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Working paper 714

Gordon John Anderson, "Measuring “Good” and “Bad” Inequality: A Cautionary Tale.", 2021-12-20
Main Text (application/pdf) (291,395 bytes)

Abstract: While income inequality is generally thought to have a deleterious effect on societal wellbeing, some inequality, necessary for optimal resource allocation, is beneficial. Inequality as usually measured is an amalgam of both, but from both policy and well-being measurement perspectives, distinguishing between beneficial and less beneficial inequality typologies makes sense. Here the distinction is explored in considering the progress of personal incomes in 21st Century Canada. Using standard inequality measures, techniques for identifying and measuring “Good” and “Bad” inequality are proposed and applied in analysing Human Resource, Gender and Immigrant status-based income differences. Analysis categorising Human Resource-based differences as efficiency promoting “Good” inequalities and Gender and Immigrant status-based differences as discriminatory and “Bad” inequalities, reveals that under all proposed measures, whilst Overall and “Good” inequalities grew over the sample period, “Bad” inequality components diminished, emphasising the point that inequality measures need to be fit for purpose lest they be misleading.

Keywords: Inequality Measurement

JEL Classification: C10, D31, D63