Linking Input Inequality and Outcome Inequality

Abstract

Inequality often appears in linked pairs of variables. Examples include schooling and income, income and consumption, and wealth and happiness. Consider the famous words of Veblen: “wealth confers honor.” Understanding inequality requires understanding input inequality, outcome inequality, and the relation between the two—in both inequality between persons and inequality between subgroups. This article contributes to the methodological toolkit for studying inequality by developing a framework that makes explicit both input inequality and outcome inequality and by addressing three main associated questions: (1) How do the mechanisms for generating and altering inequality differ across inputs and outcomes? (2) Which have more inequality—inputs or outcomes? (3) Under what conditions, and by what mechanisms, does input inequality affect outcome inequality? Results include the following: First, under specified conditions, distinctive mechanisms govern inequality in inputs and inequality in outcomes. Second, input inequality and outcome inequality can be the same or different; if different, whether inequality is greater among inputs or outcomes depends on the configuration of outcome function, types of inputs, distributional form of and inequality in cardinal inputs, and number of and associations among inputs. Third, the link between input inequality and outcome inequality is multiform; it can be nonexistent, linear, or nonlinear, and if nonlinear, it can be concave or convex. More deeply, this work signals the formidable empirical challenges in studying inequality, but also the fast growing toolbox. For example, even if the outcome distribution is difficult to derive, fundamental theorems on the variance make it possible to analyze the input–outcome inequality connection. Similarly, within specified distributions, the general inequality parameter makes it possible to express results in terms of both measures of overall inequality and measures of subgroup inequality.