试听180秒083：Reasonable and Unreasonable Causes of Inequality

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Hello, Himalaya’s subscribers.My name is Timothy Taylor, and today we're going to discuss reasonable andunreasonable causes of inequality. Let's start with some questions about whatis fair when it comes to thinking about why too people have different levels ofincome. For example, say there are two workers in a factory and they have verysimilar jobs. But one worker has several years of experience and can do thework very quickly and with very few mistakes, the other workers just startingoff，that workers much slower and makes more mistakes. Is it fair if thetwo workers are paid the same, or should there be in equality in their pay?Here's another question. See, there's one worker who gets a college degree andeventually gets a job.

 And there's another worker who stopped school aftercompleting ninth grade and say both workers are the same age, about twenty fiveyears old. Would you expect those two workers to be paid the same or shouldthere be some level of inequality？ Or say there's amanager at a company and that manager is at a manufacturing plant with athousand workers. The manager is responsible for making sure the plant runssmoothly. Is it fair that this manager should be paid more than the otherworkers? Or should there be some inequality？ 

Now, I'mnot sure if these kinds of questions really have clear answers. Even if wecould agree that sometimes some people should be paid more than others, wecould then have an argument about exactly how much more. It's almost more aquestion of philosophy than of economics. But economics can analyze some of thetrade-offs here. For example, if college students don't get paid more, it'sgoing to be harder to get people to go to college. If managers don't get paidmore. It's going to be harder to get people to build up the skills and want tobe managers.

There's a comment from way backin nineteen thirty eight from a U.S. economist named Henry Simons. I alwaysthink about on this topic, Simons wrote the case against inequality depends onthe ethical or aesthetic judgement that the prevailing distribution of wealthand income reveals a degree or kind of inequality, which is distinctly evil orunlovely. What I'm trying to say is in some ways, how you feel about inequalityisn't just economics, it's if you feel that certain kinds of inequality are allright, and other kinds of inequality are unlovely, as Simons put it, let's talkabout these topics in three parts. First, we'll talk about many differentreasons that could be behind economic inequality. Second, we will talk aboutthe difference between income and wealth inequality. And finally, we'll talkabout some policies that could be used to reduce inequality.

Let's start by talking about reasons behind income inequality. Well, theexamples at the start of this lecture were all about someone who in some levelwas more productive or more responsible, or had a tougher job than someoneelse. And I would suggest that for most people, as your output, your skills,your responsibility level goes up, it's reasonable to get paid somewhat more.If you agree with that, there will be some level of inequality in a society.

This also has an implication that there will be inequality by age level.After all those who have been working for ten or twenty years or more arelikely to have built up more skill, more responsibility in all average, withexceptions, they will tend to be paid more. So if you think that's true, therewill be, again, some inequality by age as a result. However, this idea that youare paid according to what you do also has an implication. Economic conditionsare going to shift from time to time, and those shifts in economic conditionswill alter pay and also lead to shifts in inequality.

For example, new information and communication technology has multipliedthe productivity of those who use it, but it's also put some other people outof work. Or changes in global trade might cause shifts in an economy. As aneconomy shifts toward those areas where it has a comparative advantage, and awayfrom areas where it doesn't, wages will rise faster in some parts of theeconomy and might be flat or declining in other parts of the economy. In thiscase, you'll have people who are doing better or worse, and a degree ofinequality that's coming up through no particular action of their own. It'sjust other changes in the world. And that kind of inequality is a somewhat moretroublesome. For many people when they think about fairness, there are also okif there is some element of luck,for example, lots of people buy lotterytickets，and if someone wins the lottery, it doesn't really seem unfair,because everyone who bought a ticket had a chance of winning.

Or you could imagine this kind of luck. Two students go to school together.They study the same subjects, they get the same grades, and then they each havea different idea. They get a patent and they each go start separate companies.But here's where the luck happens. One company does very well. One person getsrich, the other company doesn't do so well. And they're really is just anelement of luck in that. And many people are ok with that kind of luck. As longas both people had a fairly equal chance at the beginning.

Now I keep saying it over and over. If people have a reasonably fairchance. And that's important to think about what inequality is acceptable ornot. Imagine, for example, two people, and let's say they're similar in theability they have when they are born, but one of them comes from a high incomefamily and that high income family can pay for them to get lots of educationand a college degree. And the family knows lots of people who are involved injobs and companies that have high paying jobs. The other person again born withequal skill comes from a low income family. They can't afford to go to schoolafter the ninth grade and the family really just knows other low incomefamilies and doesn't really know about jobs that are not low paying jobs.

The wages for these two people will probably be unequal, but at least formy own personal preferences, it's an unlovely kind of inequality because theinequality wasn't based on their own effort or their own abilities or their ownrisk taking. It was based on something else. This all suggests that inequalityis easier to accept and understand if it comes with a reasonable amount ofmobility. So people have some reasonable chance of doing well and improvingtheir economic situation. They are not trapped forever at some lower incomelevel.

I'll take a little bit of a detour, really. Let's talk about our secondpoint, the difference between income inequality and wealth inequality. And thenwe'll talk about policy. The key point here that I want to make is income andwealth are not the same. Income is what a person or household receives in acertain period of time, like the income you get in a month or the income youget in a year. Wealth is the total amount that a person has, and that includesfinancial assets, like money in a bank account or in a wealth management fund,and also non financial assets, like owning property. To understand thedifference， think about a person who's perhaps older and has a high level ofwealth that's built up over their lifetime. But this person is retired and notworking any more， because they aren't working theydon't have any income from wages. Instead, they are spending based on theirwealth and their past saving. On the other side, you could think of workers intheir late twenties or their thirties who might have a high income level, butthey don't have much wealth because there hasn't been enough time yet forwealth to build up. So a common pattern here is that those who have a lot ofwealth tend to be somewhat older, and this is a common pattern in just aboutevery country. Inequality of wealth is a lot higher than inequality of income.This pattern holds in China as well. For example, based on data from China's NationalBureau of Statistics, if you look at the households with the most income, thetop ten percent of households have about one third of all income. But if youlook at households with the most wealth, the top one percent of households inChina have about one third of all wealth. In other words, the top one third ofall wealth is held by a much smaller group, the top one percent, then the topone third of all income, which is in the top ten percent.

So let's move to our third point what government policies can be used toreduce inequality. Chinese government has acknowledged the rising levels ofinequality and set a goal of reducing inequality over time. For example, on theTwelfth Five Year Plan, back in 2011, the State Council said one of its goalswas to speed up the formation of a reasonable pattern of income distributionand reverse the widening income gap as soon as possible. And as we talked aboutin the previous lecture, that reversal of the widening income gap as indeedstarted to happen over the last few years. But what if China's governmentwanted to do more? Here are some steps they could take. One set of steps issometimes just referred to as the tax and transfer system. The idea here is tohave a combination of higher taxes on those with high incomes, and then payingbenefits or providing support to those with lower incomes. and by payingbenefits or support, I don't just mean cash payments, but also things likesocial security, health care, education, housing, and so on. So we can ask thisquestion, how much does the combination of tax and transfers reduce inequalityin a country? Well, in a country that puts a very high emphasis on reducinginequality, like Sweden, the tax and transfer system reduces the genie score ofthat country, the measure of inequality by about 25 points. In a country that puts only a moderate levelof emphasis on reducing inequality, like the United States, the tax andtransfer system reduces the genie score of inequality by about fifteen points.But if you do that same calculation for China, China's tax and transfer systemreduces the genie coefficient by only maybe two or three percent. Now thatstudy was based on data from 2013. So it's just a bit outdated, but it's stillsuggests that if China wants to, it can do a lot more toward reducing inequality.In most countries, the usual way to tax the rich is to use a personal incometax. And as we talked about in earlier lectures, revenues from the personalincome tax in China are only about five percent of total government revenue, which is much higher than the twenty five percent levelthat's common in a lot of high income countries.

China could also redesign its social security system. So those with lowincomes paid less in taxes, but got more in benefits. What about if the goal isto affect inequality over time, but not in a direct tax and transfer way? Forexample, let's talk about regional inequality. There are big differences inChina, as in many countries, between income levels in big cities, mediumcities, small cities, and rural areas. Again, this is a common pattern aroundthe world. Um, but it is also true that if you look at emerging markets, theusual, if you look at some measure like what share of people go on to completea college degree. In most countries, most emerging market countries, there's agap between rural and urban areas where rural people are about fifteenpercentage points less likely to go on to a college degree. In China, that gapis bigger. It's about twenty five percentage points. People in rural areaseverywhere are less likely to have connection to a bank account, or to thefinancial system.They tend to have lower incomes over time. Now over time inChina, rural areas have actually been doing somewhat better and growingsomewhat faster than urban areas in the last ten years or so. But nonetheless,having people migrate from rural to urban areas does tend to reduce inequalityand building up the economies of rural areas with transportation, energy, communications maybe ties touniversities and big companies in the rest of China's economy. All ofthat would help to reduce inequality overall and over time.

Finally, I'll just say that people with high incomes tend to have moreproperty. And so if you have taxes on property, it tends to affect those withhigh incomes the most. And in China, there are currently discussions the lastfew years about changing the property tax. In the past in China, you only paida property tax when buying or selling property. But if you just held the propertyfor some years, you didn't owe tax in the meantime. However, in many countriesyou pay property tax every year that you own property. In the United States forexample, I pay property tax on my house every year. Also every year thegovernment estimates the current value of my house, not what I paid for it someyears ago, but the current value and my property taxes based on that currentvalue. China also could have an annual tax on current property values. Youcould even have something with a higher rate of tax for very expensiveproperties, or for those who own multiple homes. Again, this would be a way oftaxing those with very high incomes or high wealth, to provide revenues thatcould be used to help others.

Let's end here with a few review questions. Can you name some situationswhere inequality doesn't bother you very much, or situations where it bothersyou more? Why is inequality of wealth in every country greater than inequalityof income? And what are some tools government can use to reduce inequality? Inthe next lecture, we'll discuss a specific kind of inequality, the inequalitybetween men and women in the workforce.

I'm Timothy Taylor. Thank you for listening to Himalaya.