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'The Type of Inequality in a Country Is Unimportant; What's Important Is How People See it'

At the beginning of September, the American Political Science Associate (APSA) awards ceremony took place in Philadelphia, Pennsylvania. At the ceremony, two awards were given to the work Misperceiving Inequality* by Vladimir Gimpelson and Daniel Treisman for the best research project presented at the 2015 APSA congress. The comparative public policy section gave one award, while the comparative political research section gave out the other.

Vladimir Gimpelson, a professor at HSE, told the HSE News Service about the relationship between actual inequality and our perceptions of it, as well as about what affects social and political processes most. 

 

Vladimir Gimpelson

The work is based on two very simple ideas. First, statistical data on real inequality is not in line with how people perceive inequality or with their subjective assessment of it. Second, various political and economic results, such as the likelihood of social conflict or a tendency to redistribute income, depend not on actual inequality, as many political and economic theories suggest, but on how people subjectively perceive this inequality.

In their research, Gimpelson and Treisman use data from several international studies spanning 110 countries, including developed, developing, and advanced nations. In a number of these studies, though not all of them, Russia was also looked at.

Inequality as the Latest Trend

The world is demonstrating a very large interest in problems of inequality today. It is not by chance that Thomas Piketty’s book Capital in the Twenty-First Century, which is about economic inequality, has become a bestseller around the world. In addition, many social theories blame growing inequality for nearly all of modern society’s troubles, and it seems that many conflicts, wars, revolutions, putsches, and general instability are a direct result of inequality.

If we imagine this social process as a simple equation, the left side of which contains a variable for conflict level and the right, among other variables, a measure of inequality, then the relationship between the two becomes positive. In other words, the higher the level of inequality, the more likely it is that conflicts or redistribution demands will arise. The theoretical groundwork for this system comes from the median voter model, or the Meltzer-Richard Model, which requires that there be redistribution, through taxes for example, when there is a large gap between the average and median wage. In this situation, the median voter expects to win from an increase in the scale of redistribution.

Subjective Perceptions and Objective Statistics


Best comparative policy paper award 2015
Best comparative policy paper award 2015
We looked at an entire array of large-scale, international studies to understand, firstly, what people’s perceptions of inequality were, and secondly, whether or not there was a connection between the inequality demonstrated through statistics and how people view inequality.

One of the most popular metrics for economic inequality is the Gini coefficient, which reflects how actual distribution (revenues, wages, assets, etc.) differs from completely equal distribution. If the coefficient equals 0, then everyone in a society is absolutely equal according to this metric (this type of situation obviously does not exist), while when Gini is equal to 1 all rewards are concentrated in the hands of a single individual (this also does not happen). In reality, countries with a very low level of inequality have a Gini coefficient of just above 0.2, while in countries with higher inequality the coefficient is around 0.6. This is the standard interval that comes from statistical assessments of very complex research on households.

In a large survey that was conducted in 2009 as part of the International Social Survey Programme (ISSP) and spanned many countries, questions were asked that allow us to make several small assumptions when looking at people’s subjective perception of inequality. We call this measure ‘subjective Gini.’ With this in mind, it is possible to make a direct comparison of fact and perception. As it turns out, they are not very well correlated. Some strongly inflate their assessment of something, while others do the exact opposite.

In Latin American countries, for example, where statistics show inequality to be through the roof, people often perceive it as being low. Conversely, France is a country with a low level of inequality, but respondents said inequality was very high. We are not making these comparisons based on qualitative judgements, but on quantitative figures using the same scale. People’s perception of inequality in their country does not correspond with the facts demonstrated by some of the best statistics on the matter.

People not only speculate about inequality as a whole, but they are also bad at perceiving their own relative financial status. In a number of studies, respondents were asked to point to which income distribution group they belonged to. Practically all countries placed themselves somewhere in the middle. In other words, both the poor people in rich countries and the rich people in poor countries ended up in the middle of the distribution scale.

Inequality and Politics

But if there is no connection between subjective and objective inequality, then it turns out that political metrics (predisposition to redistribution, social tension, and conflict) are connected not with objective inequality, but with subjective inequality. The type of inequality in a country is unimportant; what's important is how people see it. I will add that how people perceive inequality is a separate subject that is not looked at in this project. We are working on this question now, however.

Our econometric analysis, which uses an entire range of available data, shows that in our equation that we discussed earlier, it is subjective inequality that impacts everything, not objective. This means that theories linking inequality (the independent variable) to political and economic events (the dependent variable) should be restated, and theories on the impact of actual inequality must be transformed into theories on the impact of people’s perception of inequality.

*Misperceiving Inequality, NBER WP No.21174

See also:

The Gap between Blacks and Whites Is Growing in the US

The 50-year anniversary of the march on Washington was celebrated recently in the US, but the famous ‘dream’ of its inspirer, Martin Luther King, is still a dream: over recent decades, the level of economic and social inequality between whites and African Americans has grown.