Journal Article
No. 2016-33 | December 22, 2016
Doing Rawls Justice: Evidence from the PSID

Abstract

Distributive value judgments based on the ‘origins’ of economic inequalities (e.g. circumstances and responsible choices) are increasingly evoked to argue that ‘the worst form of inequality is to try to make unequal things equal’. However, one may reasonably agree that distributive value judgments should also account for the ‘consequences’ of economic inequalities in such a way as to (i) improve economic efficiency and (ii) prevent from subordination, exploitation and humiliation. In this way of thinking, by evoking the well-known Rawlsian ‘Fair Equality of Opportunity’ and ‘Difference Principle’, the author proposes a pragmatical non-parametric estimation strategy to compare income distributions in terms of Rawlsian inequity and its contribution to overall inequality. The latter methodology is applied to PSID data from 1999 to 2013 and compared with existing empirical evidences on Roemer’s (A Pragmatic Theory of Responsibility for the Egalitarian Planner, 1993, and Equality of Opportunity, 1998) inequality of opportunity. Remarkably, Rawlsian inequity is found between 56% and 65% of the overall income inequality, with an increasing pattern originating from the recent economic crisis.

Data Set

JEL Classification:

D63, I32, D3

Assessment

  • Downloads: 565 (Discussion Paper: 575)

Links

Cite As

Antonio Abatemarco (2016). Doing Rawls Justice: Evidence from the PSID. Economics: The Open-Access, Open-Assessment E-Journal, 10 (2016-33): 1–39. http://dx.doi.org/10.5018/economics-ejournal.ja.2016-33


Comments and Questions


Gian Cesare Romagnoli - Invited comment
December 27, 2016 - 23:33

Antonio Abatemarco’s paper is the outcome of a very big job, either on the theoretical or the empirical side. I am quite happy with the Author’s conclusions and will just make few points.

The first is that Rawls’ proposal is grounded on two contrasting basic value judgments which ...[more]

... are known as the Liberty and the Equality principle. In fact the Liberty principle recalls Berlin’s positive liberty while the Equality principle refers to the negative one. As indicated by Rawls, the Liberty principle has priority over the Equality principle. The implication is that Equality depends on Liberty.

My second question has to do with the statement “Any pairwise outcome gap is said to be unfair even if it is partly but not entirely originating from unequal social circumstances” (p.5). Here, the binary choice vs a gradual one seems to bias the results of the research since the outcome gap may have either social or natural origin and the latter are much more relevant than the former (p.27).

My third point is that Roemer’s “leveling the playing field” (p.23) is tantamount taking an egalitarian position which, even if attained, cannot be maintained unless economic exchanges are forbidden.

The fourth question has to do with the choices made in the empirical part of Abatemarco’s research (outliers dropped, individuals under 80, IQ test dropped, replacement of missing value). To what extent do they influence the results? (p.24).

My fifth point is that singles vs married couples inequality depends on the tax system (p.28).

The sixth point is that the conclusion that “the financial crisis has been paid by rural areas” (p.29) seem to contradict theclaimed statistical irrelevance of the degree of urbanization (p.27).

Finally, a couple of questions: why does more saving imply more investment in either human or phisical capital? (p.9); and are we sure that equality is a neutral concept, given that individuals are different? (p.27).


Antonio Abatemarco - Reply to Your comment
January 05, 2017 - 13:28

Dear Prof. Romagnoli,
thanks very much for reading and appreciating my paper. Also, let me thank you for stimulating further reflections on this paper. I'm sure your comments will be of great help for improving my future research activity in this field.

In what follows, I'll try to ...[more]

... go through your points as best as I can.


REPLY TO POINT 1

The liberty principle is attained when all individuals have the same indefeasible claim to a fully adequate scheme of equal basic liberties.
In my view, equality depends on liberty in that inequalities are admitted if and only if (i) education/training opportunities are granted to everybody (equally motivated and endowed individuals) and (ii) income disparities benefit the least advantaged as well.
Quoting Rawls (2001, A Restatement, p.47), “… the equal political liberties cannot be denied to certain groups on the grounds that their having these liberties may enable them to block policies needed for economic growth and efficiency.”


REPLY TO POINT 2

According to my interpretation, Rawls’ Theory is aimed at the stability of political institutions; stability is the priority. In order to obtain such a stability, inequalities must be somehow “bought” by the losers (matter of consensus), which is, in my view, the main idea behind the Rawlsian reciprocity principle. If this is the case, then one may agree that stability is pursued by reducing complaints (Temkin 1986, 1993).
So, once complainers are identified, different approaches may be followed to capture the size/impact of complaints. In my paper, I opted for the binary choice, as you properly emphasized. Notice that, in my view, this choice is not intended to approximate "something else". Instead, it is expected to capture political consensus in a normative framework aimed at the stability of political institutions.
Evidently, this is not the only possibility. For instance, in the view of "voting models" one may focus on the sole frequency of complainers (counting approach). Also, given a proper motivation, a parametric approach may be implemented to monetize the contribution of each circumstance variable within the income generating fuction.


REPLY TO POINT 3

I’m not sure I got your point here. Sorry about that.
I assume you refer to the following sentence in the paper: “In addition, in line with a broader interpretation of the maximin principle, equity is maximized when there is no group of more disadvantaged individuals, or, equivalently, all of them are disadvantaged.”

The equality principle is formulated in negative terms meaning that inequalities, i.e. departures from outcome egalitarianism are allowed if and only if the two principles of Equality holds. However, to the extent that inequalities are not there, equity is not a problem, no matter if below or above the poverty line.



REPLY TO POINT 4

Age is not a problem, but outliers … they are outliers. If outliers are not dropped, then the average disposable income for 2 (of 64) subgroups (the ones with the lowest number of observations) is not what one may expect as compared to the others. As such, a couple of lines in Table 1 would seem bizarre (e.g., worsening circumstances do not correspond to lower incomes). However, results reported in Table 2 are not sensibly affected by outliers.


REPLY TO POINT 5

I guess you are right. This may be an additional motivation (besides income pooling) for the empirically observed inequality gap in the case of the population of heads.


REPLY TO POINT 6

The correlation analysis shows that disposable incomes are not sensibly correlated with social circumstances (especially the degree of urbanization) in the population of heads. This finding is consistent with major results of the non-parametric estimation of Rawlsian inequity in that DP is found to be more important than FEO (Table 3). However, the impact of FEO on overall inequity is found to be increasing in the last waves. In this sense, it may be interesting to investigate the major determinants behind the increasing disparities originating from different social circumstances.


REPLY TO POINT 7

To the extent that existing differences among individuals are said to be not relevant in some economic sense, an egalitarian distribution is equitable. Clearly, this is a choice on its own. However, departures from outcome egalitarianism require definitely more value judgments concerning, among all, the identification of economically relevant differences among individuals, the definition of circumstances, the identification of responsible choices, and so on…



Thanks once more for reading my paper so carefully and for giving me the chance to improve my research on this topic.

Best regards,
Antonio