Jamil and Alexis have equal educational opportunities, but the economic inequality between the two shapes and constrains their choices. Different views about inequality underpin some of our most contentious public policy debates and the same issues underlie disagreements about choices within our universities, workplaces, and communities.

This chapter will arm you with some important facts about inequality. We’ll also develop a framework for thinking about inequality and take a look at the tools the government uses to reduce inequality and poverty. Understanding inequality and poverty is also central to making sound financial decisions. Sure, the average income of college graduates is pretty good. But few people earn the average. Instead, the income distribution of college students is varied—some of you will earn buckets, while others will struggle. It’s also likely that your life will involve both periods of plenty and periods of deprivation, so arming yourself with knowledge about inequality and poverty will help you better prepare.