SO4D6      Half Unit
The Economics of Inequality for Non-Economists

This information is for the 2025/26 session.

Course Convenor

Availability

Requisites

Recommended pre-requisites:

Although these are not required, some elementary statistical notions and basic mathematics will help students with some of the readings.

The distribution of economic resources has been central to political economy – and then to Economics and other social sciences – since the classics in the late Eighteenth Century. The global financial crisis of 2008 sparked renewed interest, both in the public discourse and in the scholarly debate across multiple disciplines. Yet, while the broad and multifaceted nature of inequality calls for interdisciplinary conversations, each discipline approaches it with its own vocabulary, theoretical baggage, methodology, and epistemology. This course aims to provide a comprehensive (but largely non-technical) introduction to the main concepts, theories, and empirics in the economic analysis of inequality, tailored for delivery to graduate students who are not themselves enrolled in a graduate economics programme.

The course begins with the core definitions of income, consumption, wealth and well-being, and of concepts such as poverty, inequality, and social welfare. Different sources of data and various measurement techniques are described, before introducing the analysis of changes in inequality and poverty, and their proximate determinants. The course then reviews the main economic theories of earnings determination, wealth accumulation, and intergenerational transmission. These lead naturally to a discussion of the causes of inequality, both proximate and structural. We then review theoretical models and empirical assessments of the consequences of inequality for the economy, society, and polity, before discussing the role of policies and institutions and the nature of the efficiency-equity trade-off.

The course is organized into the following ten lectures:

1. Inequality of what? What are income, consumption, and wealth, and how do they relate to one another? What are the different ways in which each is computed and assessed, and how do different data sources – such as household surveys and tax records – report them? How to these concepts relate to ’social objectives’, such as well-being, capabilities, and opportunity?
    
2. Describing the distribution and measuring inequality, poverty and welfare: What is the income distribution and its density function? How can they be represented and described? What is the Lorenz Curve and why is it central to the measurement of inequality? How should we go about defining and choosing an appropriate scalar index of inequality?  How does it differ from poverty, both absolute and relative?
    
3. Understanding changes in inequality: How can some measures of inequality rise while others fall? How do those changes relate to the incidence of economic growth? Can changes in inequality reflect changes within and between different population subgroups, including by race and gender? Can they reflect changes in the composition and distribution of different income sources, such as capital versus labour incomes? Can we gain insights by understanding the different roles of people’s characteristics (like their educational levels), vis-à-vis market returns?
    
4. Theories of earnings determination: This section will review different models / views of how wages are determined, including neoclassical wage determination; imperfect labour markets and search theory. Issues such as market power; wage markdowns; collective bargaining and minimum wages are discussed.
    
5. Longer-term determinants: interactions between wealth, power and institutions. The economy does not exist in a vacuum, and the distributions of income and wealth interact with the distribution of political power, the development of institutions, and the choice of economic policies.  This section will review some of the influential work on these topics in modern political economy from the last thirty years or so, including a Latin American – US comparison as an example.
    
6. Consequences of inequality: Does inequality affect how people feel? Are there innate preferences for fairness? Is fairness the same as equality? Are there instrumental, as well as intrinsic, reasons why there may be too much inequality? Can high inequality hinder poverty reduction, or even future economic growth? What is the efficiency – equity trade-off, and does it always hold?
    
7. Economic mobility: How are incomes and wealth – and therefore their distributions – linked across generations?  What are some of the key concepts of intergenerational mobility and what does each of them really mean? How does the measurement of mobility differ depending on (i) the concept of mobility we are interested in, and (ii) the kinds of data that are available? How do levels of mobility vary around the world?
    
8. Inequality of opportunity and inherited inequality: What is inequality of opportunity? How can it be measured, and why does it matter?  How does it relate to intergenerational mobility on the one hand, and to normative theories of fairness on the other? What implications, if any, does it have for a society’s aims and objectives? How does it relate to income inequality and how does it vary around the world?
    
9. Policy considerations (I): What is the role of State, and should it be concerned with inequality? How can different kinds of public policy – ranging from taxation and the provision of public goods to labour and capital market regulations – affect both economic efficiency and equity? Is there an equity-efficiency trade-off and is it universal? What roles do social protection and ‘welfare state’ policies play in reducing inequality, both in developing and developed countries? At what cost?
    
10. Policy considerations (II): Public investments in human capital, often referred to as ‘pre-distribution’ policies, are widespread in both poor and rich countries. Many examples have also been rigorously evaluated. What are some key examples, how do they work, and how effective are they?  Why do some investments in education seem to work well, while others appear to have no effect? Why are some cash transfers unconditional, while others are conditioned on recipient behaviours?

10 hours of lectures and 10 hours of seminars in the Winter Term.

This course has a reading week in Week 6 of Winter Term.

Presentation

This component of assessment includes an element of group work.

In-class group presentation during Weeks 3-7 of WT.

Sen, A.K. (2000): “Social Justice and Distribution of Income”, Chapter 1 in A. Atkinson and F. Bourguignon (eds) Handbook of Income Distribution, Volume 1. Amsterdam: North-Holland.

Chetty, R., N. Hendren, P. Kline, and E. Saez (2014): “Where is the Land of Opportunity? The geography of intergenerational mobility in the United States”. Quarterly Journal of Economics 129 (4): 1553-1623.

Corak, Miles (2013) “Income inequality, equality of opportunity, and intergenerational mobility”. Journal of Economic Perspectives 27 (3): 79-102.

Cowell, F. (2000): “Measurement of Inequality”, Chapter 2 in A. Atkinson and F. Bourguignon (eds) Handbook of Income Distribution, Volume 1. Amsterdam: North-Holland.

Engerman, S. and K. Sokoloff (2002): “Factor endowments, inequality, and paths of development among New World economies”. Economia 3 (1): 41-88.

Jantti, M. and S. Jenkins (2014): “Income Mobility”, Chapter 10 in A. Atkinson and F. Bourguignon (eds) Handbook of Income Distribution, Volume 2A. Amsterdam: North-Holland.

Kremer, Michael, Conner Brannen, and Rachel Glennerster (2013): ‘‘The Challenge of Education and Learning in the Developing World,’’ Science, 340: 297– 300

Marrero, Gustavo and Juan G. Rodriguez (2013): “Inequality of Opportunity and Growth”. Journal of Development Economics 104: 107-122

Piketty, Thomas and Emmanuel Saez (2003): “Income inequality in the United States, 1913-1998”, Quarterly Journal of Economics, 118 (1): 1-41.

Roemer, J. and A. Trannoy (2016): “Equality of Opportunity: Theory and Measurement”. Journal of Economic Literature 54 (4): 1288-1332.

World Bank (2005): Equity and Development: World Development Report 2006, Chapters 4 and 5.

Exam (80%), duration: 120 Minutes in the Spring exam period

Presentation (20%)

This component of assessment includes an element of group work.

In-class presentation in weeks 7-11 in WT. Students will select a reading from the reading list corresponding to the preceding week’s lecture, and present it to the rest of the class, either in pairs or in groups of three.

End-of-course examination in the Spring exam period. This will be a two-hour, in-person sit-down exam consisting of three questions, equally weighted.