Monday, August 1, 2022

How economists think about inequality

In my managerial econ class, I often get asked about inequality (links).  My points are two:
  1. Consumption inequality is less than income inequality due to our progressive taxes and government programs (Medicare, Social Security), where higher income citizens pay more taxes and receive fewer benefits as a percentage of income.  
  2. Inequality can be the result of incentive pay.  If we reduce inequality, we weaken the link between pay and performance, which reduces the size of the proverbial pie.  
Neither of these arguments will persuade students, but it does get them to engage, if only to show the flaws in these arguments, and I view that as a win.  

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