1
Chapter 6: The Consequences of Inequality ........................................................................................... 3
1. Introduction: The Spirit Level: Why Inequality is Better for Everyone (Wilkinson & Pickett) ......... 3
1.1. More equality is better for everyone ....................................................................................... 3
1.2. Correlation is not causation ..................................................................................................... 3
1.3. Statistical limitations ................................................................................................................ 3
2. Consequences of inequality ............................................................................................................ 4
2.1. Economic growth ...................................................................................................................... 4
2.1.1. What? ................................................................................................................................ 4
2.1.2. (How) Does inequality affect economic growth? .............................................................. 4
A) Two arguments ................................................................................................................... 4
B) Conclusion ........................................................................................................................... 4
2.1.3. OECD (2015): Comprehensive approach: The impact of inequality on economic growth 5
A) What? .................................................................................................................................. 5
B) Relationship 1: Effect on inequality and redistribution on growth .................................... 5
B) Relationship 2: The different roles of inequality at the top and at the bottom of the
distribution on growth ............................................................................................................ 7
C) Relationship 3: The effect of inequality on incentive and opportunity: What is the
dominant mechanism? ............................................................................................................ 7
2.2. Social mobility .......................................................................................................................... 8
2.2.1. Argument: Social mobility is crucial for equality of opportunity ...................................... 8
2.2.2. What? ................................................................................................................................ 8
A) Conceptualization ............................................................................................................... 8
B) Income mobility: An example ............................................................................................. 9
C) Intergenerational earnings elasticities ................................................................................ 9
2.2.3. The Great Gatsby curve ................................................................................................... 10
A) The original curve (Miles Corak, 2012) ............................................................................. 10
B) Revisited (OECD, 2018) ..................................................................................................... 10
2.2.4. Sticky floors and sticky ceilings ....................................................................................... 11
A) Sons’ earnings by fathers’ earnings level .......................................................................... 11
B) Occupation of children by highest parental occupation status ........................................ 11
C) Likelihood of educational attainment by parental education background ...................... 12
2.2.5. Large country variation in extent of mobility .................................................................. 12
2.2.6. Mechanisms..................................................................................................................... 13
2.2.7. Intergenerational mobility .............................................................................................. 14
2.2.8. Income inequality over time ........................................................................................... 14
2.3. Political power ........................................................................................................................ 15
, 2
2.3.1. Introduction ..................................................................................................................... 15
2.3.2. The functions of wealth ................................................................................................... 15
2.3.3. Theories on the relationship between economic inequality and political power .......... 16
A) Relative power theory....................................................................................................... 16
B) Power resources theory .................................................................................................... 18
C) The demand for redistribution (Meltzer-Richard) ............................................................ 19
3. Ingrid Robeyns: Limitarianism ....................................................................................................... 20
3.1. What? ..................................................................................................................................... 20
3.2. Why? ....................................................................................................................................... 20
3.3. History .................................................................................................................................... 21
3.4. Is it possible and morally acceptable? .................................................................................... 21
3.5. Limitarianism and climate change .......................................................................................... 21
, 3
Chapter 6: The Consequences of Inequality
1. Introduction: The Spirit Level: Why Inequality is Better for Everyone (Wilkinson & Pickett)
1.1. More equality is better for everyone
Among rich countries, health and other social
problems are closely related to inequality.
More equality leads to better health and social
outcomes because people are less concerned about
their relative status:
• People care a lot about how their income and
status compare to others around them. It’s not
just about how much you have, but how it
measures up to what others have.
• The meaning and status attached to wealth
and possessions are often more important
than the actual items themselves. What you
can show or say about your wealth influences how you are perceived and how you perceive
yourself.
1.2. Correlation is not causation
Just because two things are correlated (i.e., they occur together or show a relationship) doesn’t
mean that one causes the other. For example, if higher income inequality is associated with more
social problems, it doesn’t automatically mean that inequality is causing those problems.
To understand why a correlation might exist, we need a theory or explanation that can explain the
relationship between the two factors. This theory should be able to show how and why one factor
might affect the other.
A good theory should be able to be tested and potentially proven wrong (falsified) both at the
individual level (micro) and at the broader societal level (macro). This means that the theory should
be able to be examined through various studies and data sources.
Pickett and Wilkinson interpret the observed correlations (like between inequality and social
problems) as indicating a causal relationship. They suggest that inequality directly causes social
issues. They have two explanations for this:
1) In more unequal societies, people experience higher levels of “status anxiety.” (see 1.1.)
2) Higher inequality can lead to lower levels of social cohesion and trust within a community
1.3. Statistical limitations
• The interaction between micro and macro dynamics of inequality (individual behaviour vs
societal trends) is notoriously hard to analyze
• No staunch evidence:
- Does the pattern of inequality leading to social problems remain consistent over time?
- Does the pattern of inequality leading to social problems remain consistent when including
more countries in the analysis?
Chapter 6: The Consequences of Inequality ........................................................................................... 3
1. Introduction: The Spirit Level: Why Inequality is Better for Everyone (Wilkinson & Pickett) ......... 3
1.1. More equality is better for everyone ....................................................................................... 3
1.2. Correlation is not causation ..................................................................................................... 3
1.3. Statistical limitations ................................................................................................................ 3
2. Consequences of inequality ............................................................................................................ 4
2.1. Economic growth ...................................................................................................................... 4
2.1.1. What? ................................................................................................................................ 4
2.1.2. (How) Does inequality affect economic growth? .............................................................. 4
A) Two arguments ................................................................................................................... 4
B) Conclusion ........................................................................................................................... 4
2.1.3. OECD (2015): Comprehensive approach: The impact of inequality on economic growth 5
A) What? .................................................................................................................................. 5
B) Relationship 1: Effect on inequality and redistribution on growth .................................... 5
B) Relationship 2: The different roles of inequality at the top and at the bottom of the
distribution on growth ............................................................................................................ 7
C) Relationship 3: The effect of inequality on incentive and opportunity: What is the
dominant mechanism? ............................................................................................................ 7
2.2. Social mobility .......................................................................................................................... 8
2.2.1. Argument: Social mobility is crucial for equality of opportunity ...................................... 8
2.2.2. What? ................................................................................................................................ 8
A) Conceptualization ............................................................................................................... 8
B) Income mobility: An example ............................................................................................. 9
C) Intergenerational earnings elasticities ................................................................................ 9
2.2.3. The Great Gatsby curve ................................................................................................... 10
A) The original curve (Miles Corak, 2012) ............................................................................. 10
B) Revisited (OECD, 2018) ..................................................................................................... 10
2.2.4. Sticky floors and sticky ceilings ....................................................................................... 11
A) Sons’ earnings by fathers’ earnings level .......................................................................... 11
B) Occupation of children by highest parental occupation status ........................................ 11
C) Likelihood of educational attainment by parental education background ...................... 12
2.2.5. Large country variation in extent of mobility .................................................................. 12
2.2.6. Mechanisms..................................................................................................................... 13
2.2.7. Intergenerational mobility .............................................................................................. 14
2.2.8. Income inequality over time ........................................................................................... 14
2.3. Political power ........................................................................................................................ 15
, 2
2.3.1. Introduction ..................................................................................................................... 15
2.3.2. The functions of wealth ................................................................................................... 15
2.3.3. Theories on the relationship between economic inequality and political power .......... 16
A) Relative power theory....................................................................................................... 16
B) Power resources theory .................................................................................................... 18
C) The demand for redistribution (Meltzer-Richard) ............................................................ 19
3. Ingrid Robeyns: Limitarianism ....................................................................................................... 20
3.1. What? ..................................................................................................................................... 20
3.2. Why? ....................................................................................................................................... 20
3.3. History .................................................................................................................................... 21
3.4. Is it possible and morally acceptable? .................................................................................... 21
3.5. Limitarianism and climate change .......................................................................................... 21
, 3
Chapter 6: The Consequences of Inequality
1. Introduction: The Spirit Level: Why Inequality is Better for Everyone (Wilkinson & Pickett)
1.1. More equality is better for everyone
Among rich countries, health and other social
problems are closely related to inequality.
More equality leads to better health and social
outcomes because people are less concerned about
their relative status:
• People care a lot about how their income and
status compare to others around them. It’s not
just about how much you have, but how it
measures up to what others have.
• The meaning and status attached to wealth
and possessions are often more important
than the actual items themselves. What you
can show or say about your wealth influences how you are perceived and how you perceive
yourself.
1.2. Correlation is not causation
Just because two things are correlated (i.e., they occur together or show a relationship) doesn’t
mean that one causes the other. For example, if higher income inequality is associated with more
social problems, it doesn’t automatically mean that inequality is causing those problems.
To understand why a correlation might exist, we need a theory or explanation that can explain the
relationship between the two factors. This theory should be able to show how and why one factor
might affect the other.
A good theory should be able to be tested and potentially proven wrong (falsified) both at the
individual level (micro) and at the broader societal level (macro). This means that the theory should
be able to be examined through various studies and data sources.
Pickett and Wilkinson interpret the observed correlations (like between inequality and social
problems) as indicating a causal relationship. They suggest that inequality directly causes social
issues. They have two explanations for this:
1) In more unequal societies, people experience higher levels of “status anxiety.” (see 1.1.)
2) Higher inequality can lead to lower levels of social cohesion and trust within a community
1.3. Statistical limitations
• The interaction between micro and macro dynamics of inequality (individual behaviour vs
societal trends) is notoriously hard to analyze
• No staunch evidence:
- Does the pattern of inequality leading to social problems remain consistent over time?
- Does the pattern of inequality leading to social problems remain consistent when including
more countries in the analysis?
