Inequality

Inequality Household income thresholds for selected percentiles (U.S. 2006)

10th percentile?

25th percentile?

50th percentile?

75th percentile?

90th percentile?

98th percentile?

99th percentile? So what does this suggest income distribution looks like?

Inequality

Measuring Inequality Using Lorenz Curve Suppose we divided population into 5 income quintiles, where

everyone in a higher quintile earns at least as much as highest earner in lower quintile.

Then, we graph the cumulative share of income on the cumulative share of households.

Suppose there was perfect income equality, what would Lorenz curve look like?

What would Lorenz Curve look like for distribution below?

So how does Lorenz Curve change as inequality increases?

Quintile Share of Income Cumulative Share of IncomeFirst 0.035 0.035Second 0.087 0.122Third 0.146 0.268Fourth 0.230 0.498Fifth 0.502 1.000

Inequality

Measuring Inequality (cont.) What is the Gini Coefficient?

What are 90-10 and 50-10 wage gaps?

Inequality

Measuring Inequality

(cont.)

Inequality

International Comparisons

Income Distributions (2002)Percentage of Total Income Received Percentage of Total Income Received

Country by Bottom 10% of Households by Top 10% of Households

Australia 2.0 25.4Austria 2.3 22.4Belgium 2.9 22.6Canada 2.7 23.9Chile 1.1 45.4Dominican Republic 2.1 37.9France 2.0 25.1Germany 3.7 28.0Guatemala 1.6 46.0Hungary 4.1 20.5India 3.5 33.5Israel 2.4 28.2Italy 1.9 27.4Mexico 1.2 41.6Norway 4.1 21.8Sweden 3.4 20.1United Kingdom 2.1 27.5United States 1.8 30.5

Inequality

Measuring Inequality (cont.) What does Saez article “Striking it Richer….”

describe?

Inequality

Measuring Inequality (cont.)

Inequality

Measuring Inequality (cont.)

Inequality

Measuring Inequality (cont.)

Inequality

Measuring Inequality (cont.)

Inequality

Why did Inequality increase?

Inequality

Why did skill premium increase?

Inequality

International trends in the 90-10 percent wage gapCountry 1984 1994Australia 174.6 194.5Canada 301.5 278.1Finland 150.9 153.5France 232.0 242.1Germany 138.7 124.8Italy 129.3 163.8Japan 177.3 177.3Netherlands 150.9 158.6New Zealand 171.8 215.8Norway 105.4 97.4Sweden 103.4 120.3United Kingdom 177.3 222.2United States 266.9 326.3

Inequality

Why should we care about inequality?

Inequality

Frank (1997) What is his essential argument?