Inequality When Effort Matters

37 Pages Posted: 27 Jul 2015

Date Written: July 2015

Abstract

It is sometimes argued that poorer people choose to work less, implying less welfare inequality than suggested by observed incomes. Social policies have also acknowledged that efforts differ, and that people respond to incentives. Prevailing measures of inequality (in outcomes or opportunities) do not, however, measure incomes consistently with personal choices of effort. The direction of bias is unclear given the heterogeneity in efforts and preferences. Data on the labor supplies of single American adults suggest that adjusting for effort imposing common preferences attenuates inequality, although the effect is small. Allowing for preference heterogeneity consistently with behavior suggests higher inequality.

Suggested Citation

Ravallion, Martin, Inequality When Effort Matters (July 2015). NBER Working Paper No. w21394, Available at SSRN: https://ssrn.com/abstract=2636154

Martin Ravallion (Contact Author)

Georgetown University ( email )

Washington, DC 20057
United States

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