Inequality- Economic Key Terms

What does a Growth Incidence Curve (GIC) measure?

It measures the growth rate of income for each percentile/fractile of the income distribution over time.

What does a downward-sloping GIC indicate?

Pro-poor growth where poorer groups experience faster income growth than richer groups.

What does an upward-sloping GIC indicate?

Pro-rich growth where richer groups benefit more from economic growth.

How is a GIC constructed?

By comparing the mean income of the same percentile group at the start and end of a period.

What does the Lorenz Curve show?

The cumulative share of population against the cumulative share of income.

Why does the Lorenz Curve not always provide a complete ordering of inequality?

Because Lorenz curves may intersect preventing a definitive ranking of distributions.

What is needed when Lorenz curves intersect?

Additional assumptions about the social welfare function and inequality weighting.

What is the Elephant Curve?

A global growth incidence curve for 1988–2008 showing distributional gains from globalization.

Why is it called the Elephant Curve?

Because its shape resembles a supine S or an elephant.

Who were the major winners shown by the Elephant Curve?

Emerging Asian middle classes and the global top 1%.

Who were identified as the losers of globalization in the Elephant Curve?

Lower-middle classes in mature/developed economies.

What happened to many lower-middle-class incomes in developed economies from 1988–2008?

Real income stagnation.

What happened to between-country inequality from 1988–2008?

It declined significantly.

Why did between-country inequality fall during this period?

Rapid growth in populous developing countries like China and India.

What happened to within-country inequality in many economies?

It increased.

Which component remained the larger source of global inequality in 2008?

Between-country inequality.

Approximately what share of global inequality came from between-country inequality in 2008?

About 77%.

How did globalization affect unskilled workers in developed countries?

Overseas production reduced real wages for unskilled labor.

How did globalization affect corporate profits?

It increased them through global production shifts.

Why does globalization make redistribution harder for governments?

Capital mobility allows firms and wealthy individuals to shift assets abroad.

What policy response is often recommended to combat tax avoidance?

International coordination among states.

What is the skill premium?

The wage gap between highly educated and less-educated workers.

What is skill-biased technological change?

Technological change that increases demand for skilled labor.

When does the skill premium rise?

When demand for skills grows faster than educational attainment.

What effect does a rising skill premium have?

Increased wage inequality.

What is progressive taxation?

A tax system where higher-income individuals pay a larger share of income.

Give an example of progressive taxation.

Personal income taxes.

What is regressive taxation?

A system where poorer individuals pay a larger share of income.

Why are indirect taxes like VAT considered regressive?

Poorer households spend a larger proportion of their income on consumption.

How can indirect taxes affect poor households in Brazil?

They can push moderately poor families into extreme poverty.

How do lower top marginal tax rates affect top income shares?

They encourage high earners to bargain for higher compensation.

What happens to private wealth accumulation when top tax rates fall?

Resources available for wealth accumulation increase.

How can wealth concentration persist across generations?

Through intergenerational transmission of private wealth.

What happens when the rate of return on capital (r) exceeds economic growth (g)?

Wealth concentration increases.

What does r > g mean?

Returns on capital grow faster than the economy overall.

What is narrow targeting in antipoverty policy?

Using household characteristics to identify poor households.

What is a common example of narrow targeting?

Proxy means testing.

One advantage of narrow targeting?

Reduces inclusion of non-poor households.

One disadvantage of narrow targeting?

High exclusion errors among the poor.

What is broad targeting?

Universal provision of services like education and healthcare.

Why is broad targeting often progressive?

Poor households receive high in-kind value from services.

Main limitation of broad targeting?

Poor quality of public services for the poor.

What does the D-Index measure?

The share of opportunities needing redistribution for equal access.

What does the Human Opportunity Index (HOI) combine?

The D-index and overall service coverage.

What does the HOI measure?

How equally basic opportunities are distributed.

What is between-group inequality based on?

Immutable circumstances like race or gender.

What is within-group inequality based on?

Differences in effort.

Why are between-group differences considered ethically problematic?

They are attributed to circumstances rather than effort.

What does between-group inequality provide?

A lower-bound estimate of inequality of opportunity.

What is intersectionality?

The interaction of social categories like class race and gender in creating disadvantage.

Why is intersectionality important?

It shows that disadvantages are cumulative.

Example of intersectionality in education?

Poor girls in Kenya have much lower higher-education chances than poor boys or rich girls.

Example of inequality interactions in health?

Higher maternal mortality among African American women in the US.

Why are circumstance variables important in inequality measurement?

They determine which inequalities are classified as unfair opportunities.

What is the trade-off when including more circumstance variables?

Greater accuracy but harder measurement and unstable econometric results.

How does unpaid domestic work affect women’s labor market outcomes?

It reduces time for formal employment and career advancement.

What is the flexibility penalty?

Reduced earnings and career progression due to the need for flexible schedules.

Why do many high-paying jobs disadvantage women with caregiving duties?

They reward long continuous inflexible hours.

What did Claudia Goldin find about women’s labor participation?

Women’s human capital investments increasingly matched men’s.

Why did female labor participation plateau?

Lack of temporal flexibility in workplaces.

What is temporal flexibility?

The ability to balance career and family responsibilities through flexible work structures.

What does the Mincer Equation model?

Earnings as a function of schooling and labor market experience.

Why is the Mincer Equation important?

It estimates private returns to education.

Which education level currently yields the highest monetary returns?

Tertiary education.

What are non-linear convex earnings?

Earnings where longer hours are rewarded disproportionately more.

How do convex earnings contribute to the gender pay gap?

Workers needing flexibility earn substantially less.

What is occupational segregation?

Concentration of women in lower-paying occupations or lower hierarchical positions.

Why are women often clustered in lower-paying occupations?

Flexible work is less costly there though pay is lower.

Why is the gender revolution considered stalled?

Many workplaces still reward greedy jobs requiring constant availability.

What are greedy jobs?

Jobs demanding long hours and near-total availability.

Which sectors have become more flexible and substitutable?

Technology and pharmacy.

Which sectors remain resistant to structural change?

Corporate and financial sectors.