This document discusses income inequality and different perspectives on fairness. It presents two definitions of fairness - redistributive fairness, which sees inequality as inherently unfair and advocates equalizing rewards, and meritocratic fairness, which believes fairness means matching reward to merit. The document also discusses measurement challenges, how governments can impact inequality through policies, and strategies to help the poor.

1. Microeconomics
Income Inequality
Rich and Poor
Rich and Poor

2. Rich and Poor
Relative
Subjective
Measurement limitations

3. What would you rather
be?
Rich in poor country
or
Poor in a rich country

4. Who is richer?

5. 2013 vs. 1953
Cell Phone Entertainment
Internet CarHousingFood
Air Conditioner Opportunities
Jet Travel
Medicine

6. Income must be created
before it can be distributed
Entrepreneurs use capital
to create income

7. Capital
Financial - Money
Physical - Things
Intellectual - Ideas
Human - People

8. Market is Efficient
May not be fair
Who defines fair?

9. Fairness is not
an objectively
determined
concept
Milton Friedman
(1912 - 2006)

10. Fairness
Two Definitions

11. Redistributive Fairness
It is fair to equalize rewards.
Inequality is inherently unfair.

12. Meritocratic Fairness
Fairness means matching
reward to merit.
Forced equality is inherently
unfair

13. The worst form of
inequality is to try to make
unequal things equal.
– Aristotle
– Aristotle
– Aristotle

14. THE REAL QUESTION is not
whether fairness matters
it does...
but which definition is
correct for public policy.

15. Quiz
1. What is Redistributive Fairness?
2. What is Meritocratic Fairness?

16. Government can make
income more equal
Distorts incentives
Alters behavior
Less efficient allocation

17. How much inequality?
What can government do?
How to help the poor
How to help the poor
How to help the poor

18. Quintile
Line up by income
One-Fifth
Divide into five groups

19. Income Inequality by Quintile
MENA
Percent
of
Income
Perfect Equality

20. Poverty Line
A level of income set by
the government below
which is deemed to be in
poverty

21. Poverty Rate
The percentage of the
population living below the
poverty line

22. Percent Below
Poverty Line
Egypt 20
Gaza 70
Iran 18
Iraq 25
Jordan 14
Syria 12
UAE 19
Yemen 45

23. The Income Lifecycle
Peak at 50
Earning
+ Level
Spending
Varies
$0
- Go to Work Retire
Born Age Die

24. Consumption Gap
Top 20%
to Bottom 20%
Unadjusted Income 15 x
After Taxes 14 x
Consumption 4x
Household Size 2x

25. What percent of
millionaires inherited
their wealth?
20% Inherited
80% Earned