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Inequality when effort matters

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  • Martin Ravallion

    () (Georgetown University and NBER, U.S.A.)

Abstract

It is sometimes argued that poorer people choose to work less, implying less welfare inequality than suggested by observed incomes. Social policies have also acknowledged that efforts differ, and that people respond to incentives. Prevailing measures of inequality (in outcomes or opportunities) do not, however, measure incomes consistently with personal choices of effort. The direction of bias is unclear given the heterogeneity in efforts and preferences. Data on the labor supplies of single American adults suggest that adjusting for effort imposing common preferences attenuates inequality, although the effect is small. Allowing for preference heterogeneity consistently with behavior suggests higher inequality.

Suggested Citation

  • Martin Ravallion, 2015. "Inequality when effort matters," Working Papers 367, ECINEQ, Society for the Study of Economic Inequality.
  • Handle: RePEc:inq:inqwps:ecineq2015-367
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    File URL: http://www.ecineq.org/milano/WP/ECINEQ2015-367.pdf
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    More about this item

    Keywords

    income; welfare; inequality; poverty; effort; labor supply.;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement

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