Tyler Cowen's NYT column today is a must read.
In general, there is more income inequality among older populations than among younger populations, if only because older people have had more time to experience rising or falling fortunes.
Furthermore, more-educated groups show greater income inequality than less-educated groups. Uneducated people are more likely to be clustered in a tight range of relatively low incomes. But the educated will include a greater range of highly motivated breadwinners and relaxed bohemians, and a greater range of winning and losing investors. A result is a greater variety of incomes. Since the United States is growing older and also more educated, income inequality will naturally rise.
Thomas Lemieux, professor of economics at the University of British Columbia, estimates that these demographic effects account for about three-quarters of the observed rise in income inequality for men and 69 to 95 percent of the observed rise in income inequality for women...
Reading the whole piece, I imagine that it will spoil breakfast for a lot of
New York Times readers. And columnists.
p.s. see also Tyler's post on the use of consumption data to measure inequality.
"Even if more money makes people happier, it appears to do so at a declining rate, which places a natural check on the inequality of happiness."
Here he makes the case *for* income re-distribution. If the marginal utility of an additional dollar is declining, then to optimize utility (or happiness as the author puts it), take the less utilized dollar from a high income earner and give it to a more utilized lower income earner.
Free time is the key. If I have a high income because I'm busting my ass working two jobs, or consulting 100 hours a wekk at McKinsey, how am I better off that they guy working at Wal-mart for 40 hours?