Inequality when Effort Matters

No 21394, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: D31 D63 I32 J22 (search for similar items in EconPapers)
Date: 2015-07
New Economics Papers: this item is included in nep-hrm, nep-lma and nep-ltv
Note: DEV LS PE
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Published as MDPI and ACS Style Ravallion, M. Inequality and Poverty When Effort Matters. Econometrics 2017, 5, 50. doi:10.3390/econometrics5040050

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Working Paper: Inequality when effort matters (2015)
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