Thursday, November 06, 2008
[IWS] CRS: INEQUALITY IN THE DISTRIBUTION OF INCOME: TRENDS AND INTERNATIONAL COMPARISONS [20 October 2008]
IWS Documented News Service
_______________________________
Institute for Workplace Studies----------------- Professor Samuel B. Bacharach
School of Industrial & Labor Relations-------- Director, Institute for Workplace Studies
Cornell University
16 East 34th Street, 4th floor---------------------- Stuart Basefsky
New York, NY 10016 -------------------------------Director, IWS News Bureau
________________________________________________________________________
Congressional Research Service (CRS)
Order Code RL32639
Inequality in the Distribution of Income: Trends and International Comparisons
Updated October 20, 2008
Brian W. Cashell, Specialist in Macroeconomic Policy, Government and Finance Division
http://assets.opencrs.com/rpts/RL32639_20081020.pdf
[full-text, 19 pages]
Summary
Economic theory alone does not establish any basis for preferring a more or less
equal distribution of income. Nonetheless, a common aim of policy is promoting
equality of opportunity. An extremely unequal distribution of income may be
considered an indication of a lack of equal opportunity. Arguments for a more equal
distribution of income than that which would result from market forces are based on
a number of propositions. One is a common assumption made in economic analysis
known as diminishing marginal utility of income. This is the notion that each
additional dollar of income yields less utility, or satisfaction. If the assumption of
diminishing marginal utility of income is accepted, then, in theory, it should be
possible to increase the overall well-being (utility) of society by taking some from
those with high incomes and giving it to those with low incomes. A second, noneconomic,
justification for policies designed to make the income distribution more
equal is concern that society prevent its members from falling below some minimum
standard of living.
Existing measures of income fall well short of an ideal that would accurately
indicate how well off individuals or households are. Not all kinds of income are
counted. Taking the existing measures at face value, however, several observations
can be made. First, the distribution of income in the United States has become
increasingly unequal since the late 1960s. Second, the U.S. income distribution is
the most unequal of all major industrialized countries. Some of the greater income
equality found in other major industrialized countries may be due to the fact that
government transfers are more directly targeted at lower income households.
The distribution of earnings is more unequal than is the distribution of
household income. Of particular interest is that the gap in earnings between highly
educated or skilled workers and less skilled workers has grown substantially.
Explanations focusing on world trade and national demographics have been
suggested, but the one most widely accepted is that technological advances in recent
years have increased the demand for more highly skilled labor relative to its supply.
Policies that boost the supply of skilled workers would thus seem likely to narrow
that gap and act as an equalizing influence on the income distribution. But, the large
gap in pay between skilled and unskilled workers that has developed would itself
seem to be a substantial incentive for prospective and current workers to expand their
education and training.
This report will be updated as developments warrant.
Contents
Evaluating Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Measuring Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Measuring Inequality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
International Comparisons of Income Distributions . . . . . . . . . . . . . . . . . . . . . . . 8
Explaining International Differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Explaining Recent Trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Conclusions and Policy Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
List of Figures
Figure 1. Distribution of Household Income: 1967 and 2007 . . . . . . . . . . . . . . . . 6
Figure 2. Household Income Gini Index, 1967 - 2007 . . . . . . . . . . . . . . . . . . . . . 7
List of Tables
Table 1. Distribution of Household Income by Quintile . . . . . . . . . . . . . . . . . . . . 5
Table 2. Summary Measures of Income Distributions for Selected Countries . .9
______________________________
This information is provided to subscribers, friends, faculty, students and alumni of the School of Industrial & Labor Relations (ILR). It is a service of the Institute for Workplace Studies (IWS) in New York City. Stuart Basefsky is responsible for the selection of the contents which is intended to keep researchers, companies, workers, and governments aware of the latest information related to ILR disciplines as it becomes available for the purposes of research, understanding and debate. The content does not reflect the opinions or positions of Cornell University, the School of Industrial & Labor Relations, or that of Mr. Basefsky and should not be construed as such. The service is unique in that it provides the original source documentation, via links, behind the news and research of the day. Use of the information provided is unrestricted. However, it is requested that users acknowledge that the information was found via the IWS Documented News Service.
Stuart Basefsky
Director, IWS News Bureau
Institute for Workplace Studies
Cornell/ILR School
16 E. 34th Street, 4th Floor
New York, NY 10016
Telephone: (607) 255-2703
Fax: (607) 255-9641
E-mail: smb6@cornell.edu
****************************************
_______________________________
Institute for Workplace Studies----------------- Professor Samuel B. Bacharach
School of Industrial & Labor Relations-------- Director, Institute for Workplace Studies
Cornell University
16 East 34th Street, 4th floor---------------------- Stuart Basefsky
New York, NY 10016 -------------------------------Director, IWS News Bureau
________________________________________________________________________
Congressional Research Service (CRS)
Order Code RL32639
Inequality in the Distribution of Income: Trends and International Comparisons
Updated October 20, 2008
Brian W. Cashell, Specialist in Macroeconomic Policy, Government and Finance Division
http://assets.opencrs.com/rpts/RL32639_20081020.pdf
[full-text, 19 pages]
Summary
Economic theory alone does not establish any basis for preferring a more or less
equal distribution of income. Nonetheless, a common aim of policy is promoting
equality of opportunity. An extremely unequal distribution of income may be
considered an indication of a lack of equal opportunity. Arguments for a more equal
distribution of income than that which would result from market forces are based on
a number of propositions. One is a common assumption made in economic analysis
known as diminishing marginal utility of income. This is the notion that each
additional dollar of income yields less utility, or satisfaction. If the assumption of
diminishing marginal utility of income is accepted, then, in theory, it should be
possible to increase the overall well-being (utility) of society by taking some from
those with high incomes and giving it to those with low incomes. A second, noneconomic,
justification for policies designed to make the income distribution more
equal is concern that society prevent its members from falling below some minimum
standard of living.
Existing measures of income fall well short of an ideal that would accurately
indicate how well off individuals or households are. Not all kinds of income are
counted. Taking the existing measures at face value, however, several observations
can be made. First, the distribution of income in the United States has become
increasingly unequal since the late 1960s. Second, the U.S. income distribution is
the most unequal of all major industrialized countries. Some of the greater income
equality found in other major industrialized countries may be due to the fact that
government transfers are more directly targeted at lower income households.
The distribution of earnings is more unequal than is the distribution of
household income. Of particular interest is that the gap in earnings between highly
educated or skilled workers and less skilled workers has grown substantially.
Explanations focusing on world trade and national demographics have been
suggested, but the one most widely accepted is that technological advances in recent
years have increased the demand for more highly skilled labor relative to its supply.
Policies that boost the supply of skilled workers would thus seem likely to narrow
that gap and act as an equalizing influence on the income distribution. But, the large
gap in pay between skilled and unskilled workers that has developed would itself
seem to be a substantial incentive for prospective and current workers to expand their
education and training.
This report will be updated as developments warrant.
Contents
Evaluating Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Measuring Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Measuring Inequality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
International Comparisons of Income Distributions . . . . . . . . . . . . . . . . . . . . . . . 8
Explaining International Differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Explaining Recent Trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Conclusions and Policy Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
List of Figures
Figure 1. Distribution of Household Income: 1967 and 2007 . . . . . . . . . . . . . . . . 6
Figure 2. Household Income Gini Index, 1967 - 2007 . . . . . . . . . . . . . . . . . . . . . 7
List of Tables
Table 1. Distribution of Household Income by Quintile . . . . . . . . . . . . . . . . . . . . 5
Table 2. Summary Measures of Income Distributions for Selected Countries . .9
______________________________
This information is provided to subscribers, friends, faculty, students and alumni of the School of Industrial & Labor Relations (ILR). It is a service of the Institute for Workplace Studies (IWS) in New York City. Stuart Basefsky is responsible for the selection of the contents which is intended to keep researchers, companies, workers, and governments aware of the latest information related to ILR disciplines as it becomes available for the purposes of research, understanding and debate. The content does not reflect the opinions or positions of Cornell University, the School of Industrial & Labor Relations, or that of Mr. Basefsky and should not be construed as such. The service is unique in that it provides the original source documentation, via links, behind the news and research of the day. Use of the information provided is unrestricted. However, it is requested that users acknowledge that the information was found via the IWS Documented News Service.
Stuart Basefsky
Director, IWS News Bureau
Institute for Workplace Studies
Cornell/ILR School
16 E. 34th Street, 4th Floor
New York, NY 10016
Telephone: (607) 255-2703
Fax: (607) 255-9641
E-mail: smb6@cornell.edu
****************************************
# posted by SBasefsky : 4:46 PM
