Measuring Earnings Inequality: An Economic Analysis of the Bonferroni Index

Abstract:     
This paper studies the economic content of the Bonferroni index. The most remarkable property of the Bonferroni index is that it overweights income transfers among the poor, and the weights are higher the lower the transfers occur on the income distribution. Hence, it is a good measure of inequality when changes in the living standards of the poor are concerned. There are many problems - especially in labor economics - that fall into this category. Using a version of the assignment model, we show that the Bonferroni index can be formulated endogenously within a mechanism featuring efficient assignment of workers to firms. This formulation is useful in evaluating the interactions between the distribution of skills and earnings inequality with a special emphasis on the lower tail of the earnings distribution. Moreover, it allows us to think about earnings inequality by separately analyzing the contribution of each economic parameter.

Number of Pages in PDF File: 18

Keywords: Bonferroni index, earnings inequality, the assignment model

JEL Classification: D31, D63, O15

Accepted Paper Series