Forces acting on Income

Various Lists of Causes:

There are a wide range of drivers for income distribution. 

On this page various attempts are presented. 

Most analysts do not attempt to portray a complex matrix of causes, but rather focus only on the ones that they feel are most important.  

Even with the cost of public employment becoming much higher and less productive than private employment is becoming a concern for the future.


As it turns out, the bottom 99 percent of the United States doesn’t make the top 1 percent of household incomes worldwide — but it comes surprisingly close.


Despite this advantage, one should ask what are the causes of the income distribution in our country, and of course how dynamic is it.


A List of Inter-related Causes

Causes of income inequality:   Link


There are many reasons for economic inequality within societies.
"The single most important driver has been greater inequality in wages and salaries(OECD 2011-12-05)." [15]
These causes are often inter-related. Acknowledged factors that impact economic inequality include:
·         highly skilled workers earn more than low-skilled/no skills
·         wealth condensation
·         labor markets
·         globalization
·         technological changes
·         policy reforms
·         taxes
·         education
·         computerization/growing technology
·         racism
·         gender
·         culture
·         development patterns
·         personal preference for work, leisure and risk
·         innate ability



Other Sources of Inequalities


  Author writes of all of the inequalities:  Link

I’d like to make some observations about inequality. First as a person, then as an economist. These are based on 56 years of observing all kinds of people, in all sorts of different situations. The various inequalities are not meant to be equally important; indeed I’ve purposely added a few trivial ones for perspective. But they are all assumed to affect utility (although I don’t know that they all do.) Then I’ll return to this issue as an economist, and draw some conclusions.
1. Inequality of disability. Some people are blind, paralyzed, etc.
2. Inequality of talent. Some people are blessed with the ability of a Michael Jordon, or a Brad Pitt.
3. Inequality if liberty. I know one Chinese person who used to listen to Russian classical music very quietly, least the neighbors overheard. It was viewed as counter-revolutionary, and she could have gotten in a lot of trouble. Least we think America doesn’t have these problems, think of the many 100,000s of people in prison for using drugs.
4. Inequality of money (i.e. income/wealth/consumption.)
5. Inequality of personality. I know one part time instructor who always looks happy. He always whistles while he walks, and greets people with enthusiasm. He’s about 85. And I know lots of grouchy professors making 5 times more money.
6. Inequality of mental health–actually just a more extreme version of point 5–but a big driver of utility.
7. Inequality of access to health care. Often assumed to overlap with money inequality, but the Medicaid program suggests it’s more complex.
8. Inequality of power. My Marxist friends would say I have a blind spot for this one. I think I do.
9. Inequality of location. Were you born in sad Moldova, or happy Denmark?
10. Inequality of luck. Of course if there’s no free will, then it’s all luck.
11. Inequality of family situation. Are you living with an extremely difficult family member (an abusive spouse, an elderly person with Alzheimer’s, or a troubled teen.) This has a big effect on utility.
12. Inequality of disease. Do you have AIDS, or cancer?
13. Inequality of preferences. I am cursed with expensive taste. If I walk into a rug store, my eyes are immediately attracted to the most expensive oriental carpet. My daughter just bought a teal shag carpet from Target that she likes. Lucky her.
14. Inequality of pain. A hugely underrated factor in utility. And let’s not forget the poor hypochondriacs. There is no statement more stupid in the entire English language than “it’s all in your head.” Everything is all in your head, including pain. See the studies of phantom limbs. Pain is pain.
15. Inequality in social setting. Do you live in a neighborhood terrorized by crime. Again, only partially correlated with income.
16. Racial/ethnic/gender/sexual preference inequality
17. Inequality of nerdiness/awkwardness. A huge driver of utility for teenagers. (Would a poor but “cool” and popular teen trade places with a middle class nerdy teen?)
18. Inequality of job desirability
19. Inequality of appearance (beauty, obesity, etc.) Michel Houellebecq says this is the greatest source of inequality in rich countries
And I’m sure there are many more that I overlooked.
Now let’s look at the same list as drawn up by economists (including me, with my economist hat on.)
1. Inequality of money.
2. Inequality of access to health care
You might have noticed that the second list was a bit shorter. Some non-economists suggest that economists care too much about maximizing utility, and don’t care enough about income inequality. Of course exactly the opposite is true. We pay little attention to utility, and focus way too much on income inequality. BTW, this criticism could also apply to me, as I have done posts discussing ways of reducing consumption inequality.
I probably care less about income inequality than the average progressive.
I think that’s partly because I’ve known lots of lower income people, and I’ve almost never found it to be the case that their income was the central problem in their lives.
(Although it certainly is a problem–which is why I favor some income redistribution.) On the other hand, the sample I’ve known is very biased, and unrepresentative of all poor people. I’ve never known a migrant farm worker. Another reason I put less weight on income inequality is that money has always mattered less to me than to the average person, even when I had very little (age 18-26). Again, my view is slightly biased, as being poor and young is quite different from being poor and middle-aged.


But I do think I care as much about human suffering as the average progressive. Almost every day I wonder where the outrage is over 400,000 drug users in jail. By comparison, over the past 5 years I’ve read dozens of stories about the 400 terror suspects at Guantanamo. Yes, the issues are different in many respects, but I still see a lack of proportion. The drug war may be our greatest unnecessary loss of utility, showing up big not just in lost liberty, but also unnecessary pain from diseases, and more crime and violence.


As far as money problems, there is also a huge gap between America and the rest of the world. I recently heard a progressive criticize Obama. He started his comments by saying something like “If progressivism stands for anything, it stands for helping the middle class.” What?!?! Those sentiments are truly disgusting, repulsive. The focus should be on hunger in America. I hate to sound like an aging baby boomer, but at least in the 1960s the middle class was perceived by progressives as the enemy, unwilling to share their money and perks with poor black people. That’s not entirely accurate either, but at least it’s not morally repulsive.


It’s fine to worry about income inequality in the US. I also worry about this issue. But it’s important to keep in mind that there is much more to life than income inequality, and much more to the world than the US.
In the grand scheme of things, tinkering with government programs to help the poor, pitiful, beleaguered American middle class isn’t likely to make much difference, at least from a utilitarian perspective. We need to broaden our outlook.



Is the 99% in America better off than the 1% in the rest of the world?


“In America, you are the 99%, but in the rest of the world, you are still the 1%,” reads one image that’s been making the rounds, juxtaposing the protesters with starving African children. Occupy Wall Street’s logic, by extension, should mean that the entire United States should redistribute its wealth globally. But is the 99 percent in the United States so well off compared with the rest of the world? (SOURCE: REUTERS )   Link


As it turns out, the bottom 99 percent of the United States doesn’t make the top 1 percent of household incomes worldwide — but it comes surprisingly close.



Employee Compensation Comparisons
 Employer costs for employee compensation averaged $30.07 per hour worked in March 2011, the U.S. Bureau of Labor Statistics reported today. 
Wages and salaries averaged $20.91 per hour worked and accounted for 69.6 percent of these costs, while benefits averaged $9.15 and accounted for the remaining 30.4 percent. 
Total employer compensation costs for private industry workers averaged $28.10 per hour worked in March 2011. 
Total employer compensation costs for State and local government workers averaged $40.54 per hour worked in March 2011.