Economic Inequality in the United States

By Lars Osberg | Go to book overview

6

OF CHANCE AND ABILITY

6.1 Introduction

The next five chapters emphasize alternative theories of the distribution and determination of labor earnings—but not all theories can explain both. Indeed, some theories owe their continuing appeal almost solely to their ability to "explain" the one rather than the other. For example, "chance" may be able to explain the shape of the aggregate distribution of incomes, but at the cost of a highly unrealistic discussion of the determination of individual income. Section 6.2 discusses stochastic process models, their explanation of the distribution of income, and their nonexplanation of individual incomes. Genetically inherited ability is a different sort of explanation of the distribution of earnings and of the determination of individual rewards, one which has aroused a long history of passionate debates. Section 6.3 discusses the "nature versus nurture" controversy while section 6.4 offers a conclusion and summary. Chapter 7 discusses the roles of race and sex in earnings inequality, Chapter 8 outlines the neoclassical position, with its emphasis on the choices individuals make, and Chapter 9 presents the "institutional" and "radical" perspectives, with their emphasis on the constraints individuals face.


6.2 Inequality—A Matter of Chance?

One of the recurring regularities of aggregate income distribution statistics is that they reveal a distribution that is, approximately, often "lognormal"—that is, if in Figure 2.2 we had graphed the logarithm of income along the horizontal axis we would have observed a curve which almost fits the familiar "bell" curve of statistics textbooks. 1 The lognormal distribution, as it turns out, has some interesting mathematical properties. In particular, if income is determined entirely by chance, in the sense that one's income this year is a random fraction of one's income from last year, 2 it can be shown that the distribution of income will be, in

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