The census bureau determines poverty levels in the USA through a comparison between pre-tax incomes against the threshold. The threshold is normally set as three times the cost of the minimum food cost of food diet and is updated every year. The consumer index is updated annually depending on the size of the family, and the prevailing inflation (Ritakallio, 2002). The threshold is not dependent on the geographical position.
Poverty threshold is used to track past poverty and compare poverty across geographical regions. The poverty threshold is also used to determine how federal assistance will be distributed and its eligibility. In the year 2012, the rate of poverty nationally was 15%, and it was estimated that about 46.5 million people were in poverty. During this year, the poverty threshold of a family of four was calculated to be $23,492 (Mangum, Sum & Levitan, 2013).
The USA government began calculating the rates of poverty officially in the year 1959 and at this time, the poverty rate was estimated to be 22%. From the year 1968, the level of poverty has consistently increased. Alongside the general poverty increase, statistics proves that child poverty has heightened while elderly poverty has significantly reduced. Most of the statistics on poverty are provided by the American Community Survey (ACS) which a renowned for its accuracy in household surveys. The ACS performs research annually but generates reports between two three or five years. The most recent report on poverty covers the years 2000 to 2012 and was released in 2013. Their report was used to determine how the federal and state funds amounting to $400 would be distributed.
Income inequality refers to the measure of the difference between the highest and the lowest earners in the country. The levels of income inequality in the USA have consistently risen since 1970 and have become an issue of concern especially when addressing the topic of poverty. The rate of income inequality in the USA is very high as compared to the situation in other developed nations (Ritakallio, 2002). USA operates and supports free market capitalism which has been a key factor towards the increased income disparities. Income inequality is not uniform in the United States. It is low in some states such as Maine and is in others such as Texas it is relatively high.
According to the census data generated in 2011, half of the US population lives in poverty while most of the people in the other half earn very high incomes. The income disparity recorded in 2012 was the highest since 1920s. The report showed that the amount of wages had decreased by 24%. Previously, between 1992 and 1997, the average income levels had increased by 392% and had been accompanied by 37% reduction in taxes. Between 1979 and 2007, the American household income for the high-income earners had increased from 11.3% to 20.9% (Gustafsson & Lindblom, 2013). On the other hand, the level of income of the low-income earners who constitute the larger percentage of the population had reduced by 14%. This statistic shows that the poor people in the USA are getting poorer while the rich people are getting richer. The result of such a situation is the increased income disparities between the rich and the poor.
The rich people in the USA constitute 1% of the population while the average and low-income earners make-up the remaining 99%. In 2012, the income of the top earners (1% of the population) had increased by 11.6% while the income and capital gains of the average and poor people remained flat. A report by OECD showed that on average, the rich people earned 9.5 times the income of the poor people in the USA. The report suggested that the income levels had increased in only a small percentage of the population while, for the larger percentage, their income levels had dropped significantly.
Gini coefficient is a measure of how income is distributed with zero values expressing a state of total equality and a value of 1 expressing a state of total inequality (Gustafsson & Lindblom, 2013). Gini coefficients are used to measure the equality or inequality of income or wealth. The system was developed by an Italian statistician called Corrado Gini and he named the system after his name. The coefficient is arrived at by drawing a Lorenz curve which is plotted on a graph of income against population. The current state of income levels in the United States has recorded the highest income disparity over a century. According to the 2010 census bureau, the Gini coefficient of the USA was 0.469 (Glasmeier et al., 2008). The coefficient was very high considering the previous record of 0.386.The census bureau generates the Gini coefficient by considering the income of every household excluding their capital gains. All income of the individual family member is combined to develop a household income. The figure below is based on the census report of 2009, and it shows the Gini coefficient in USA households since 1947.
Inflation is a general increment in prices of goods and services. Inflation increases the spending of people, and if their incomes are not increased, their living standard goes down. In a situation whereby inflation has become consistent, and the income levels have not increased, the living standards move down and consequently the rate of poverty increases. On august 15th 1971, the president of the USA closed the gold window whereby people were converting their currencies into gold. Conversion of dollars into gold was reducing the amount of money in supply and hence the inflation. After the closure of the window, the amount of money in circulation stabilized and inflation stopped being a major issue.
Inflation affects how a business operates in many ways. Inflation increases the cost of raw products and hence the volume of production reduces. Inflation also reduces the buying power of the customers and hence the volume of sales and profit margins reduces (Glasmeier et al., 2008). If such a situation prevails for a long period, most businesses are deemed to fail as a result of low profits or even losses caused by a lot of dead stock. A long period of inflation reduces the amount of money people have and hence leads to increased poverty. Inflation reduces the capability of people to engage themselves into economic activities and hence leads to an increase in poverty levels.
Poverty affects different industries depending on the nature of goods or services they offer. An industry that produces necessities such as food is less likely to feel the impact of poverty. People will continue to purchase food even if the level of poverty goes very high. On the other hand, if an industry produces luxurious goods, the amount of sales is bound to reduce with increment in poverty. A business selling Ferraris is expected to experience reduced sales when the level of poverty increases. Income inequality has a great impact on sales. When a high percentage of the population is has high incomes, the volume of sales for a Ferrari company is set to increase. On the other hand when the larger percentage of the population is low income earners, the volume of sales of a Ferrari company are set to reduce.
References
Glasmeier, A., Martin, R., Tyler, P., & Dorling, D. (2008). Editorial: Poverty and place in the UK and the USA. Cambridge journal of regions, economy and society, 1(1), 1-16
Gustafsson, B., &Lindblom, M. (2013). Poverty lines and poverty in seven European countries, Australia, Canada and the USA. Journal of European Social Policy, 3(1), 21-38.
Mangum, S. L., Sum, A., & Levitan, S. A. (2013). The persistence of poverty in the United States. Baltimore: Johns Hopkins University Press.
Ritakallio, V. M. (2002). Trends of poverty and income inequality in cross-national comparison. Journal of social sciences,4(1), 151-173.
