Introduction
The academic literature on inequality, including its causes (Gornick & Jäntti, 2014), consequences (Blank, 2011; Chauvel & Schröder, 2015; Clark et al., 2008; Hertel-Fernandez, 2019; Pickett & Wilksinson, 2015; Stiglitz, 2012; Western, 2006) and measurement innovations (Atkinson, 2015), is rapidly expanding. New works are multidisciplinary - often borrowing concepts from philosophy (Brunori & Neidhöfer, 2021), sociology (Corak, 2004; Corak, 2013) and other disciplines (Krieger, 2016). However, despite the abundance of new empirical work on various aspects of inequality, there is often a disregard for the careful usage of concepts according to the contexts of the debates of their own disciplines. This necessitates a step back and a careful reassessment of the main debates and history of ideas on inequality.
This study provides a review of developments in the literature from political philosophers and economists by examining the historical evolution of perspectives on economic inequality and distributive justice. It serves as a starting point for students and new learners of socioeconomic inequality from an interdisciplinary perspective. In addition, it also focuses on the causes of inequality, which has been a major part of how economists have approached economic inequality.
This review emphasizes that distributive justice and inequality are separate concepts with separate discussions. Political philosophers debate distributive justice along multiple axes, including utilitarian and egalitarian perspectives, as well as theories of ex ante inequality of opportunity and capabilities. Other key points of disagreement include the grounds for distribution and the distributive principle between theorists of distributive justice and libertarians. In contrast, economists focus on issues such as measurement, the existence of an efficiency/inequality trade-off, the endogeneity of inequality, and the main causes of it.
While political philosophers like Rawls have influenced economics, and economist-philosophers like Sen and Roemer have effectively bridged the divide between the two disciplines, there is limited communication between them. Economic theories tend to be utilitarian and positive (as opposed to normative), while political philosophy theories are mostly normative and concerned with fairness.
This review is organized as follows. The first section presents the evolution of the debate on distributive inequality from the perspective of political philosophy. The subsequent section introduces the debate on economic inequality from the perspective of economists. The final section discusses the results and provides a conclusion.
Political philosophers on equality (distributive justice)
Distributive justice has been a major topic in political philosophy since Plato, with earlier works by Aristotle, John Locke, Jeremy Bentham, and Karl Marx all referring to it throughout time. While Rawls’ (1971) work is certainly the most influential in this literature, distributive justice has continued to be a significant topic ever since, generating a lively debate and a large number of publications from the last third of the 20th century and ongoing. Modern political philosophers have picked up where their antecedents left off, drawing influences that are hard to trace exactly. Table 1 presents a comprehensive overview of the main theories of inequality of political philosophy.
Table 1. Summary of theories of inequality (distributive justice).
| No. | Theories of
Inequality/
Distributive
Justice | Authors | School of Thought | Main Thesis | Connection to Other Theories
/Critique |
|---|
| 1 | Utilitarianism | Bentham, Mill and
Sidgwick (18–19th
century) | Utilitarian | the greatest happiness for the
greatest number | by Roemer (1998a): individual
utility is a measure of pleasure
–subjective; by Dworkin: welfare -
pleasure and avoidance of pain
(p.193) |
| 2 | Theory of
Justice as
Fairness | John Rawls (1971) | Egalitarianism/
Liberalism | rejects welfare as a metric
of justice, and proposes two
principles to ensure the greatest
possible amount of liberty and
equality for society. | Criticizes utilitarianism on the
principle of universal liberty and
moral pluralism |
| 3 | Equality of
resources | (Dworkin (1981a);
Dworkin (1981b)) | Resource
Egalitarianism | introducing the issue of
responsibility as well as the duality
of resources and welfare | Conflicting with welfarism, builds
up on Rawls |
| 4 | Justice and
equality | (Cohen (1989);
Cohen (2008)) | Egalitarianism/
Liberalism | Justice requires equality. The ideal
society should be characterized
by communal reciprocity.
Although equality is a baseline,
self-interest can be pursued to a
reasonable extent, and freedom
of occupational choice can be
pursued. | Criticizes Rawls: the difference
principle permits inequalities
that reflect the relative scarcity
of different skills and natural
abilities; individuals should
cultivate an egalitarian ethos
instead (Moon, 2015) |
| 5 | Capabilities
Approach | Sen (1992) | Sociological (roots
in Egalitarianism,
Marxism, Adam
Smith and Aristotle) | Basic capability – a set of
functionings needed for a
sufficiently decent life. | Criticism by Roemer (1998a): the
connection between primary
goods and the achievement of
life plans that produce happiness
is not always due to capabilities.
Criticism by Bourguignon (2017):
capabilities are a normative
concept to define poverty, rather
than inequality |
| 6 | Horizontal
Inequalities | Stewart (2009) | Sociological
Approach (related
to Sen’s Capabilities
Approach) | capability inequality trap (as
well as their transmissibility
throughout generations) as well
as capital inequality trap, which
includes interactions among
different types of capital (human,
cultural, social, and physical). | Focused on poverty and conflict |
| 7 | Equality of
Opportunity | (Roemer (1998a);
Roemer (1998b)) | Deeply rooted in
egalitarianism | Five elements: circumstance
(similar to Dworkin (1981a),
a person is not being held
responsible), type, effort (the
person is being held responsible),
objective and policy. | Opposite to the Inequality of
Outcome and ex post theories of
inequality |
| 8 | Theory of
distributive
justice | Nozick (1974) | Right-libertarianism | Related to the notion of
entitlement, justice in the sense of
equal property rights | Builds up on Rawls (1971), adds
up Lockean arguments on
minimal involvement of the state |
Utilitarianism
Utilitarianism, represented by 19th-century philosophers such as John Stuart Mill, Henry Sidgwick, and Jeremy Bentham, is one philosophical idea that relates to economic inequality. While paraphrasing Bentham’s (1996) definition of utility in the late 17th (edited in the early 18th century), it is a property of something to produce benefit, advantage, pleasure, good, or happiness, or to prevent losses for the happiness of a community (or an individual) (p.6). Following the logic of the greatest happiness for the greatest number, utilitarianism focuses on maximizing utility rather than equality. Happiness or utility can be quantified using the arithmetical difference between those who are better off and those who are worse off. As a result of the calculations, an average amount of happiness of the whole population is computed (average utilitarianism). Alternatively, the total amount of happiness of a particular population is the sum of the individual happiness of each member (total utilitarianism).
Evidently, utilitarian theory raises multiple questions of moral ground. The criticism over the utility calculus (Adams, 1976), the debate whether happiness of the worse off should be maximized (or struggles minimized) (Popper, 1945), and whether actions should be chosen based on their likely results are all important pieces of ethical theory (Brandt & Hooker, 1994).
Egalitarianism
The main criticism of utilitarianism comes on two questions. First, some people might have expensive tastes or a different sense of happiness, depending on circumstances or personal preferences. Second, the problem of comparability persists. Since a common ground for comparison of happiness between individuals, groups, or societies is hard to find, how do you compare inequality between populations? As a result, a separate group of philosophers- egalitarians (Rawls, Dworkin, Roemer, and others) emerged opposing the simplified definition by the utilitarians. For them, maximization of happiness as a direct redistribution of the greatest happiness for the greatest number of people without any conditions simply does not work.
John Rawls was among the first to question whether distributional equality might not require deviations from an equal base when this is in the interest of the worst-off group. In A Theory of Justice (1971), he summarizes his thesis on inequality in the two principles below.
“First: Each person has an equal right to the most extensive total system of equal basic liberties compatible with a similar system of liberty for all.
Second: Social and economic inequalities must be arranged so that they are both: (a) to the greatest benefit of the least advantaged, consistent with the principle of just savings, and (b) attached to offices and positions open to all under conditions of fair equality of opportunity. ' (p.53).
The first principle requires that citizens enjoy equal basic liberties, while the first part of the second principle requires fair equality of opportunity. The Difference Principle is the second part of the second principle of John Rawls's theory of justice, which holds that inequalities in the distribution of these goods are permissible only if they benefit the least well-off positions of society.
In Rawls’ theoretical framework, inequality is tied to the principles of universal liberty. He presents his theory as 'justice as fairness' and considers certain primary social goods that a person is entitled to for a fair existence, regardless of its conception of the good. However, one challenge for Rawls’ view is how to compare the situations of people who are unequal in different primary goods. To address this issue, Rawls measures the social welfare of society based on the welfare of the least well-off individual member of society, appealing to moral pluralism rather than welfarism1.
Dworkin (1981a) contends that individuals should be compensated only for circumstances beyond their control. While criticizing Rawls heavily, he incorporates responsibility into distributive justice theory and introduces the concept of equality of resources. Dworkin’s view on distributive justice ultimately concerns 'hypothetical insurance' a means of compensating people who suffer misfortune in the distribution of internal resources such as disability, ill health or lack of marketable skills (Clayton, 2015). He believes that ex ante equality may be achievable through limited redistributive compensation for those who are less fortunate. In the view of Dworkin, the equality of resources does not necessarily refer to physical commodities, but rather to the instruments that people use to achieve success or achieve life goals. He envisions equal treatment of individuals in two dimensions: resources and welfare, with the former representing his true meaning of distributive justice.
Cohen (2008) critiques Rawls’ difference principle at its core, claiming that it is insufficiently egalitarian. He criticizes Rawls’ account of justice for permitting a relative scarcity of different skills and natural abilities (a topic that Smith, Ferguson, Marx, and Durkheim). Cohen (1989) provides a political justification for his view that equality must not only be established through institutional design but also be an imperative for individuals. Unlike Rawls, who allows incentives to encourage individuals to use their talents for mutual benefit, Cohen criticizes incentives. Instead of viewing the ‘basic structure’ as the main subject of justice, he argues that individual citizens should cultivate an egalitarian ethos (Moon, 2015), allowing a just society to eliminate incentive payments as a means to encourage individuals to apply their talents in socially beneficial ways.
A fundamental difference between Rawls' and Cohen's views on justice lies in their respective conceptions of what justice is. Rawls defends the concept of justice as fairness and believes that justice cannot be derived through utilitarianism. In contrast, Cohen argues against the Rawlsian version of a just society in his book "Rescuing Justice and Equality" (2008), demonstrating that distributive justice does not tolerate deep inequality. Cohen charges Rawls' constructivism with systematically conflating the concept of justice with other concepts, focusing on the lack of justification 'based on facts about our condition'. For Cohen, if principles respond to facts, then principles at the summit of our conviction are grounded in no facts whatsoever (Cohen, 2008, p.229). He criticizes Rawls’ constructivism and his use of the original position to determine the nature of justice, stating that it mistakenly identifies fundamental principles of justice with optimal rules for social regulation (Cohen, 2008, p.337). For Cohen, separating justice from facts such as publicity considerations and rules formation desiderata brings it closer to equality (Moon, 2015).
Capabilities approach
Amartya Sen’s (1992) capability approach participates in the theoretical discussion of the concept of inequality by focusing on the difference in 'functionings' between people. The main argument of the approach is that poverty should not be measured solely by income distribution in lower percentiles but rather by a level of deprivation in various functionings such as literacy, good health, and political participation. Sen illustrates his argument with a simple example showing the difference between someone on a hunger strike and a starving person. By the end of the day, both have neither eaten nor earned wages. The main difference between the two is that a hunger striker has the ability to return to work and has a place to stay, while a starving person is deprived of these capabilities. Therefore, in Sen’s reasoning, the starving person does not have the same functionings as someone on a hunger strike. In Sen’s framework, capabilities refer to a set of functionings available to people. His concept of fair justice is when such capabilities are equalized at their highest possible level over all economic regimes so that functionings are freely available for all people.
While Amartya Sen’s (1992) capability approach is insightful and innovative in its focus on the initial conditions that determine poverty for individuals or groups, it is not directly related to economic inequality. Rather, it is related to poverty, which is often associated with those in the lower part of the income or wealth distribution. However, larger inequality does not necessarily mean higher poverty, and vice versa. Poverty can be thought of as an inequality measure focused on the bottom of the distribution, but there is no 'spontaneous, general, and unidirectional relationship between growth, inequality, and poverty' (Atkinson & Bourguignon, 2001). It is important to note that Sen’s view can be seen as one more view on what should be distributed - namely capabilities - alongside other egalitarian views such as Rawls’ Difference Principle and Dworkin's ex ante equality, which focus on distributing primary goods resources or ‘advantage’.
A modern take on capabilities presents horizontal inequality as a concept describing inequality among groups of individuals over a range of capabilities, rather than among individuals (vertical inequality) (Stewart, 2009). While building up on the social capital concept of Putnam (1993); Putnam (2000a), horizontal inequalities is defined as the one among culturally determined groups that have salience for their members and/or others in society, among races, ethnic groups, religions, regions, and so on. In Stewart's version (2009), Sen's capabilities are related to the participation of individuals, rather than to power. In addition, two main poverty traps are introduced: the capability inequality trap (as well as their transmissibility throughout generations) as well as capital inequality trap, which includes interactions among different types of capital (human, cultural, social, and physical). In addition, Stewart points there is a high rate of interaction between the two, but both lead to different asymmetries: in social capital, in attitudes (or cultural capital), discrimination as well as political powerlessness, each having long-term effects and intergenerational consequences. Overall, Stewart's arguments represent a legitimate and rigorous framework for alternative analysis of socioeconomic inequalities.
However, the main problem with the approach is the fact that the approach is focused on finding the link to poverty and conflict, rather than the consequences of inequality. The lines between the divisions of different groups are arbitrary, with some more salient than others.
Equality of opportunity
Roemer (1998a) proposes a new theory of equality of opportunity. Roemer (p.302, 1993; p.5, 1998a) suggests five categories to be considered in his theory: circumstance (similar to Dworkin, where a person is not held responsible), type, effort (where the person is held responsible), objective, and policy. Leveling the playing field for him means guaranteeing that those who apply equal degrees of effort towards their own objectives end up with equal achievement, regardless of their circumstances. Inequality of opportunity is essentially an ex ante concept concerned with an equal starting point, whereas much redistribution is related to ex post outcomes (Atkinson, 2015). However, Roemer does not consider the dynamics of inequalities after the opportunities have been equalized. Educational achievement, wealth, employment status, income, utility, or welfare are all various outcomes of inequality but all seem to be dynamic concepts. Roemer’s theory must be used in conjunction with rigorous empirical models to fully contain its exploratory power.
Roemer argues that there is consequently a 'before' and an 'after' in the notion of equality of opportunity: before competition starts, opportunities must be equalized by social intervention if need be; but after it begins, individuals are on their own (Roemer, 1998a, p.2). This approach allows for individuals to be held accountable for achievements of particular objectives such as education employment health or income, while also ensuring that opportunities are equalized before competition starts.
Libertarian criticism of egalitarian theories of distributive justice
The theoretical debate in political philosophy continues with Robert Nozick’s argument against Rawls in his book “Anarchy, State, and Utopia” (1974). Nozick’s view contrasts sharply with Rawls' and the rest of egalitarians, basing his argument on the notion of legitimacy. In Nozick’s theory, distributive justice is incompatible with individual rights and is directly related to the notion of entitlement. Justice is understood in terms of equal property rights. Nozick (1974, p.151) proposes three principles of justice that refer to entitlement and regulate the distribution of property: he proposes three principles of justice that refer to the notion of entitlement and regulate the distribution of property:
First: a person who acquires a holding in accordance with justice in acquisition is entitled to that holding.
Second: a person who acquires a holding in accordance with the principle of justice in transfer from someone else entitled to the holding is entitled to the holding.
Third: no one is entitled to a holding except by (repeated) applications of the first and second principles.
In addition, he argues for a minimal state whose function is to guarantee individual liberties before other rights. This mirrors libertarianism/liberalism (Locke, 1948), which holds that individual rights must be shown unconditional respect and opposes distribution within a welfare state.
Economic inequality: an economics perspective
While the main criticism of egalitarians is that utilitarians are not concerned about how well-being is distributed across individuals, and as far as it is maximally distributed, the economic thinking argues on three dimensions: the trade-off between the inequality and efficiency, the causes of inequality, and measurability of the models. As hinted at in the previous section, economic theories are almost exclusively utilitarian and positive (as opposed to normative economics). Similarly to the previous section on distributive justice, Table 2 presents a summary table of all economic theories of inequality in a relatively chronological order.
Table 2. Summary of economic theories of inequality.
| No. | Theories of
Economic
Inequality | Authors | School of
Thought | Main Thesis | Criticism | Empirical Evidence |
|---|
| 1 | Malthusian cycles
(trap) | Malthus (1798) | Demographic | Differences in exponential growth of
population versus linear growth of production
of the means of substance produce inequality. | includes only demographic
factors as the driving forces
of social stratification and
inequality, omitting multiple
other variables | Historical examples of Babylonia,
Classical Athens and 19th
century England |
| 2 | Supply-demand
labor theory
(Heckscher - Ohlin
Model) | Ohlin (1952) | Mainstream
Economics | When borders open up for trade, high-
skilled workers earn an even more premium
pay at the expense of the lower-qualified
workers, who find it hard to adapt to the new
requirements dictated by the demand for
qualified labor | does not include
institutional as well as
political factors; capital
and labor are not easily
substitutable | Cross-country, a minimal
theoretical model, working under
assumptions of full labor and
capital mobility |
| 3 | Inverted u-shaped
cycles of inequality | Kuznets (1955) | Mainstream
Economics | as countries industrialize and average incomes
grow, inequality will first increase and then
decrease, resulting in an inverted U-shaped
curve | Piketty, Atkinson, Milanović:
theory of the past, modern
empirical evidence
contradicts the theory | Evidence supported on global
scale until 1970s (the end of
industrialization) |
| 4 | Global rise
of economic
inequality | (Piketty, 2014;
Piketty, 2015) | Political
Economy | the tendency of returns on capital to exceed
the rate of economic growth (r>g) | Milanović: Both Piketty and
Kuznets are correct, but for
different time periods | data from twenty countries, 20th,
21st century (the US and France
are the most vivid examples) |
| 5 | The Four
Horsemen of
Leveling of
Inequality | Scheidel (2018) | Economic
History | mass mobilization warfare (i), transformative
revolution (ii), famine and state failure (iii),
as well as lethal pandemics (iv) as the only
historically proven cases where long-term
inequality statistically decreased | complementary with the
theory of malign forces of
Milanović | Mainly historical data from
prehistoric times, estimating
the GINI coefficient using tax
returns. |
| 6 | The Race Between
Technology and
Education | Goldin & Katz (2009), Tinbergen
(1975) | Mainstream
Economics | income distribution as the distribution of
prices of the factors of production. The supply
is the number of people in the labor force
with a different number of years of education.
Demand is differentiated according to quality
(number of years of schooling) and prices
(wages). | Wolfson (1979): the theory
undermines the role of the
tax structure design, as a
determinant of the political
process. | Data are mainly data from
developed economies. |
| 7 | Skill-Biased
Technological
Change”
hypothesis | Acemoglu & Autor, (2011);
Goldin & Katz
(2008;2009); Katz & Autor (1999) | Political
Economy | Due to fast technological growth, the increase
in inequality is caused by the shift of demand
in favor of more educated workers. | Goldin & Katz (2008):
education is the key missing
link that moderates the
emergence of inequality | Mostly data from developed
economies, but growing
evidence around the world in
support of the theory (Lee & Wie, 2015; Pi & Zhang, 2018). |
| 8 | Global Inequality | Bourguignon (2017), Milanović (2016) | Political
Economy;
Globalization-
focused Theory | two Kuznets curves, currently in the second
one of global inequality; income inequality
among the citizens of the world, factored by
population and globalization | the effect of global
economic crisis on
economic inequality is
undermined | Evidence from large N household
surveys Assumption of full
mobility of capital |
| 9 | Measurement-
driven. Real
Distribution of
Wealth | (Atkinson, 1975;
Atkinson, 2015) | Applied
Economics | a holistic understanding of what economic
inequality consists of, includes: capital gains
(accrued gains mainly for the top earners
at the expense of middle-income groups),
imputed rent (homeowners- top and bottom
groups), fringe benefits and home production
(non-capital); | communicates well with
Amartya Sen’s and John
Roemer. Equality of
opportunity as ex ante and
inequality of outcome as
ex post – intergenerational
accumulation of wealth. | Luxembourg Income Study
(LIS) which coordinates a vast
cross-country household
income survey, also combining
administrative (tax filing) data |
| 10 | Welfare State | Stiglitz (2017) | New Keynesian
Economics | no trade-off between economic performance
(growth, efficiency, stability) and equality; Equal
access to labor markets is at the core of his
argument | policy-driven take on
welfare-state; empirical
examples are country-
specific | The 20th and 21st century
United States |
| 11 | Functional aspects
of inequality | Ray (1998) | Development
Economics | inequality in incomes may be compatible
with overall equality (in the system) because
a society might display a high degree of
mobility; the question of how income is earned
has just as much social value as how much
is earned. Trade-off between Efficiency and
Inequality | adds facets to the
mainstream economic
thought on inequality Okun (2015) | Theoretical Model |
| 12 | Institutionalism | (Acemoglu & Robinson, 2005;
Acemoglu & Robinson, 2013) | Institutional
Approach | synergy between inclusive economic and
political institutions that induces economic
development | does not explicitly consider
economic inequality as
the dependent variable.
Milanović (2016):
concentrated political
power, does not necessarily
entail concentrated
economic power | Various case studies. South/
North Korea as well as a city
divided by a border between
Mexico and the US |
One of the first economic theories that has started to tackle issues related to economic inequality is Malthusian cycles, described in one of the most influential works by Thomas Malthus in 1798. It focuses on the differences in exponential growth of population versus linear growth of production of the means of substance, triggering inequalities along with other consequences. According to the theory, with the passing of time, higher mean income and lower inequality trigger a population increase among the poor, reducing their wages; thus, pushing inequality up with the further population growth. However, this theory includes only demographic factors as the driving forces of social stratification and inequality, omitting multiple other variables. It is also known as the theory of the past, drawing empirical examples to the time of the past Babylonia, Classical Athens, and 18th century England, making it almost inapplicable especially for the period of industrial revolution, where other factors besides demographic ones came into play.
The economic thinking of mid-20th century modernization produced the main mainstream economic explanation of economic inequality, focusing on the supply and demand logic. Assuming the mobility of capital and labor, the theories of that time present economic inequality in the form of a simple ratio of wages of skilled over unskilled workers. As demand increases for highly skilled specialists, their wages increase at a higher pace, as compared to the wages of the low-skilled workers, who are lagging. In the context of a globalized world, where capital mobility is at unprecedented levels and labor can be substituted with capital (neoclassical economics) inequality rises simply as the result of globalization. More precisely, a simple Ohlin (1952) model is at play here: two perfectly competitive markets with highly skilled workers earning a premium on their wage as well as low-skilled worker in a labor-intensive system. These two markets are isolated from each other; however, when borders open for trade due to globalization, the markets converge into one with high-skilled workers earning even more premium pay at the expense of lower-qualified workers, who find it hard to adapt to the new requirements driven by the demand for qualified labor. In addition, technological innovations also affect mainly low-skilled workers, creating demand for those with better education, making those who are left behind not able to profit from the new system. Nevertheless, such a model and the view are quite static, which does not consider evident externalities and shortages, barriers to mobility of factors of production, as well as the fact that in the real world, capital and labor are not easily substitutable. Although quite advanced as compared to previous attempts at creating a model of inequality, it remains overly simplistic, with institutional as well as political factors excluded from it.
Around the same time, Kuznets (1955) presented the relationship between the level of development and inequality as an inverted u-shaped curve, being one of the first authors specifically focusing on economic inequality. The logic behind the curve is simple: as countries industrialize and average incomes grow, economic inequality will first increase and then decrease, resulting in an inverted u-shaped curve. For Kuznets (1955), rising inequality is the product of various economic forces and a gradual end of structured transformation. Empirical studies point that the distribution of inequality follows such a shape, however, mostly in the historical periods of the 18th- the first half of the 20th century. Simon Kuznets’s contribution to the field, although not comprehensive, is the first one to focus on economic inequality as the dependent variable for research; however, its explanatory power in other time periods is not universal.
Kuznets’ waves/cycles have faced empirical challenges over time. For instance, Huang et al. (2012) use new data to show a U-shaped (not an inverted U-shaped) relationship between inequality and development in the US. Furthermore, the hypothesis of Kuznets has limited external validity in different historical and geographical contexts, especially for developing countries that differ from the industrialized countries that Kuznets studied. Kuznets curves have also been applied to the development of institutions (Martinez-Navarro et al., 2022), and pollution (Balsalobre-Lorente et al., 2022), which found inverted U-shaped distribution as well.
In a major contribution to the field of economic inequality, Piketty (2014) found evidence that due to the tendency of returns on capital to exceed the rate of economic growth, the long-term economic inequality has been constantly on the rise in the 20th and 21st centuries in the western world. In addition, he has shown it empirically on the example of time-series of tax returns data from twenty countries (the US and France are the most vivid examples). This goes against the previously proven Kuznets inverted U-shape curve, which, although empirically proven for the earlier time period, could not explain the rise of inequality from 1980s onward. According to Piketty, in 1980s a new technological revolution caused the rise of inequalities, as new technologies strongly rewarded more highly skilled labor, driving up the share/return on capital, with capital becoming harder to tax in the globalized world.
In the debate of who is right and wrong, Milanović (2016) showed empirically that both Piketty and Kuznets are correct in their assessment: while Kuznets cycles explain the long-term rise and decrease of inequality in the -early 20th century, Piketty provided evidence for the increase of inequality in the 20th - 21st centuries. Moreover, going even forward, he reconciles the two opposing views by the economists, changing the context: instead of one long-term Kuznets cycle, he proposes to have two, ending the first Kuznets cycle of decreasing inequality at the end of 1980s, and drawing another one from 1980s until now, meaning that current times of rising national inequalities is the beginning of the second cycle.
Scheidel (2018) introduces historical perspectives into the discussion of economic inequality. He concentrates on cycles of compression, narrowing the gap between the rich and poor, and leveling, minimizing the GINI coefficient, tracing both back to the prehistoric times. While focusing on the distribution of material resources within societies, rather than between different countries, Scheidel identifies the 'The Four Horsemen of Leveling': (i) mass mobilization warfare, (ii)transformative revolution, (iii)famine and state failure, as well as (iv) lethal pandemics as the only historically proven cases where long-term inequality statistically decreased. The core of his argument is that to level out equality, an event needs to be violent, thus belonging to one of the above-mentioned horsemen. He continues that peaceful leveling used to be an extremely rare phenomenon, as inequality in the distribution of (disposable) income cannot rise forever. Scheidel (2018) also points to Piketty’s (2014) weakness in oversimplification of the effects of the war on inequality through the generalization of the experience of France as a case study example and the application of it to a wider group of countries. A historical perspective, although highly insightful, does not provide the tools for analysis in the cross-country context.
Supply and demand theories and the role of technology
Economic inequality has also been tackled from the perspective of supply and demand. First proposed by Tinbergen (1975) and later developed by Goldin and Katz (2009), "the race between technology and education" theory sees income distribution as the distribution of prices of the factors of production. The supply is described by the number of people in the labor force with a different number of years of education. Demand is differentiated according to quality (number of years of schooling) and prices (wages) in the main sectors of production: agriculture, manufacturing, trade and transport, and other services. The measure of dispersion or by deciles (in particular, the highest) expressed in terms of the median is later applied to calculate the level of inequality. Further developments in the literature pointed to the growing role of institutional factors (Freeman & Katz, 1994; Katz & Autor, 1999) - changes in unionization, minimum wages, and labor codes. Wolfson (1979) provides criticism to the theory that it undermines the role of the tax structure design, that is, determined by public choice and ultimately a determinant of the political process. In addition, what seems to be missing from the theory is the level of acceptable level of inequality that is tolerable in a society without major societal grievances.
Another theory on the rise of inequality focuses on the effect of technological progress. The essence of the hypothesis of 'Skill-Biased Technological Change' (SBTC) (Acemoglu & Autor, 2011; Goldin & Katz, 2008; Goldin & Katz, 2009; Katz & Autor, 1999) is that the increase in inequality is caused by the shift in demand in favor of more educated workers. Since technological change favors replacing labor in routine tasks due to robotization (routine-biased technological change), it decreases the demand for middling relative to high-skilled and low-skilled occupations. Job polarization within and between industries has been documented as the main consequences of it in most advanced economies (Goos et al., 2014).
Addressing the criticism of the above-mentioned theory, Goldin and Katz (2008) provided evidence of a key moderating variable that slows the emergence of inequality. Looking back at the two previous centuries, they provide evidence that educational progress is the key missing link between technological change and inequality. Focusing on the example of the United States, they claim that throughout its history, when economic inequality has been at its lowest, the American educational system has been built on the principles of egalitarianism. However, the post-1980 increase in within-country inequality is amplified by a slow down in the educational attainment of those at the bottom of income distribution, particularly for racial and ethnic minorities.
Recent studies have also found that rapid technological change increases economic inequality beyond the most developed economies (Lee & Wie, 2015; Pi & Zhang, 2018). Advancing technology seems to produce an increase in the relative demand for skilled and educated workers that cascades down to generations, boosting intergenerational human capital mobility in the long run (Gradstein et al., 2004). Although job polarization is currently observed in some European and advanced economies (Kharlamova et al., 2018), the result of technological factors as a key determinant of inequality dynamics on the global scale, crossing into the Global South seems to be a global phenomenon.
Global inequality
With the rise of global mobility of capital and the increase of mobility of labor, Milanović (2016) and Bourguignon (2017) introduce the importance of global inequality. Defined as income inequality among the citizens of the world, they present it as a sum of all national inequalities plus the sum of all gaps in mean incomes among countries. They are mostly concerned with the factors that influence inequality, rather than the consequences of the rising economic inequality, allowing for the effect to go both directions:
“the study of economic inequalities for the last two centuries allows us to see how the world has changed, often in fundamental ways. Shifts in global inequality reflect the economic (and frequently political) rise, stagnation, and decline of countries, changes in inequality levels within countries, and transitions from one social system or political regime to another.” (p.2, 2016).
Milanović (2016) theorizes that there are two kinds of forces that drive inequality down: malign forces: wars, natural catastrophes, epidemics (in line with Scheidel (2018), and benign forces: education, increased social transfers, and progressive taxation. The inclusion of other factors (including political) underlines the fact that while benign economic forces are the most important, social and political factors are crucial in terms of their effect on inequality. In his words, once political limitations disappear (the effects of predatory regimes, institutions, etc.), economic factors create a favorable environment for the mobility of capital. Referring to the historical perspective, he identifies the Industrial Revolution as a critical juncture that has turned the course of development of global (in-between countries) as well within countries' inequality around, turning them downward, as in Kuznets cycles. Concomitantly, Milanović (2016) undermines the effect of the global economic crisis as having the same potential effect on economic inequality. This can be explained by data limitations, as well as a lack of comprehensive studies focusing on the equalizing effect of the years of the global financial crisis of 2008 as well during the post-crisis years of recovery.
Bourguignon’s (2017) take on global inequality is in identifying two main forces that affect it: (i) the potential for growth in emerging markets and (ii) the process of globalization (which in his empirical examples has increased inequality within nations, decreasing it between nations). He builds up his argumentation on the mainstream economic theory of a trade-off between economic inefficiency and economic inequality, invoking a microeconomic argument that inequality creates disparities in the access of credit for individuals. Similar to Milanović (2016), he admits that inequality is not exogenous, but a product of an exogenous global economic phenomenon in addition to the economic policies or institutional reforms of a particular country. He also points to the inevitability of inequality in the current capitalist system. In case economic progress in a state is appropriated exclusively by a small elite, it undermines the stability of societies eventually. Reiterating the importance of political variables in the analysis, he introduces the discussion on the role of top income earners and the influence they have in the state. Overall, the addition of François Bourguignon to the debate is innovative, bringing the concept closer to the institutionalist and political economic point of view and opening the debate on the effect that growing inequality might have on other factors.
Different types of economic inequality?
The complexity of measuring economic inequality, as well as innovations related to it, is the focus for Anthony Atkinson in the book ‘The Economics of Inequality’ (1975). The definition of inequality for Atkinson is broad and complex, as it encompasses not only differences in income but also resources and needs (needs of a single person versus a family of four), tastes and choice (preferences), age and the life cycle, opportunity and outcome. In addition, he highlights inaccurate reporting (top and bottom groups), tax evasion and illegal income, capital gains (accrued gains mainly for the top earners at the expense of middle income groups), imputed rent (homeowners- top and bottom groups), fringe benefits, and home production (non-market services) as the main problems official statistics and administrative tax data are not able to tackle.
In his later book, 'Inequality.' What can be done?’ (2015) he disaggregates the concept of economic inequality in two ways: equality of opportunity and inequality of outcome. He refers to the works of Sen and Roemer, for the former, and to the most standard measures of wealth, income or consumption in the latter. In addition, he relates the two features, inequality of opportunity as ex ante costs and inequality of outcome as ex post (transaction) costs, (referring to Williamson (1981) and North (1992)). Furthermore, Atkinson provides a thorough criticism of focusing exclusively on the inequality of outcome (usually by easily retrievable statistical data on income, wealth, or consumption) highlighting three main problems: (i)one cannot ignore those for whom the outcome is hardship; (ii) competitive versus noncompetitive equality of opportunity2, as well as (iii) equality of opportunity for the next generation (intergenerational inequality). Additionally, he expands on (iii), connecting today’s (t) ex post results with tomorrow’s (t+1) ex ante playing field: beneficiaries of inequality of outcome today can transmit an unfair advantage to their children tomorrow (Atkinson, 2015, p.11). As inheritance accounts for a sizeable fraction of the wealth of the group of top-income earners, there is observed inequality of opportunity as well and should be taken into consideration when attempting to analyze holistically. Additional factors which might have a connection with the distribution of income: institutions of the labor market (trade unions themselves), employers and government (including bargaining power of trade unions on the internal labor market) as well as the development of institutions, especially pension funds, which stand between the productive sector of the economy and the household sector. In terms of the topic of economic inequality in the modern theoretical debate, he concludes that issues of redistribution are outside of the interests of main economic thought, as most mainstream economists mention focus on the three components of income, rent, profit, and wages, but rarely take them all into account comprehensively3.
Joseph Stiglitz is another author who has been theorizing about economic inequality. In his seminal book ‘The Welfare State in the Twenty-First Century' (2017), he states: 'The safety net is just something to prevent citizens from starving, but it is not designed to enable them to live a life with dignity or to give them the capabilities to be more self-supporting” (p.9). By generalizing that large groups in societies suffer from significant deprivation – youth, the elderly, and the poor of working age - on the example of the US, he vouches for the introduction of a welfare state. Equal access to labor markets is at the core of his argument, since unemployment and not employment is the real characteristic of the poor and raising the minimum wage will not necessarily have a big impact on poverty (2017 p.157). While insisting that there is no trade-off between economic performance (growth, efficiency, stability) and equality, Stiglitz vouches for the idea of widening the safety net, especially in countries with minimal welfare state.
Coming back to the mainstream understanding of economic inequality through the equality-efficiency dilemma (Okun, 2015), Debraj Ray (1998) adds several concepts to the model. He states that inequality in incomes may be compatible with general equality (in the system) because a society might show a high degree of mobility: the movement of people from one income class to another (contradicting Corak’s findings (2004); Corak’s findings (2013)). For Ray (1998), functional rather than personal distribution of income is the key to understanding how people earn income and how much social value it brings. Moreover, he states that: “inequality has a built-in tendency to beget inefficiency, because it does not permit people at the lower end of the wealth or income scale to fully exploit their capabilities” (Ray, 1998, p.237). As a conclusion, he identifies the three criteria for inequality measurement: (1) the anonymity principle (names do not matter), 2) the population principle (composition does not matter if the composition of different income classes stays the same in percentage terms), (3) the relative income principle (only relative incomes matter from a relatively poor to a relatively rich person, the inequality – increase). This is the view which was built up based on the mainstream economic theory basis, considering factors of social mobility and stratification, however, still missing the institutional, political, and/or perception variables. The main success of this theory is that it allows for a level of disaggregation of tax data coming from national or regional accounts into a more fine-grained analysis at the level, usually retrieved through a combination of tax information and survey data.
Institutionalism
Institutional accounts analyze inequality through the prism of democratization (Acemoglu & Robinson, 2000; Meltzer & Richard, 1981) which, if effective, is found to likely lead to increased taxation and redistribution (decreasing inequality). This is due to the changing nature of the median voter, who, in the context of the rise of the middle class, has become the most decisive and interested in widening the spread of the distribution (Rodriguez & Salas, 2014). Other, more recent works (Acemoglu et al., 2015) have used advanced panel data methods and found the relation to be negative – with democratization increasing government taxation and revenue as fractions of GDP, arguing that “political reforms can be viewed as strategic decisions by the political elite to prevent widespread social unrest and revolution” (p.1167). Furthermore (Acemoglu & Robinson, 2005; Acemoglu & Robinson, 2013; Acemoglu et al., 2015) point to the endogeneity in the relation between different aspects of democracies and economic inequality (also economic growth) and generally conclude that the impact of the political system on distribution depends on the laws, institutions, and policies enacted by the system. Earlier works by Acemoglu and Robinson (2005) also introduce different dimensions of analysis: democratization and consolidation (of democracy) emphasizing both political institutions (universal suffrage) and economic institutions (policy concessions, taxation systems, etc.) in the role of different paths towards democratization in a historical and cross-national perspective. While democratization is a credible commitment to future redistribution and as inequality increases, democracy becomes costlier to the elites, but consolidation might not be the case and not go hand-in-hand with the early stages of democratization (Acemoglu & Robinson, 2005).
Acemoglu & Robinson (2013) emphasize the synergy between inclusive economic and political institutions that induces economic development and lowers economic inequality. This is opposed to extractive institutions, which concentrate wealth among the narrow strata of population, creating inequalities of different kinds. By eliminating cultural arguments (geography, culture, and others), Acemoglu and Robinson (2013) demonstrate the dynamic and the interaction between the two types of institutions and how extractive economic and political institutions become inclusive from neatly picked comparative cross-country historical examples. Referring to the ideas put forward by institutionalists, the endogeneity in the interaction between economic inequality and institutions (democratization) is the key innovation, as the direction going both ways.
However, institutionalism has its critics as well. The lack of economic inequality can be artificially sustained even in regimes where political inequality exists and is built around extractive institutions. Milanović (2016) states that in some political regimes, such as the Soviet Union, concentrated political power, does not necessarily entail concentrated economic power (p.102). However, such a counterargument is based on a unique country case and would not prove robustness checks on a cross-country basis. However, it is not the institutions themselves which are the only affecting force in driving inequality down, but the difference between inclusive and extractive ones (country specific as well), which work towards economic prosperity of an individual, household, or a particular region.
Conclusions
This study provides a historical review of the parallel development of literature on distributive justice and inequality from the perspectives of political philosophers and economists. Debates among political philosophers, which originated in the 17th century, have primarily focused on conditions for redistribution, the definition of justice, and how to make society more just. These debates have evolved from discussions between egalitarians and utilitarians to modern theories of capabilities and inequality of opportunity. Ultimately, distributive justice is a normative term that describes what justice requires in terms of distribution within a society, with equality being one possible answer to that question.
The second part of this review examines the economic perspective on inequality, including its definition, measurement, and causes. It explores theories ranging from Malthusian cycles to global inequality, as well as functional and institutional aspects. Economic inequality is mostly linked to the measurement of socioeconomic conditions at a specific point in time (although initial conditions or future income may also be considered), and often does not include considerations of fairness or institutional guarantees of liberty, equal opportunity, or fair distribution.
This review shows that economists and political philosophers study different aspects of equality. For instance, there is no meaningful disagreement between Scheidel's theory of the 'Four Horsemen of Leveling' and Rawls' Theory of Justice, as these theories address different subjects: the causes of leveling and the characteristics of a just society, respectively. However, it is important to note that not all philosophers agree that equality is the goal, as documented in this review, and hence it cannot be assumed that all philosophers and economists share this view.
Data availability
No data are associated with this article.
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