Working Paper: NBER ID: w21394
Authors: Martin Ravallion
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.
Keywords: No keywords provided
JEL Codes: D31; D63; I32; J22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| effort (D29) | income (E25) |
| income (E25) | welfare (I38) |
| effort (D29) | welfare (I38) |
| adjusting for effort (J33) | measured inequality (D63) |
| preference heterogeneity (D11) | measure of inequality (D31) |