Inequality when Effort Matters

NBER Working Paper No. 21394

Issued in July 2015

NBER Program(s):Development Economics, Labor Studies, Public Economics



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.

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Document Object Identifier (DOI): 10.3386/w21394

Published: MDPI and ACS Style Ravallion, M. Inequality and Poverty When Effort Matters. Econometrics 2017, 5, 50. doi:10.3390/econometrics5040050

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