Paul L. Caron
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Thursday, November 21, 2019

Why Do People Tolerate Income Inequality?

Lucia Macchia (City, University of London), Anke C. Plagnol (City, University of London) & Nattavudh Powdthavee (Warwick Business School), Why Do People Tolerate Income Inequality?:

Harvard Business Review LogoAcross societies, the richest 1% now hold a larger percentage of national income than ever before. What’s puzzling is that the latest research on attitudes toward inequality suggests that citizens in more unequal countries are less concerned about income inequality than those in more egalitarian countries. If income inequality is overwhelmingly bad for most people in a society, why do they – especially those who live in the most unequal of places – still put up with it?

According to the latest work by Harvard sociologist Jonathan J. B. Mijs, this income inequality puzzle can be explained in part by evidence showing that people’s belief in meritocracy (i.e., that income differences stem from differences in effort, not in luck) often goes hand in hand with the level of income inequality in a society. It seems that people in the most unequal societies, irrespective of whether they are from the working class, the lower middle class, or the upper middle class, are more likely to believe that the rich are rich because they worked hard for their income, while the poor are poor because of a lack of trying.

Our latest research, however, offers an additional explanation for the income inequality puzzle. We find that people put up with high levels of inequality for two reasons:

First, people generally care deeply about where they stand in terms of earnings within a group — for example, whether they are the 5th or 40th highest-paid person in their workplace. Second, people derive more satisfaction from being at the top of the income ranks in more unequal societies, where the pursuit of rank and status is more likely to be seen as a desirable life goal. So, we argue that people in an unequal society have a relatively larger incentive to move up the income ranks than those living in places where most people earn similar incomes — simply because each step up the income ladder pays out more in terms of happiness. Quite possibly, this larger incentive leads people to ignore or rationalize the negative consequences of income inequality at the collective level. ...

With income inequality rising considerably around the world, understanding why income inequality persists has never been more important. By knowing that income disparities can breed strong incentives for people to participate in a race to the top of the income ladder, while at the same time turning a blind eye to its negative consequences, leaders may be more motivated to tackle inequalities and improve overall well-being.

https://taxprof.typepad.com/taxprof_blog/2019/11/why-do-people-tolerate-income-inequality.html

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Comments

Concern about poverty is grounded in charity and therefore laudable. Concern about inequality is grounded in envy and therefore lamentable. One can only wonder how those who obsess over inequality would respond if it could be demonstrated that the most efficacious conditions for the reduction of poverty would also increase inequality.

Posted by: Michael T Petrik | Nov 21, 2019 5:10:22 AM

Why do people tolerate oppressive taxation?

Posted by: Anon | Nov 21, 2019 5:12:39 AM

Why do we put up with income inequality? Because no one has ever demonstrated a society with income equality which was not an equality of complete misery. Many of these societies founded by idealists quickly morphed into mass killing by the state. Idealism is dangerous, even to the idealists who envision themselves above the fray.

Posted by: AMTbuff | Nov 21, 2019 8:24:56 AM

Why do people "tolerate" it?
Because self-help in solving income inequality is a crime and can get you shot?

Posted by: ruralcounsel | Nov 22, 2019 3:52:03 AM

Why should we "tolerate" income inequality?? Can we not drag them from their homes and expropriate their ill gotten gains?

A wise man once told me, somebody else always has more money or a larger (ahem) appendage, so it's not worth worrying about.

Posted by: aircav65 | Nov 22, 2019 1:28:53 PM