Transcript Economics of Poverty & Discrimination

Econ 3690
This presentation is based on Economic Issues: A Canadian Perspective by C.M.
Fellows, G. Flanagan, and S. Shedd
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Many CED organizations target specific
groups
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“Poverty amidst plenty”
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A problem of income distribution
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The way in which society deals with issues of
poverty is determined largely by their view of the
poor
1.
2.
“lazy leeches who simply want a handout”
“individuals who are poor because of
unfortunate circumstances, who therefore
deserve society’s unquestioning support.”
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There is no single, universally accepted
standard definition of poverty.
People living in and out of poverty,
community groups and policy makers hold
many different views on the definition of
poverty, its causes and possible solutions.
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1. We examine poverty in terms of absolute
income levels
2. We study income in terms of relative
income.
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The poor tend to become trapped with little
chance of breaking out of their life of poverty.
Possible explanations:
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a lack of motivation to advance their
economic position in society
content living off low-income support
programs
no opportunity to lift themselves and their
families out of poverty
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Consider the circular flow diagram
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Households sell or rent their resources to
earn income.
We need to investigate the factors which
determine the prices paid for labour, capital,
and natural resources and what determines
the quantities that can be employed.
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Workers are paid according to their worth to
employers.
Economists refer to this worth as the
marginal revenue product of labour (MRPl).
MRPl is the change in total revenue resulting
from the addition of one additional worker.
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The demand for labour curve shows what
employers are willing to pay for different
quantities of labour.
The supply of labour curve shows the
quantity of labour that workers are willing to
make available at different wage rates.
There is only one wage where the labour
market is in equilibrium.
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In a competitive market, the price of capital is
determined using the demand-supply model.
The prices of natural resources are
determined in the same way.
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The distribution of income depends on the
distribution of resources ownership and the
prices paid for resources of different kinds in
different employments.
The ownership pattern is unequally
distributed among individuals and families,
leading to unequally distributed income.
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1.
2.
3.
Brains and brawn
Skill levels
Capacity utilization rate

Capacity utilization rate= actual earnings/ earnings
capacity
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Utilization rates vary among people
 preferences for income and leisure
 responsiveness to taxes or transfer payments
 labour supply barriers
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1.
Inheritance
2.
Luck
3.
Propensity to accumulate
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small quantities and low qualities of
resources
market places low value on services they
provide
less education and training, bad luck,
relatively small inheritances and
discrimination
the vicious cycle of poverty is difficult to
escape.
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“Discrimination exists when equals are
treated unequally or when unequals are
treated equally”
In economic terms, discrimination imposes a
cost on society.
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Market discrimination occurs when two
conditions are satisfied:
1. power to discriminate
2. desire to discriminate
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Monopoly power can exist on the selling and
purchasing side of the market.
A firm with monopsony power in the labour
market has the power to discriminate.
Workers may be exploited when wage rates
are below their marginal revenue product.
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“Deliberate discrimination exists because
individuals have a taste for discrimination.
Such individuals have a preference to
associate with a particular group or to avoid
associating with a particular group. If
necessary, these individuals will pay to
discriminate”
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What is wage discrimination?
◦ “Equal pay for equal work”
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“In 2011full-time working women earned , on
average, about 80 percent of what full-time
working men earned.”
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Suppose a man and woman complete their
accounting degrees at the same time and
place, have identical grades in the same
courses and equally good recommendations,
are hired by the same accounting firm as
entry-level staff accountants, and differ in
one respect - the man is paid $40,000 a year
and the woman is paid $36,000 a year
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The existence of wage discrimination in an
economy indicates that the market is not
working efficiently in allocating resources
among alternative uses.
If employers or workers have prejudices, the
labour market is not competitive.
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When the best person is not hired for the job
simple because his or her skin is a different
color, society bears a cost.
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Discrimination results in an economy
producing within the production possibilities
curve. GDP is lost due to lower output levels
due to unnecessary low levels of economic
efficiency.
The elimination of discrimination leads to a
higher standard of living for society as a
whole.
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