DP12989 Measuring Unfair Inequality: Reconciling Equality of Opportunity and Freedom from Poverty
Rising income inequalities are widely debated in public and academic discourse. In this
paper, we contribute to this debate by proposing a new family of measures of unfair inequality.
To do so, we acknowledge that inequality is not bad per se, but that its underlying sources
need to be taken into account. Thereby, this paper is thefirst to reconcile two prominent
fairness principles, namely equality of opportunity and freedom from poverty, into a joint
measure of unfair inequality. Two empirical applications provide important new insights on
the development of unfair inequality both over time (in the US) and across countries (in Europe).
First, unfair inequality shows different time trends and country rankings compared to
total inequality. Second, average unfair inequality doubles when complementing the ideal of
an equal opportunity society with poverty aversion. Furthermore, we show that an exclusive
focus on top incomes may misguide fairness judgments.