Inequalities in Income and Inequalities in Health

Abstract

What is inequality in health? Are economists' standard tools for measuring income inequality relevant or useful for measuring it? Does income protect health and does income inequality pose a hazard to health? In this paper, I discuss two different concepts of health inequality and relate each of them to the literature on inequality in income. I propose a model of reference groups, in which each individual's health is related to his or her status within the group as measured by income relative to the group mean. In such a model, increases in income inequality, whether within groups, or between them, has no effect on average health. Even so, the slope of the relationship between health and measured income, the gradient, depends on the ratio of between to within-group income inequality. The model is extended to allow income inequality to play a direct positive or negative role in determining health status. Empirical evidence on cross-country income inequality and life expectancy within the OECD, and on time-series evidence for the U.S., Britain, and Japan, provide little support for the idea that inequality is a health hazard at the national level. Data on birth cohorts for the US observed from 1981 to 1993 show no relationship between mortality and income inequality. However, there is a well defined health gradient in these data, and its slope increases with increases in each cohort's income inequality.