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Inequality, Too Much of a Good Thing

  • Alan Krueger

As the title of this essay suggests, I believe there are both positive and negative effects of inequality. On the positive side, differential rewards provide incentives for individuals to work hard, invest and innovate. On the negative side, differences in rewards that are unrelated to productivity – due to racial discrimination, for example – are corrosive to civil society and cause resources to be misallocated. Even if discrimination did not exist, however, income inequality would be problematic in a democratic society if those who are privileged use their economic muscle to curry favor in the political arena and thereby secure monopoly rents or other advantages. Moreover, for several reasons discussed in the next section, poverty and income inequality create negative externalities. Consequently, it can be in the interest of the wealthy as well as the poor to raise the incomes of the poor, especially by using education and training as a means for redistribution.

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Paper provided by Princeton University, Department of Economics, Industrial Relations Section. in its series Working Papers with number 845.

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Date of creation: Apr 2002
Date of revision:
Handle: RePEc:pri:indrel:dsp01cj82k729k
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  11. Thomas J. Kane & Cecilia Elena Rouse, 1999. "The Community College: Educating Students at the Margin between College and Work," Journal of Economic Perspectives, American Economic Association, vol. 13(1), pages 63-84, Winter.
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  16. Mikael Lindahl & Alan B. Krueger, 2001. "Education for Growth: Why and for Whom?," Journal of Economic Literature, American Economic Association, vol. 39(4), pages 1101-1136, December.
  17. James Heckman, 2000. "Policies to Foster Human Capital," Working Papers 0028, Harris School of Public Policy Studies, University of Chicago.
  18. David Card & Alan Krueger, 1996. "School Resources and Student Outcomes: An Overview of the Literature and New Evidence from North and South Carolina," Working Papers 745, Princeton University, Department of Economics, Industrial Relations Section..
  19. Link, Charles R. & Mulligan, James G., 1986. "The merits of a longer school day," Economics of Education Review, Elsevier, vol. 5(4), pages 373-381, August.
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  25. Alberto Abadie & Joshua Angrist & Guido Imbens, 2002. "Instrumental Variables Estimates of the Effect of Subsidized Training on the Quantiles of Trainee Earnings," Econometrica, Econometric Society, vol. 70(1), pages 91-117, January.
  26. Marianne Bertrand & Sendhil Mullainathan, 2001. "Are Ceos Rewarded For Luck? The Ones Without Principals Are," The Quarterly Journal of Economics, MIT Press, vol. 116(3), pages 901-932, August.
  27. Kornfeld, Robert & Bloom, Howard S, 1999. "Measuring Program Impacts on Earnings and Employment: Do Unemployment Insurance Wage Reports from Employers Agree with Surveys of Individuals?," Journal of Labor Economics, University of Chicago Press, vol. 17(1), pages 168-97, January.
  28. Sen, Amartya, 1973. "On Economic Inequality," OUP Catalogue, Oxford University Press, number 9780198281931.
  29. Stephen V. Cameron & James J. Heckman, 2001. "The Dynamics of Educational Attainment for Black, Hispanic, and White Males," Journal of Political Economy, University of Chicago Press, vol. 109(3), pages 455-499, June.
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  31. Howard S. Bloom & Larry L. Orr & Stephen H. Bell & George Cave & Fred Doolittle & Winston Lin & Johannes M. Bos, 1997. "The Benefits and Costs of JTPA Title II-A Programs: Key Findings from the National Job Training Partnership Act Study," Journal of Human Resources, University of Wisconsin Press, vol. 32(3), pages 549-576.
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