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Perceptions of Equity and the Distribution of Income

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  • Julio J. Rotemberg

Abstract

This paper builds a simple model where there is a link between employees' perception of the fairness of employers and the actual distribution of income. Wages are based in part on employers' assessments of the productivity of individual employees. I show that the equilibrium distribution of income depends on the beliefs of employees concerning the accuracy of these evaluations. I give conditions under which the distribution of income across employees of the same vintage is more equal if employees believe that these evaluations are generally inaccurate (so that they are skeptical of capitalists in general) than when they believe that these evaluations are accurate. The model is consistent with the fact that, in a sample of seven countries, the distribution of income is more unequal in countries where people feel that income inequality is not too large.

Suggested Citation

  • Julio J. Rotemberg, 1996. "Perceptions of Equity and the Distribution of Income," NBER Working Papers 5624, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:5624
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    References listed on IDEAS

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    1. Thomas Piketty, 1995. "Social Mobility and Redistributive Politics," The Quarterly Journal of Economics, Oxford University Press, vol. 110(3), pages 551-584.
    2. Acemoglu, Daron, 1997. "Matching, Heterogeneity, and the Evolution of Income Distribution," Journal of Economic Growth, Springer, vol. 2(1), pages 61-92, March.
    3. Deininger, K & Squire, L, 1996. "Measuring Income Inequality : A New Data-Base," Papers 537, Harvard - Institute for International Development.
    4. George A. Akerlof, 1982. "Labor Contracts as Partial Gift Exchange," The Quarterly Journal of Economics, Oxford University Press, vol. 97(4), pages 543-569.
    5. Anthony Atkinson & Timothy Smeeding & Lee Rainwater, 1994. "Income Distribution in European Countries," LIS Working papers 121, LIS Cross-National Data Center in Luxembourg.
    6. McLaughlin, Kenneth J, 1991. "A Theory of Quits and Layoffs with Efficient Turnover," Journal of Political Economy, University of Chicago Press, vol. 99(1), pages 1-29, February.
    7. Levy, Frank & Murnane, Richard J, 1992. "U.S. Earnings Levels and Earnings Inequality: A Review of Recent Trends and Proposed Explanations," Journal of Economic Literature, American Economic Association, vol. 30(3), pages 1333-1381, September.
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    Citations

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    Cited by:

    1. Fang, Hanming & Moscarini, Giuseppe, 2005. "Morale hazard," Journal of Monetary Economics, Elsevier, vol. 52(4), pages 749-777, May.
    2. Julio J. Rotemberg, 2012. "Prominent Job Advertisements, Group Learning and Wage Dispersion," NBER Working Papers 18638, National Bureau of Economic Research, Inc.
    3. repec:bla:econom:v:84:y:2017:i:335:p:365-392 is not listed on IDEAS
    4. Di Tella, Rafael & Dubra, Juan, 2008. "Crime and punishment in the "American Dream"," Journal of Public Economics, Elsevier, vol. 92(7), pages 1564-1584, July.
    5. Roland Bénabou & Jean Tirole, 2006. "Belief in a Just World and Redistributive Politics," The Quarterly Journal of Economics, Oxford University Press, vol. 121(2), pages 699-746.
    6. Paul, Maureen, 2006. "A cross-section analysis of the fairness-of-pay perception of UK employees," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 35(2), pages 243-267, April.
    7. Rafael Gomez & Noah Meltz, 2002. "The Zero Sum Illusion: Industrial Relations and Modern Economic Approaches to Growth and Income Distribution," EUI-RSCAS Working Papers 37, European University Institute (EUI), Robert Schuman Centre of Advanced Studies (RSCAS).
    8. Tao, Hung-Lin, 2015. "Multiple earnings comparisons and subjective earnings fairness: A cross-country study," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 57(C), pages 45-54.
    9. Thomas Piketty & Emmanuel Saez, 2001. "Income Inequality in the United States, 1913-1998 (series updated to 2000 available)," NBER Working Papers 8467, National Bureau of Economic Research, Inc.
    10. Cruces, Guillermo & Perez-Truglia, Ricardo & Tetaz, Martin, 2013. "Biased perceptions of income distribution and preferences for redistribution: Evidence from a survey experiment," Journal of Public Economics, Elsevier, vol. 98(C), pages 100-112.
    11. Seth H. Giertz, 2004. "Recent Literature on Taxable-Income Elasticities: Technical Paper 2004-16," Working Papers 16189, Congressional Budget Office.
    12. Di Tella, Rafael & Galiani, Sebastian & Schargrodsky, Ernesto, 2012. "Reality versus propaganda in the formation of beliefs about privatization," Journal of Public Economics, Elsevier, vol. 96(5), pages 553-567.

    More about this item

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement

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