Thursday, March 01, 2012

Absolute vs. relative income inequality

Cornell University economics professor Robert Frank -- someone no doubt familiar to long-time blog readers -- has frequently argued that income is important to people from a relative rather than absolute perspective. Writing in the comments section of Steven Landsburg's blog, however, reader "Ken B" simply destroys this line of thinking:
Now if Frank is right, no low-skilled immigrants would want to come here. They go directly to the lowest tier. And everyone already, especially the poorer Americans, should want more low-skill immigrants, so that they themselves move up comparatively. And yet …
Absolutely correct. Even internal migration patterns destroy this argument; why would anyone move from a rural area -- where income differences are typically less pronounced -- to cities where income disparities are much greater if relative income differences are such a prominent calculation in the minds of most people? The answer, of course, is that people don't mind being in a lower position on the totem pole if it means that their absolute standard of living or income has been improved.

Just another reminder that the income inequality issue is an utter distraction.

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