On the Measurement of Inequality
TL;DR: In this paper, the problem of comparing two frequency distributions f(u) of an attribute y which for convenience I shall refer to as income is defined as a risk in the theory of decision-making under uncertainty.
About: This article is published in Journal of Economic Theory.The article was published on 1970-09-01. It has received 5002 citations till now. The article focuses on the topics: Income inequality metrics & Income distribution.
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01 Dec 2002
TL;DR: The most effective criticisms of current-practice economics that I have read have come from those who themselves have been engaged in research in economics, rather than in its philosophy or, more narrowly, in its methodology.
Abstract: Prologue Most economists I know have little time for the philosophy of economics as an intellectual discipline. They have even less patience with economic methodology. They prefer instead to do economics. If they are involved in serious methodological discussion at all, it is during the process of conducting economics research or preparing their findings for publication. They do so in the latter stage, for example, and they do so often unashamedly, when commenting on the weaknesses of previous work before saying why they feel their own work is superior. There is much to be said for this habit. Far and away the most effective criticisms of current-practice economics that I have read have come from those who themselves have been engaged in research in economics, rather than in its philosophy or, more narrowly, in its methodology. Indeed, I know of no contemporary practicing economist whose investigations have been aided by the writings of professional methodologists. Why has this been so? One reason may be that people who do economics usually know more about the strengths and weaknesses of current-practice economics than those who have neither acquired nor sifted data, nor experimented with alternative theoretical constructions so as to judge which construction is likely to improve upon that which has been explored and which is unlikely to do so. It would have been of no moment, for example, to tell those econometricians in the 1950s who developed the linear-expenditure system for studying consumer behavior in the UK that it is a restrictive system: they already knew it, but nevertheless had good reasons for adopting it.
53 citations
TL;DR: The 1995 version of Human Development Index allows for changes in HDI values without respective changes in human development, but three causes can be identified as related to the measurement of the HDI's income dimension.
52 citations
University of Massachusetts Amherst1, Georgia Regents University2, University of California, Irvine3, Central European University4, Centre national de la recherche scientifique5, Vienna University of Economics and Business6, Stockholm University7, Copenhagen Business School8, University of Oslo9, Statistics Canada10, University of Illinois at Urbana–Champaign11, University of Ljubljana12, Nihon University13, University of Haifa14, Academy of Sciences of the Czech Republic15, University of Groningen16, University of Barcelona17, University of California, Berkeley18
TL;DR: The results suggest that to reduce market income inequality requires policies that raise the bargaining power of lower-skilled workers and that firm-level restructuring and increasing wage inequalities between workplaces are more central contributors to rising income inequality than previously recognized.
Abstract: It is well documented that earnings inequalities have risen in many high-income countries. Less clear are the linkages between rising income inequality and workplace dynamics, how within- and between-workplace inequality varies across countries, and to what extent these inequalities are moderated by national labor market institutions. In order to describe changes in the initial between- and within-firm market income distribution we analyze administrative records for 2,000,000,000+ job years nested within 50,000,000+ workplace years for 14 high-income countries in North America, Scandinavia, Continental and Eastern Europe, the Middle East, and East Asia. We find that countries vary a great deal in their levels and trends in earnings inequality but that the between-workplace share of wage inequality is growing in almost all countries examined and is in no country declining. We also find that earnings inequalities and the share of between-workplace inequalities are lower and grew less strongly in countries with stronger institutional employment protections and rose faster when these labor market protections weakened. Our findings suggest that firm-level restructuring and increasing wage inequalities between workplaces are more central contributors to rising income inequality than previously recognized.
52 citations
Cites background from "On the Measurement of Inequality"
...Thus, it is particularly useful for comparisons across time and countries, can be directly decomposed into between- and withinfirm components, and is most appropriate when the normative concern is the social welfare of those with less income (37, 38, 39)....
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TL;DR: In this article, it is shown that a less efficient schooling technology requires more resources, which lowers pre-tax and post-tax income inequality as well as growth, and the authors attribute this partly to the redistributive effect of education spending.
Abstract: In many OECD countries income inequality has risen, but surprisingly redistribution as well. The theory attributes this partly to the redistributive effect of education spending. In the model income inequality and growth depend in an inverted U-shaped way on education. To maintain a given level of human capital it is shown that a less efficient schooling technology requires more resources, which lowers pre-tax and post-tax income inequality as well as growth. Using consistently defined income data from the Luxembourg Income Study suggests that there is a negative relationship between growth and income inequality in rich countries. It is argued that using some unadjusted inequality measures in growth regressions may yield estimates that are biased upwards. The evidence suggests that a rich country would raise growth with lower pre-tax and post-tax inequality if it spent more on education.
52 citations
TL;DR: This paper presents an application of the Duclos et al. decomposition to an analysis of the 1998 Swiss health system financing and sees that in addition to measuring horizontal inequality in the classical sense, this decomposition is more efficient and flexible than earlier ones.
52 citations
Cites methods from "On the Measurement of Inequality"
...The DJA decomposition is based on Atkinson-like inequality indexes (Atkinson, 1970)....
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TL;DR: In this article, a measure of risk aversion in the small, the risk premium or insurance premium for an arbitrary risk, and a natural concept of decreasing risk aversion are discussed and related to one another.
Abstract: This paper concerns utility functions for money. A measure of risk aversion in the small, the risk premium or insurance premium for an arbitrary risk, and a natural concept of decreasing risk aversion are discussed and related to one another. Risks are also considered as a proportion of total assets.
5,207 citations
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1,748 citations
"On the Measurement of Inequality" refers background in this paper
...3 See Rothschild and Stiglitz [13], Hadar and Russell [ 5 ], and Hanoch and Levy [6]....
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1,738 citations
"On the Measurement of Inequality" refers methods in this paper
...Then by applying the results of Pratt [l 11, Arrow [ 2 ], and others, we can see that this requirement (which may be referred to as constant (relative) inequality-aversion) implies that U(y) has the form...
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1,544 citations
TL;DR: In this paper, an analysis of the first step of the decision-making process of an individual decision maker among alternative risky ventures is presented, in terms of a single dimension such as money, both for the utility functions and for the probability distributions.
Abstract: Publisher Summary The choice of an individual decision maker among alternative risky ventures may be regarded as a two-step procedure. The decision maker chooses an efficient set among all available portfolios, independently of his tastes or preferences. Then, the decision maker applies individual preferences to this set to choose the desired portfolio. The subject of this chapter is the analysis of the first step. It deals with optimal selection rules that minimize the efficient set by discarding any portfolio that is inefficient in the sense that it is inferior to a member of the efficient set, from point of view of each and every individual, when all individuals' utility functions are assumed to be of a given general class of admissible functions. The analysis presented in the chapter is carried out in terms of a single dimension such as money, both for the utility functions and for the probability distributions. However, the results may easily be extended, with minor changes in the theorems and the proofs, to the multivariate case. The chapter explains a necessary and sufficient condition for efficiency, when no further restrictions are imposed on the utility functions. It presents proofs of the optimal efficiency criterion in the presence of general risk aversion, that is, for concave utility functions.
1,160 citations