What can you and I do to reduce income inequality?

ABSTRACT

Are there things that ordinary people can do in their private lives to reduce economic inequality? And, if so, how would these things work? To be sure, there are macro societal mechanisms for reducing inequality. But are there micro mechanisms for reducing inequality? This article first examines inequality measures and behavioral models that produce inequality effects, identifying five sets of inequality mechanisms which lead to levers that ordinary people can use to reduce income inequality, and next discusses the levers, with special attention to their feasibility, ease of use, and side effects. The five levers highlight transfers, equal additions, negative assortative mating, wage schedules that reward multiple personal characteristics, and compensation procedures with voting rules, many voters, diversity of thought, and secret ballots. This work raises new questions for research, such as the sources of diversity of thought.

KEYWORDS:

• Inequality effects
• inequality levers
• inequality measures
• inequality mechanisms
• probability distributions

Acknowledgments

An earlier version of this article was presented at the Sixth Joint Japan--US Conference on Mathematical Sociology and Rational Choice, Seattle, Washington, August 2016. I am grateful to conference participants and to John Skvoretz, the anonymous referees, and the Editor for valuable comments and suggestions. I also gratefully acknowledge the intellectual support of New York University.

Notes

¹ Special considerations arise for things beyond income and wealth. For example, there would likely be little support for equal prison sentences for all offenders from petty thieves to murderers. Similarly, there would likely be little support for equal taxes, or even equal proportional taxes, both viewed as unfair compared to progressive taxation. Thus, in general, whether inequality is to be reduced, and by how much, depends on whether the inequality is in goods or bads, in earned or unearned things.

² Of course, there are non-rank-preserving transfers that do reduce inequality, such as would occur if the richest person assumes the lowest rank, transferring all the excess resources to others, while preserving their ranks, now bumped up by one.

³ As stated in the Prefaces to the Second and Third Editions of Canaan (1903), it appears that the text in the Third Edition, and thus the principle of equal additions, was already in the First Edition in 1888.

⁴ The correlation between the X_H and X_W distributions is denoted by ρ. The correlation ρ is always negative in the perfect negative association case, so that the righthand factor attenuates the variance in the married-couple distribution and increases it in the marital-inequality distribution.

⁵ Following the usual convention, uppercase letters denote variables and their distributions, and lowercase letters denote realized values.

⁶ Note that both mechanisms suggest new directions for empirical research, exploring how the set of reward-relevant characteristics varies across workplace and employer and assessing the associations within sets of reward-relevant characteristics.

⁷ This model also yields new questions for empirical research, concerning, inter alia, the conditions that affect (1) the probability that voting is chosen as a decision rule, (2) committee size, (3) diversity of thought, and (4) free expression of beliefs and judgments.

⁸ This article treats the small distributions as populations, not samples, and thus the formulas and results for the coefficient of variation are based on the population standard deviation.

⁹ The coefficient of variation is rounded and appears the same under both transfers and equal additions. But written to more decimal places, the CV is 0.2251983 using the transfers lever (Table 2) and 0.225421 using the equal additions lever (Table 3).