How Individual Actions Affect Economic Inequality

Thinking micro about a problem that’s macro

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Writing last year, the New York University sociologist Guillermina Jasso used two words to describe economic inequality in America: “high” and “increasing.”

The most common proposals for turning those descriptors around are big-picture government policies—things like hiking the minimum wage or raising tax rates for the highest earners. But in a paper last year, Jasso, who has been publishing academic work on inequality for four decades, sought a scientific answer to the question of what individuals living in unequal societies can do to mitigate the problem themselves (aside from voting for politicians with similar intentions).

Jasso’s method was to think through what kinds of concrete actions would reduce inequality as it’s measured by various mathematical formulas. As such, she doesn’t make recommendations like Move into a neighborhood that’s not segregated or Don’t send your kid to private school, but rather proposes some basic principles for assessing how one’s actions might, however marginally, affect the inequality of a given society.

I recently spoke with Jasso about the individual-level actions she outlines—as well as, more generally, the usefulness of approaching a systemic problem on an individual level. The conversation that follows has been edited and condensed.

Joe Pinsker: Can you walk through one of the strategies that you describe in the paper?

Guillermina Jasso: Let’s talk about the principle of transfers. In a nutshell, this says, if a transfer occurs from one individual to a relatively poorer individual, inequality declines. This is well known, and there are lots of mathematical equations that show it.

Suppose that the richest person in a given distribution transfers a certain amount that will preserve their ranking [as richest], but that will make the poorest person or persons better off—inequality decreases.

Pinsker: To make this a little more concrete, is the recommendation here to donate to charity?

Jasso: That is a very good question. One of the things I go into in the paper is that sometimes there are long chains of transfers, and it can be very difficult to see who is becoming better off and who is becoming worse off as a result of certain spending. What is the final effect of all of these long chains of transfers? What is the final effect on inequality?

So for example, if I buy a best-selling book by a best-selling author, what is the final net effect on inequality? I do not know. There are so many, many little links in this chain. The people who make the paper, who make the ink, who make the binding, the booksellers, et cetera.

Pinsker: What’s another approach you bring up in the paper?

Jasso: Another is assortative mating—this, to my knowledge, was first described by Plato. If rich marry rich and poor marry poor, inequality will either stay the same or increase. But if rich marry poor, inequality will decrease. So, he says, this is what people ought to do.

Now, this mechanism of inequality is well known among scholars, and it can be expressed mathematically. But there’s a really serious side effect: The economic disparity between the two spouses increases.

Pinsker: The concern being, if two spouses come from really different economic backgrounds, their marriage might be less harmonious?

Jasso: We need much, much further research. Maybe one way that this can work is if the rich marrying poor are not really from the extremes—say, if someone from the 60th percentile of wealth marries someone from the 40th percentile. Then the side effect is less extreme than if it’s someone from the 99th percentile marrying someone from the first percentile.

Pinsker: I’m trying to think about what could be done with this knowledge. It would be bizarre to command people to seek out partners who have less money than them. Is the idea instead for people to consider the pools of potential spouses that they surround themselves with, and try to put themselves into situations where there’s more economic diversity?

Jasso: Yes, that’s a wonderful strategy. Now, we already have lots of opportunities for that. Many people play sports, for example. People go to church, they sing in the choir. Obviously, the more opportunities, the better.

Pinsker: Can you talk through one more strategy?

Jasso: There is also the principle of equal additions. Basically, if you give each person or household an equal amount—a little bonus, say a thousand dollars for each person—inequality declines. This is very easy to show mathematically. Conversely, if you tax each person an equal amount, inequality increases.

This is similar to the idea that’s been discussed a lot by taxation experts, of having a universal basic income. If you give everyone $10,000 a year, it reduces inequality—and to prove that, you don’t need any specific information about how much money people already have. But you do need some special fund, a surplus to distribute.

For example, I’ve had administrators in some organizations say to me, “I once had an opportunity like this. It was small, but I took the equal route.” And the December paychecks had this extra equal amount for everybody. So this is another potential mechanism: Managers could give equal bonuses to their employees when they have the money to.

Pinsker: As I’m hearing you talk about these “levers” for reducing inequality, I can’t help but think that, in a lot of ways, American society is pulling on all of them—it’s just pulling on them in the opposite direction of what you’re suggesting. If you take equal additions and then think about how windfalls are distributed by corporations, it’s not equal: A standard approach is to issue dividends to shareholders, who tend to be wealthy relative to the rest of the population. And if you think about romantic relationships, affluent people are often partnering up with other affluent people, because that’s who’s in their peer group.

Jasso: I think that’s a very insightful point. There’s this marvelous effort called the World Inequality Lab, pioneered by Thomas Piketty, Emmanuel Saez, and the late Anthony Atkinson. In their first report a year ago, they had detailed analyses for lots and lots of countries, plus suggestions such as the idea of having a database showing who owns financial assets around the world, or making massive investments in schooling and health.

So there’s already a lot of thought about potential interventions. My paper wasn’t about what government can do, but what you and I can do. If we have more researchers thinking about how these individual mechanisms operate across the whole economy, then these become powerful tools that people can use or not use as they see fit.

Pinsker: To what extent is inequality a problem that can be addressed by individuals’ behaviors as opposed to something bigger, like policy?

Jasso: I think the answer is, any time you fight a war, fight it on all fronts. So in this case, the front includes both the macro set of things and the things that individual people can do. There’s a lot we do not yet know about these levers. It’s possible that there may be contexts or sets of situations in which individual action is quite important, and others where the macro ones dominate. So my bottom-line answer is, attack on all fronts, and do more research to understand all of the dynamics at play.