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Decomposing the Difference Between Well-Being Inequality and Income Inequality: Method and Application

In: What Drives Inequality?

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  • Marko Ledić
  • Ivica Rubil

Abstract

The authors study the difference between multidimensional well-being inequality and income inequality and propose a method to decompose the difference between the Gini coefficients of income and equivalent income (EI), a multidimensional well-being measure that respects individual preferences towards what constitutes a good life. The authors propose a method to decompose the inequality difference into two parts: the vertical and reranking effects. The vertical effect arises from the correlation between income and non-income dimensions, and between income and preferences. The reranking effect arises from the fact that some persons occupy a different position in the EI distribution compared to the income distribution. The authors also propose a detailed decomposition method based on the Shapley value to decompose each of the two effects by non-income dimensions. The authors apply the decompositions using data for 27 countries, considering five non-income dimensions: unemployment, health, housing, crime and environment. The results show that inequality is much higher for EI that the reranking effect accounts for a large part of the inequality difference, and that health is the non-income dimension contributing most to both effects.

Suggested Citation

  • Marko Ledić & Ivica Rubil, 2019. "Decomposing the Difference Between Well-Being Inequality and Income Inequality: Method and Application," Research on Economic Inequality, in: What Drives Inequality?, volume 27, pages 105-122, Emerald Group Publishing Limited.
    • Handle: RePEc:eme:reinzz:s1049-258520190000027008
    DOI: 10.1108/S1049-258520190000027008
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    Cited by:

    1. Marko Ledic & Ivica Rubil, 2020. "Does going beyond income make a difference? Income vs. equivalent income in the EU over 2007-2011," Public Sector Economics, Institute of Public Finance, vol. 44(4), pages 423-462.
    2. Marko Ledić & Ivica Rubil, 2021. "Beyond Wage Gap, Towards Job Quality Gap: The Role of Inter-Group Differences in Wages, Non-Wage Job Dimensions, and Preferences," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 155(2), pages 523-561, June.

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