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"Fair" Inequality ? An International Comparison of Attitudes to Pay Differentials. Lars Osberg Dalhousie University Tim Smeeding Syracuse University July 2, 2005 Society for the Advancement of Socio-Economics Budapest. Inequality & Public Policy. - PowerPoint PPT Presentation
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"Fair" Inequality ? An International Comparison of Attitudes to Pay Differentials
Lars Osberg Dalhousie University
Tim SmeedingSyracuse University
July 2, 2005 Society for the Advancement of Socio-EconomicsBudapest
Inequality & Public Policy
Greater inequality in market incomes implies more people would benefit from redistributionDemocracy + self-interest of Median voter implies
• higher taxes & more redistribution when market incomes are more unequal ??
USA is important counter exampleMore inequality & poverty than in other affluent
OECD nations • Governments do less about it
Why is US policy different ?
Policy outcomes depend on public preferences + institutional structure
H0: American “preferences” different Greater emphasis on = opportunity ??More acceptance of mobility/change ??
• economics literature emphasizes POUM (Prospect Of Upward Mobility)
• Alesina, di Tella and MacCulloch (2001), Alesina and la Ferrara (2001), Alesina and Angeletos (2003), Benabou and Ok (1998) and Piketty (1995)
But are US attitudes different?
“Preferences” for redistribution mingle: Perceptions of actual outcomes Perceptions of possibility & costs of change Values about desirable outcomes Values about legitimate process & agents of change
HA: USA not particularly different in values Large & subtle sociological & survey literature - ignored in
economics literature • Examples: Kelly and Evans (1993), Kluegel et al (1995) Svallfors
(1997) Suhrcke (2001).
USA not an outlier in international survey data except perhaps in average attitudes to government as agent of
change ?
Are attitudes different ? Plan:
So why not just ask people ? Average answers not so different
• Distribution of attitudes may be key for political economy What do the answers mean ?
Many issues mingled in “inequality” or “redistribution” “Should earn” / “Do earn” data in ISSP
Preferences for aggregate inequality Leveling up or down ? Max/mean & Mean/min
Distribution of preferences for leveling Determinants ??
• USA is different in % religious fundamentalism Conclusion
& the bottom line will be ……??
Hard to find big cross-national differences in attitudes – on average General preference for “less inequality” even given
underestimation of extent of actual inequality Polarization in US attitudes is different from
elsewhere – especially Europe Similar preferences across nations for “leveling down”
at top of distribution + massive under-estimation of actual top end inequality
Anglo countries have less concern for social minima
Are Income Differences “Too Large”?
Most people, in all countries agree or agree strongly
Tiny minority everywhere “disagree” USA is not particularly “different” USA also not an outlier when asked to
agree/disagree: “Inequality continues to exist because it benefits the rich and powerful” “Large income differences are necessary for a country’s prosperity” Importance of “Knowing the right people”, “Well-educated parents” ,
Education/Ambition/Ability/Hard Work
Country YearStrongly Agree Agree
Neither Agree Nor Disagree Disagree
Strongly Disagree Total
Australia 1999 17.8 53.1 17.1 11.6 0.4 100
Austria 1999 40.4 45.8 9.1 4.7 0 100
Canada 1999 28.1 42.5 15.7 11.2 2.6 100
France 1999 60.3 27.2 7.4 4.5 0.7 100
Germany 1999 20.5 55.2 14.3 9.1 0.9 100
Italy 1992 53.2 36.3 6.3 4 0.2 100
Netherlands 1987 19 47.4 13 17.6 3 100
Norway 1999 22.4 50.1 13.8 12 1.8 100
Spain 1999 35.9 53.4 7.4 3.1 0.2 100
Sweden 1999 29.2 41.9 18.1 8.4 2.4 100
Switzerland 1987 19.1 48.5 20.7 10.4 1.4 100
UK 1999 31.7 50.6 11.6 5.4 0.6 100
US 1999 25 41.2 21.5 9.2 3.2 100
Source: ISSP 1999, 1992, 1987
Attitudes to Inequality: Are Income Differences Too Large?
What do such questions mean ?
To fix ideas, suppose that we lived in a just society, then: “should get” income = “do get” income (1) Yi * = Yi
A
(2) YiA > Y*min Y*min 0
(3) YiA < Y*max Y*max
If society is not just, then some may get “too much” while others get “too little”
Yi * = b0 + b1 YiA
If an individual believes society is fair, then b0 = 0 b1 = 1 Y*max > Yi
A > Y*min
A
“Do Earn”
YA
“Should Earn”
Y*
Y* = YA
YJ
Y*min
Y2Y1
e
ad
cY*max
Figure IEquity in Earnings
3 dimensions of Pay Norms
(1) the ethical floor to minimum earnings (Y*min );
(2) the ethical ceiling to maximum earnings (Y*max);
(3) the desired degree of levelling, relative to the current income distribution, among “acceptable” incomes (b1 ).
• Note: Jasso ratio = ln (Yi A / Yi *)
• implicitly sets b0= 0
Inequality – an issue of “comparing two
frequency distributions f(y)” ?? Atkinson JET 1970
“Inequality” has two meanings Differences between individuals/groups in rewards
• Relative income ratio is only necessary information Dispersion of rewards in a population
• Estimate of population densities needed• Gini/Theil/Atkinson – all need to know f(yi)
Subjective perceptions of income frequencies based on biased, self-selected small samples Population densities estimated with great error
• Most respondents place selves in “middle” regardless of actual level of income
Are ethical attitudes driven by $ differentials or population frequencies?• E.g. Black/white, male/female, skilled/unskilled differentials • – how relevant is the number of each to equity norms ?
“Do Earn” & “Should Earn” Inequality
ISSP 1999, 1992, 1987 what salaries do people actually make ? what salaries should they make ?
• skilled factory worker, doctor in general practice, chairman of a large national company, lawyer, shop assistant, owner/manager of a large factory, judge in the country’s highest court, unskilled worker & federal cabinet minister.
• + Bus driver, secretary, brick layer, bank clerk in 1987
“should earn” is conditional on “do earn” For political economy, subjective reality is key “Should earn” implicitly controls for estimation errors,
process, family “need”, hours work, etc.
Preferences for Aggregate Inequality
For each person - calculate subjective inequality index (CV,Gini, Theil)Actual Inequality (CVA, GiniA)“Ethical Inequality” (CVE, GiniE)Ratio – “tension” ?
Is “Ethical inequality” = 0 ? (nowhere) What is tension between actual & fair
inequality ? (constant)
Actual & Ethical Inequality
All nation averages - GiniA~.46; GiniE ~.34Trend & Level of actual earnings inequality
not reflected in subjective estimates of actual inequality
All countries accept some earnings inequality
USA not particularly different from others “Should Earn” inequality is less than “Do
Earn” inequality in all countries (Ratio ~ .75)
Two Distributional Problems
A summary statistic (Gini, Theil, CV) cannot reveal where the concern with inequality lies max, min or leveling in between ?
The Distribution of attitudes & estimates may matter crucially for political economy
What is the socially acceptable range of incomes? How much inequality is
perceived ?
ISSP queries span the range very top (chairman of a large national company) very bottom (unskilled worker)
Do nations differ in acceptable range ? Between middle & top ?
• Not very much - & desired range is approx 2:1 Between middle & most disadvantaged ?
• Significantly – Anglo countries especially Actual extent of salary differences is massively
underestimated
CEO Compensation & Pay of Production Workers in Manufacturing
CEO Compensation
Production Worker in Manufacturing Ratio
Rank by Ratio
UK (1) 762,305 22,654 34 4Australia (3) 740,565 19,582 38 2Japan(1) 524,454 29,974 17 8France(3) 619,047 16,699 37 3Sweden(3) 504,468 21,192 24 5Germany(1) 491,561 26,465 19 7US(1) 1,404,309 29,391 48 1Canada(2) 481,651 23,436 21 6Note: 2001 (US $)
Americans' Subjective Perception of Objective Reality: Do Earn CEO/Do Earn Skilled Worker
00.020.040.060.080.1
0.120.140.16
1 2.5 4 5.5 7 8.5 10 11.5 13 14.5 16
1987
1992
1999
Canadians' Subjective Perception of Objective Reality: Do Earn CEO/Do Earn Skilled Worker
0
0.05
0.1
0.15
0.2
0.25
0.3
1 2.5 4 5.5 7 8.5 10 11.5 13 14.5 16
1992
1999
West Germans' Subjective Perception of Objective Reality: Do Earn CEO/Do Earn Skilled Worker
00.020.040.060.080.1
0.120.140.16
1 6 11 16
1987
1992
1999
Preferences for Levelling Across Country-Year Pairs
Should Earn Ratio of Chairman to Skilled Workers
Country-Year Median Mean Median Mean Median Mean
USA 1999 2.86 4.38 14 16 0.67 0.52 5.43
Canada 1999 4.00 6.41 8 5 1.25 2.27 7.02Australia 1999 4.00 5.41 8 11 1.00 1.38 3.67New Zealand 1999 4.75 6.31 6 6 0.79 0.57 5.58UK 1999 5.33 7.20 3 3 1.00 1.30 6.18North Ireland 1999 4.38 6.20 7 7 0.31 0.37 7.33Spain 1999 2.50 2.77 16 27 0.00 0.02 1.32Portugal 1999 5.00 6.80 4 4 0.45 1.93 8.55France 1999 6.25 8.71 1 1 2.14 3.21 8.98Netherlands 1987 3.24 4.27 11 17 0.40 0.31 3.67Switzerland 1987 2.14 3.21 19 23 0.22 0.11 5.50Germany (W) 1999 4.80 6.01 5 8 0.93 0.45 4.61Austria 1999 4.00 5.47 8 10 0.67 0.81 4.54Norway 1999 1.72 1.84 20 30 -0.05 -0.12 0.93Sweden 1999 2.14 3.05 19 24 0.50 0.77 3.01Israel 1999 4.00 4.79 8 13 0.25 0.57 3.32Japan 1999 6.00 8.30 2 2 0.29 ######## 7.04
Ratio RankMale Ratio - Female
RatioStd Deviation of Ratio: Males &
Females
Distributions of Should-Earn Ratios Across Countries: 1999Table I: Means, Medians and Rankings: All Individuals
Country
Mean Med Mean Med Mean Med
United States 9.680 6.667 3.013 5 2 2.131 1.978 0.153 6 7 4.037 3.236 0.801 5 4
Canada 9.792 6.250 3.542 4 2 2.144 1.931 0.213 5 6 3.961 3.064 0.897 3 3
Australia 6.110 5.000 1.110 12 9 1.935 1.791 0.144 12 12 2.975 2.686 0.289 12 12
New Zealand 7.982 5.555 2.427 8 6 2.024 1.875 0.149 9 10 3.515 2.857 0.658 8 10
United Kingdom 10.932 6.667 4.265 3 2 2.305 2.100 0.205 2 2 4.038 3.255 0.783 4 2
North Ireland 7.994 5.442 2.552 6 5 2.018 1.858 0.160 10 11 3.507 2.943 0.564 6 6
Spain 3.139 2.800 0.339 15 11 1.607 1.556 0.051 15 15 1.773 1.875 -0.102 15 13
Portugal 7.804 5.333 2.471 10 7 2.007 1.902 0.105 11 8 3.499 2.813 0.686 9 11
France 11.092 7.143 3.949 2 1 2.319 2.132 0.187 1 1 4.210 3.296 0.914 2 1
Germany 7.553 6.000 1.553 11 4 2.112 2.000 0.112 7 5 3.306 2.880 0.426 10 7
Austria 7.779 5.333 2.445 7 7 2.030 1.883 0.147 8 9 3.461 2.866 0.595 7 9
Norw ay 3.206 2.609 0.597 14 12 1.610 1.564 0.046 14 14 1.906 1.667 0.239 14 15
Sw eden 4.018 2.941 1.077 13 10 1.718 1.591 0.127 13 13 2.079 1.791 0.288 13 14
Isreal 7.750 6.000 1.750 9 4 2.212 2.083 0.129 4 3 3.277 2.879 0.398 11 8
Japan 12.347 6.515 5.832 1 3 2.258 2.027 0.231 3 4 4.488 3.053 1.435 1 5
Difference: Column 9 - Column 10
Country Rank by Mean &
Med MeanMin Ratio
Mean MeanMin
Ratio
Median MeanMin
Ratio
Mean MaxMin Ratio
Median MaxMin Ratio
Mean MaxMean
Ratio
Median MaxMean
Ratio
Difference: Column 2 - Column 3
Country Rank by Mean &
Median MaxMin Ratio
Difference: Column 5 - Column 6
Country Rank by Mean &
Med MaxMean Ratio
In all countries, survey respondents estimate there to be far smaller income differentials than actual data indicates
Across countries, little variation in average respondents’ acceptable “Top End “ inequality Max/Mean “Should Earn” ratio is approximately 2 USA in middle of pack
US, UK Canada show larger acceptable bottom end inequality Mean/Min “Should Earn” approx 3.2
Distribution of Preferences for leveling: b1 in Yi * = b0 + b1 Yi
A
Figure 5.1United States Social Inequalities ISSP Years 1987-1999: Should Earn / Do Earn
Slope Coefficient (Beta) Over Time, Both Sexes
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
U.S. 1987
U.S. 1992
U.S. 1999
Table 5.2United States Social Inequalities ISSP Years 1987-1999:
MaxMean Ratio Over Time, Both Sexes
-0.2
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
U.S. 1987
U.S. 1992
U.S. 1999
Figure 5.3United States Social Inequalities ISSP Years 1987-1999:
MeanMin Ratio Over Time, Both Sexes
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
U.S. 1987
U.S. 1992
U.S. 1999
Figur e 5 . 8
U n it ed S t at es , U n it ed K in gdom, C an ada & Nor way 19 9 9 : D ist r ibut ion of Do- E ar n / S hould
E ar n S lope C oeffi cien t ( B et as) : B ot h S exes
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
B et a
U.S.
U.K.
Canada
Norway
Figur e 5 . 9
U n it ed S t at es , U n it ed K in gdom, C an ada & Nor way 1 9 9 9 : D is t r ibut ion of M ax S hould E ar n
/ M ean S hould E ar n ( M axM ean ) R at io: B ot h S exes
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
B et a
US MaxMean
UK MaxMean
Cdn MaxMean
Nor MaxMean
Figur e 5 . 9
U n it ed S t at es , U n it ed K in gdom, C an ada & Nor way 19 9 9 : D ist r ibut ion of M ax S hould E ar n
/ M ean S hould E ar n ( M axM ean ) R at io: B ot h S exes
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
B et a
US MaxMean
UK MaxMean
Cdn MaxMean
Nor MaxMean
Figur e 5 . 10
U n it ed S t at es , U n it ed K in gdom, C an ada & Nor way 19 9 9 : D ist r ibut ion of M ean S hould E ar n
/ M in S hould E ar n ( M ean M in ) R at io: B ot h S exes
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
B et a
US MeanMin
UK MeanMin
Cdn MeanMin
Nor MeanMin
Implications & Explanations ??
Current actual trends are for widening inequality – particularly at top end But is extent & trend of inequality perceived ? USA – leveling preferences are bimodal
• Levelers & status quo defenders split Hardening of American attitudes against large
differentials at top Erosion of consensus on minimum standards Polarization of attitudes - not a recipe for political
stability “Bi-causal” perceptions are highly susceptible to
“framing” and salience – possibly unstable ?