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Perceptions of Equity and the Distribution of Income

  • Julio J. Rotemberg

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.

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File URL: http://www.nber.org/papers/w5624.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5624.

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Date of creation: Jun 1996
Date of revision:
Publication status: published as Rotemberg, Julio J. "Perceptions Of Equity And The Distribution Of Income," Journal of Labor Economics, 2002, v20(2,Apr), Part 1, 249-288.
Handle: RePEc:nbr:nberwo:5624
Note: EFG
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  1. Akerlof, George A, 1982. "Labor Contracts as Partial Gift Exchange," The Quarterly Journal of Economics, MIT Press, vol. 97(4), pages 543-69, November.
  2. 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 1333-81, September.
  3. Acemoglu, Daron, 1996. "Matching, Heterogeneity and the Evolution of Income Distribution," CEPR Discussion Papers 1345, C.E.P.R. Discussion Papers.
  4. Piketty, Thomas, 1995. "Social Mobility and Redistributive Politics," The Quarterly Journal of Economics, MIT Press, vol. 110(3), pages 551-84, August.
  5. Atkinson,A.B. & Rainwater,L. & Smeeding,T., 1995. "Income Distribution in European Countries," Cambridge Working Papers in Economics 9535, Faculty of Economics, University of Cambridge.
  6. Deininger, K & Squire, L, 1996. "Measuring Income Inequality : A New Data-Base," Papers 537, Harvard - Institute for International Development.
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