The individual (mis-)perception of wage inequality: measurement, correlates and implications
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The individual (mis-)perception of wage inequality: measurement, correlates and implications Andreas Kuhn1 Received: 25 September 2018 / Accepted: 24 June 2019 © Springer-Verlag GmbH Germany, part of Springer Nature 2019
Abstract This paper presents a simple conceptual framework specifically tailored to measure individual perceptions of wage inequality. Using internationally comparable survey data, the empirical part of the paper documents that there is huge variation in inequality perceptions both across and within countries as well as survey-years. Focusing on the association between aggregate-level inequality measures and individuals’ subjective perception of wage inequality, it turns out that there are both a high correlation between the two measures and a considerable amount of misperception of the prevailing level of inequality. The final part of the analysis shows that subjective inequality perceptions appear to be more important, in a statistical sense, in explaining variation in individual-level attitudes toward social inequality than objective measures of inequality. This underlines the conceptual and practical importance of distinguishing between subjective perceptions of inequality and the true level of inequality. Keywords Inequality perceptions · Inequality · (Mis-)perceptions of socioeconomic phenomena · Attitudes toward social inequality JEL Classification D31 · D63 · J31
I thank two anonymous referees for many thoughtful and constructive comments and Sally Gschwend-Fisher for proofreading the manuscript. Electronic supplementary material The online version of this article (https://doi.org/10.1007/s00181019-01722-4) contains supplementary material, which is available to authorized users.
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Andreas Kuhn [email protected] Swiss Federal Institute for Vocational Education and Training, University of Bern and IZA, Kirchlindachstrasse 79, 3052 Zollikofen, Switzerland
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A. Kuhn
1 Introduction In a wide variety of contexts, individuals’ subjective perception of socioeconomic phenomena might differ substantively from the “true” state—or, rather, the corresponding scientific representation—of the given object of interest.1 From an economic point of view, probably one of the most interesting, and certainly one of the most relevant examples where reality and individuals’ subjective perceptions may diverge from each other is the distribution of economic resources because a high level of inequality is expected to feed back into the political sphere by influencing individuals’ attitudes toward social inequality, such as their beliefs about the determinants of individual pay. Individuals’ attitudes toward social inequality, in turn, likely influence their attitudes toward marginal tax rates and other policy parameters which are ultimately crucial in determining the effective amount of (re-)distribution of economic resources (e.g., Alesina and Angeletos 2005; Bénabou and Tirole 2006).2 However, given the computational complexity and the large amount of information necessarily involved in obtain
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