Measuring Inequality

Inequality is the difference between the incomes of the rich and the poor and there are a number of different measures to see how inequality has been changing over time and between countries. National accounts do not provide any data on how income, consumption or wealth is distributed across households [OECD] instead they provide overall income for the country, and dividing this by the population gives us the average income of the nation. Instead we need to use household survey data to give us a measure of inequality. Such surveys are not consistent across countries and therefore make international comparisons of inequality difficult. To overcome these issues, and allow more precise measures of international inequality, we might consider aggregating the national accounts data with the survey data. Unfortunately, this is a very difficult task, and may cause more issues than it solves. One such issue is that in survey data, households who own their home when asked their income may not include an imputed value of their rent, but this is done when we construct the national accounts. Deaton believes that this factor alone is responsible for explaining a large majority in the difference between national income as given by the national accounts versus the household surveys.

Why has wage inequality risen?

Wage inequality has increased in many economies in recent decades. Discuss the three leading hypotheses regarding the causes of this increase. What does the empirical evidence tell us about the quantitative importance of each of these factors?

The US economy has almost double since the 1970s, and labour productivity has risen over this period. Yet real wages for the median worker hasn’t changed much since the 1970s, and below-median male wages have fallen; showing that the increasing size of the economy hasn’t been fairly distributed.

The rise in inequality between high skilled and low skilled workers is particularly pronounced, with Autor finding that households which are composed of university education individuals earned $30,298 more than non-skilled workers in 1979, but this rose to $58,249 by 2012, an increase of 92%. [...]