Executive summary

While income inequality may seem constant over time, a dynamic analysis reveals that social mobility undergoes large and asymmetric movements. A transition probability matrix, estimated on UK panel data, shows that very poor and very rich households have a high probability of remaining in their initial position while social mobility concerns more intermediate categories. Traditionally, social mobility is seen either as a risk or as an opportunity. The question is then whether there is equality of opportunity in society. This question has been discussed by political and moral philosophers as well as economists who pointed out that people should be compensated for factors for which they are not responsible (handicap, social origin) and rewarded for factors for which they are responsible such as effort and education decisions. We cannot expect an agreement on the frontier between these two aspects. Another way of starting the debate is to question as Rawls (1971) did which inequalities are just and which are not. Rawls underlines that in order to be able to redistribute toward the poor, there must be something to redistribute and thus efforts and qualifications have to be rewarded.

The existence of inequalities is justified by the need to reward differences in talents. However, inequalities can be generated by many other factors than the genetic lottery. At this point, are ethical principles needed to analyse inequality or is it just sufficient to analyse the deprivation of capacities (Rawls versus Sen)? The shape and properties of social networks (as their are considered by micro-economists) play a prominent role simply because networks are an important factor to determine life success of an individual. Networks thus constitute a form of heterogeneity between individuals and this could be a starting point for renewing the debate about a theory of justice.

The dynamics and persistence of inequality can be studied in the framework of overlapping generations models with heterogeneous agents and altruism. Endogenous fertility and its consequences on education provides a first extension to this framework and opens the way to unequal dynasties. A second extension to this model concerns capital transmission when there is taxation and redistribution. As a complement to this macroeconomic view of the dynamics of inequality, we will consider the dynamic evolution of social networks and its impact on individual success. 

The individual perception of social mobility can be analysed using socio-economic surveys in order to understand the income bias. However, factors other than income can be important in determining individual opinion concerning the trade-off between effort and redistribution and in particular the question of access to education. In the context of a proper experiment, motivations can reveal to be quite different and the setting of the experiment itself might have an influence.

This project relies extensively on the collaboration of different members of Greqam, covering the fields of economic philosophy, micro and macro economics  and econometrics and on the re-activation of long term relationships that GREQAM has with the University of Louvain. Large data sets will be obtained (some are already present at Greqam) covering both household income panel data and opinion surveys. A specific local survey and experiment, already undertaken  at Greqam last year will have to be completed for sensitivity analysis.

The team constituted for this project has a very long experience concerning the analysis of income inequality and economic justice. This project would be an exceptional occasion to federate all these forces, both in France and in Belgium.