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Class01b_measurement.pdf

Class01b_measurement.pdf - Econ 473 Class 1 Measurement of...

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Econ 473 Class 1 Measurement of inequality 1. Graphical representations
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Some possible sources of income inequality Skills/education Age/experience Luck Choices: occupation, hours worked... Background/connections Inheritance
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Some possible drivers of increasing income inequality Changes in... Technology/automation/skill-biased technical change Taxes Education expansion Changes in institutions, e.g. deunionization Social norms (e.g. about CEO pay) Balance of power, rent-seeking
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Some possible drivers of increasing income inequality Changes in... Technology/automation/skill-biased technical change Taxes Education expansion Changes in institutions, e.g. deunionization Social norms (e.g. about CEO pay) Balance of power, rent-seeking Which drivers matter is important for whether policy response works and whether it is desirable.
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Today: Measurement For today, ignore considerations of what exactly to measure. I Just refer to “household income”. I Thus ignore: F which social unit are we referring to (person, household, adjusted household?) F which of their attributes we’re measuring (income, wealth, consumption...) Just study some measures and their properties. After this: Let theory guide us what to measure, and how.
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What does an inequality measure do? If we only cared about say the income share of homogeneous workers vs homogeneous capitalists, a simple number would su ffi ce. In reality, these groups are heterogeneous, and may overlap. Diagrams show the heterogeneity well.
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3 diagrams 1 Pen’s Parade of Dwarfs 2 the frequency distribution (histogram, pdf, cdf) 3 the Lorenz curve 4 (log transformations)
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Example data Ideally have individual-level data. Today use grouped data from Statistics Canada, for individual earnings in 2011. Groupings raises some issues that we will not discuss in this course (see Cowell). Show data.
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Pen’s “Parade of Dwarfs” 1 Order people by their income. 2 Assign each their income level as “height”.
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