To What Extent Do Circumstances Beyond People's Control Determine Income Inequality?

Awarded Scholars:
Andreas Peichl, University of Mannheim, Germany
Project Date:
Nov 2015
Award Amount:
Project Programs:
Social, Political, and Economic Inequality

The outcomes that individuals enjoy (such as income) are seen by some as consequences of both circumstances and effort. Circumstances are those characteristics of a person and his/her environment that are beyond his/her control—mainly, characteristics of the family in which the person was raised. Effort comprises those choices for which society believes a person should be held responsible. Equality of opportunity is said to hold when the chances that individuals have for achieving the outcome in question are independent of their circumstances, and sensitive only to their effort.

While there is a large theoretical and empirical literature in economics on inequality of opportunity, it ignores some important circumstances that play a causal role in income determination. That is, the effects of these circumstances appear statistically as effort, because effort is often measured as the residual cause of income variation after explicit circumstances have been accounted for. Economists John Roemer and Andreas Peichl will address this gap. They believe that before an "age of consent" is reached, children should not be held responsible for any of their choices, as far as these choices affect later income acquisition. They will measure the achievements of children—both cognitive and non-cognitive—and consider them to be circumstances with regard to income acquisition later in life. In particular, they will include the years of education a person has received as a circumstance with regard to the later determination of his/her income. They will also investigate whether different age cut-offs lead to different results.


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