DERIVING MACRO POLICY FROM INCOME INEQUALITY DECOMPOSITIONS BY SUBGROUPS: A CAUTIONARY DISCUSSION

Abstract

Redistributive macro policies widely refer to the evidence provided on disaggregated components of overall income inequality by different social groups. These decompositions help identify the determinants of income inequality and their relative contributions to the overall inequality, yet, deriving policy related statements from the results obtained needs a great caution. This essay raises issues on policy making based on sub-group decompositions of income inequality taking one of the forefront social stratifiers across the globe as an illustrative case. Decomposition results often suggest that the component of income inequality by social subgroups is not as consequential as other sources of inequality because it is often found that the share of within-group inequality is a larger component of overall income inequality compared to the inequality between groups. We develop the argument that such statements can be problematic for at least two reasons: first, we argue that the contributions of within- and between-subgroup inequality components are contextually incommensurable. Secondly, higher within-group inequality often reflects the implicit selection bias that lies within the socially- stratified structure of labor markets.