Academic journal article The Journal of Social, Political, and Economic Studies

How Does Racial Diversity Raise Income Inequality

Academic journal article The Journal of Social, Political, and Economic Studies

How Does Racial Diversity Raise Income Inequality

Article excerpt

In international comparisons, a high level of racial diversity is associated with a high level of income inequality. One hypothesis proposes that racial diversity leads to increased variance in intellectual ability, which leads to increased income inequality presumably through the action of market forces. A second hypothesis proposes that racially diverse societies are more unequal because they have less social solidarity and less redistribution of wealth from the rich to the poor. The present study investigates the first hypothesis with the results of international school assessment programs (TIMSS and PISA). High racial diversity is found to be related to a greater ability spread on these assessments, but ability variance is not independently related to the Gini index. The second hypothesis is tested with a measure of "big government" that is derived from the economic freedom indices of the Fraser Institute and the Heritage Foundation. Big government is negatively related to both racial diversity and the Gini index.

Key Words: Gini index; Income inequality; Racial diversity; Intelligence; Big government; TIMSS; PISA.

Interest in the determinants of income inequality, most commonly measured as the Gini index, has been sparked by a trend towards greater inequality in most of the advanced economies since about 1970 (Alderson and Nielsen, 2002; Atkinson, 2004). The reasons for this trend are still unknown. One possibility is that rising income inequality might be related to the rising cultural or racial heterogeneity of many national populations.

A recent cross-sectional study did indeed point to population diversity as a determinant of the Gini index Using novel measures of ethnic, religious and racial diversity, it found that high racial diversity, but not high ethnic or religious diversity, is a robust predictor of a high Gini index (Meisenberg, 2007). The effect is approximately linear at low-to-medium levels of racial diversity, but there is no significant relationship in comparisons of countries at high to very high levels of racial diversity. For example, within the category "Latin America + Caribbean", which has the worldwide highest levels of racial diversity (Table 1), the correlation of racial diversity with the Gini index is slightly and non-significantly negative (r = -.247 when racial distances are defined by genetic distances, N = 23).

The empiric relationship between racial diversity and income inequality is no great surprise. Of the major world regions, racially diverse Latin America has the highest level of income inequality, and income inequality is higher in the United States than in the more homogeneous European and East Asian countries. If racial diversity favors income inequality, and if advanced postindustrial nations are becoming more diverse in the wake of replacement migration (Coleman, 2002), we can predict a continuing trend towards greater income inequality. But which are the causal paths that lead from racial diversity to income inequality? Two alternative but not mutually exclusive hypotheses are tested in the following study.

The first hypothesis proposes that racial diversity raises the Gini index because different racial groups tend to differ in their intellectual abilities and achievements even when they live in the same country (Lynn, 2006). Such differences are not unique to racial groups, but are commonly observed between cultural, national, linguistic and religious groups of the same racial background living in the same country (Lynn & Longley, 2006; Verster & Prinsloo, 1988). Nevertheless, ability differences between racial groups tend to be larger and more persistent than those between cultural, linguistic, religious and national groups. If races differ in intellectual ability, then racial diversity is expected to widen the range of ability levels in the country. Mental ability measured in childhood or adolescence predicts adult earnings at the level of individuals (Deary et al. …

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