It's Not Even Zero

by Mark Thoma

Andrew Leigh with new research on the health effects of inequality. There's no evidence that being rich reduces average mortality, or that being poor increases it:

Does Inequality Kill You?, by Andrew Leigh: It is often argued that inequality is bad for your health. Indeed, in Imagining Australia, my coauthors and I made precisely this argument, saying that one of the reasons that policymakers should be worried about inequality is because it makes you sicker.

In theory, there are several ways this might happen. ... Unfortunately, the empirical evidence is less persuasive than the theoretical evidence. In the most recent contribution to the literature, Harvard’s Christopher Jencks and I ... find precisely no relationship.

It’s important to point out that not only are our coefficients close to zero, but our standard errors are small enough that we can reject even modest detrimental impacts of inequality on health. As one participant at the NBER meetings ... put it, “it’s not just zero, it’s very zero”.

If I were coauthoring Imagining Australia today, I’d omit the claim that inequality makes you sick. Of course, this doesn’t mean we shouldn’t care about inequality. Probably the best reason to worry about inequality is also the simplest: a dollar brings more happiness to a poor person than a rich person.

Our paper is entitled Inequality and Mortality: Long-Run Evidence from a Panel of Countries. It’ll be out soon in the Journal of Health Economics.

Comments

[Gabriel M.]

What is it with these people?! The paper is going great, the point is interesting and the method is scientific, and then we get this stinker:

"Probably the best reason to worry about inequality is also the simplest: a dollar brings more happiness to a poor person than a rich person."

Why can't these people just stick to the facts and leave the bizarre and pointless interpersonal comparisons of emotions (!?) to the philosophy department where it can be safely ignored? Economists should not be in the business of telling people what to do, with the pseudo-moral authority of a Sunday utilitarianist, but instead focus on their actual job, the factual issues concerning the interaction between individual preferences, scarce resources and technology.

Figuring the (re)distributive consequences of economic actions is within the competence of an economist. Saying which distribution is best (morally or politically), isn't. Sorry for being somewhat off-topic.

[Arthur Eckart]

That may be true that a dollar brings more happiness to a poor person than a rich person. Nonetheless, redistribution can make society worse off, depending on how that dollar is spent and where that dollar comes from. The Scientific Method of Neoclassical Economics evolved as a branch of moral philosophy. So, moral implications are in the realm of economics.

[spencer]

Arthur Eckart -- your theory is 100% correct.

But the problem is that it is not working that way in the US.

A quarter century of rising inequality has been accompanied by
falling personal savings and weakening nonresidential fixed investments, just the opposite of what theory says should happen.

[hedwig]

Gabriel,

Actually the impressive thing is that someone who made a big deal about inequality once before and still feels obligated to argue for other policies to promote redistribution, nonetheless came up with a clear and scientifically interesting paper refuting his own ideas. A refutation that he accepts and is obviously proud of.

On days like this, I feel that econ's pretensions to being scientific are a very good thing.

[dearieme]

"the empirical evidence is less persuasive than the theoretical evidence": bad theory, then?

[Hatcher]

bad theory indeed. Being on the bad side of the inequality of income in most cases probably puts you on the good side of the inequality of liesure or the inequality of workplace stress. The two seem to cancel each other out.

If it could be shown that all of the excess income earned by the rich go to extraordinary health measures to prolong life to the point of equality to the poor, we might all re-think our work-liesure tradeoff. I for one would dig my toes into the sand and pop open a Corona (subsidized, of course, by those who make the opposite choice).

[Tucker]

"Unfortunately, the empirical evidence is less persuasive than the theoretical evidence." - What if you looked at morbidity? The fact is that there is a wealth of persuasive empirical evidence if you look at chronic illness. Does it not count if you don't die from your disease?

[Arthur Eckart]

It makes sense income differentials in rich countries don't have an affect on mortality. However, genetics and personal health information may be most influencial. Consequently, education may not be statistically significant either, because personal health instruction varies between schools (many prep schools don't teach health issues in personal development).

[Arthur Eckart]

Also, I may add, enviornmental factors would be less influencial in rich countries than poor countries.

[egoriot]

Gabriel
Why can't these people just stick to the facts and leave the bizarre and pointless interpersonal comparisons of emotions (!?) to the philosophy department where it can be safely ignored?

One reasonable measure of an outcome in game theory and microeconomics is the total utility (sum of individual utilities). A reasonable assumption is that the marginal utilites of goods is declining, which implies that the marginal utility of the dollar is declining. Therefore a reasonable argument to make against inequality is that an additional dollar brings more utility (aka happiness) to a poor person than a rich person. This is not certainly not "bizarre" or "pointless."

[Michael Ash]

"There's no evidence that being rich reduces average mortality, or that being poor increases it..."

Did you read the abstract, let alone the paper? The paper finds no evidence that *inequality* increases average mortality. Everybody knows that being rich reduces mortality and being poor increases it. Let me quote Angus Deaton, who is BTW an inequality-mortality skeptic,

"Men in the United States with family incomes in the top 5 percent of the distribution in 1980 had about 25 percent longer to live than did those in the bottom 5 percent. Proportional increases in income are associated with equal proportional decreases in mortality throughout the income distribution."

(Angus Deaton "Policy Implications Of The Gradient Of Health And Wealth" http://content.healthaffairs.org/cgi/content/abstract/21/2/13)

The question under debate is whether inequality, per se and at the population level, is related to average mortality.

[Arthur Eckart]

Michael, I trust the results of Leigh's paper, which uses real data of 12 rich countries over 100 years, more than the paper you cited, which uses "merged data from death records with responses from household surveys around 1980." Genetics and environment seem to be the two most powerful factors determining average mortality. The environment factor seems to be less significant or even have the wrong sign in rich countries, e.g. using hazardous materials through employment.

[Arthur Eckart]

Egoriot, I agree, "an additional dollar brings more utility (aka happiness) to a poor person than a rich person." However, should the poor person receive the extra utility for "free" (i.e. for merely existing) or for some contribution to society (e.g. employment). Which would you prefer?

[Michael Ash]

You are welcome to trust the Leigh and Jencks paper more. It just doesn't happen to address the question of whether "being rich reduces average mortality, or that being poor increases it." Read the paper or just read the abstract. That is simply not the topic of Leigh and Jencks. There is a host of evidence, Deaton among it, that support the inverse relationship between income and mortality. The relationship between income and health (mortality, infant mortality, life expectancy, morbidity) obtains at the macro and micro levels in dozens of studies. It is so well known in the literature that it is simply known as "the gradient." Indeed, the ancillary results (coefficients on GDP) in Leigh and Jencks *support* the proposition.

Leigh and Jencks addresses the question of whether *inequality*, the relative distance between rich and poor, is associated with health. It's simply a different question. It's an interesting question, findings have been mixed, and Leigh and Jencks is a careful study although there may not be enough attention to time-series econometrics. But Thoma's one-line summary is just plain wrong.

[Arthur Eckart]

Michael, these type of studies suggest when countries become rich enough, some environmental factors (e.g. pestilence, famines, wars, etc.) become irrelevant and lower average mortality for the poor (i.e. a threshold effect). So, it seems, genetics becomes a more powerful factor. This is a paper about "the relative income hypothesis" rather than "the absolute income hypothesis." So, "the gradient" doesn't apply, since the slope may be near zero.

[Michael Ash]

> these type of studies suggest when countries become rich enough, some environmental factors (e.g. pestilence, famines, wars, etc.) become irrelevant and lower average mortality for the poor (i.e. a threshold effect).

These "types of studies" may suggest that, but this study does not. This study finds that at the aggregate level, inequality does not have a relationship with mortality and, BTW, that national income does have its expected negative relationship with mortality.

> So, it seems, genetics becomes a more powerful factor.

No evidence whatsoever for this in the paper.

> This is a paper about "the relative income hypothesis" rather than "the absolute income hypothesis."

This is exactly my point. Read my postings. Read the paper. Then note that Thoma's summary statement is incorrect.

> So, "the gradient" doesn't apply, since the slope may be near zero.

No evidence whatsoever for this in the paper.

"Being rich reduces average mortality, or that being poor increases it."

That's the consensus in the literature. That's (at the macro level of being a rich/poor country) a finding in this paper. That's all, folks!

[Mark Thoma]

Yes - a better statement would be "There's no evidence that becoming relatively richer reduces average mortality, or that becoming relatively poorer increases it."

Andrew's summary, links to his paper, etc. are all provided (I even fixed a link in comments on the original post) - that's where the meat of the post is - so I don't think this was a big deal, the comments seemed to mostly get it right.

Here's the conclusion which is pretty clear on this point:

Conclusion While there is a strong consensus in the literature that the correlation between income and health is positive, there is much less agreement about the relationship between income inequality and health. This paper has used a new measure of inequality – the income share of the richest 10% of the population – to test the relationship between inequality and mortality. Because we have longer time series for more countries than past studies, we have tried to circumvent some of the problems that plagued these studies by holding constant country and year fixed effects. We have shown that higher GDP is associated with lower mortality, and that this effect declines as GDP rises.Without country and year fixed effects, we also find that more inequality is associated with higher mortality. But once we include country and year fixed effects the relationship between inequality and health becomes small and statistically insignificant. ...

[Arthur Eckart]

The relationship between income and mortality is obvious, while the relationship between income inequality and mortality is not. Leigh states: "The curve is so flat that $1 actually doesn’t help the poor more than the rich," which may reflect greater public goods (e.g. eradication of epidemic diseases) or enhanced economic policies (that indirectly benefit society or the poor). Consequently, when fewer people die of environmental (or external) factors, then more people will (eventually) die of "natural causes." So, it seems, genetics becomes a more influencial factor.

[Lafayette]

AE: The relationship between income and mortality is obvious, while the relationship between income inequality and mortality is not.

If you go back a couple of hundred of years, however, you will find this to be the case. (Just read some of Dickens or Victor Hugo to be reminded.)

The disparity between being poor and being rich was much more marked, which is why Karl Marx had such success in providing the foundation for overthrowing European monarchy in many parts of Europe.

This disparity is reduced in modern economies but not eradicated. In the US, because 1% of the population garners an overwhelming part of the wealth generated economically has little of no impact on rates of mortality. Why?

Because the stark difference between the top and bottom have been alleviated by public services directed at the bottom. This is in terms of public housing, income supports that allow the poor to feed themselves, local security that allows people to live in an orderly fashion. These are attributes of modern society.

However, go to countries (mostly in Africa) where the difference between the haves and the have-nots is more pronounced, and one will see that high mortality rates is indeed confined to the lower classes (and exacerbated recently by AIDS). The pool of rich, who have starkly disproportionate amounts of the wealth, live longer lives - because they can access the type of health care (typically abroad) that is way beyond the reach of the poor.

China is going to be another good example. We are seeing today that a small group of entrepreneurs are earning a disproportionately higher amount of the wealth generated by the Chinese economy. However, the fact that the lower classes, coming from a subsistence rural economy and able to purchase and eat, for the first time in their lives, meat will result in a lowering of mortality rates. So, increasing income inequity goes hand in hand with lengthening mortality rates.

In fact, it is better to look at income inequality as regards its impact on social harmony. People may be able to sustain themselves, even though they are poor, but they are not likely to be very happy that some earn a million or ten million times more than they ... even if the crumbs left on the table allow them, the poor, to survive.

Are we really that simple to believe that social upheaval cannot occur in a modern society with stark income inequality? Then we are fools. History shows time and time again how just such has happened.

Equal opportunity means just that. A fair and socially just distribution of the wealth that an economy generates. An economy creates tinder when the excessively rich continue to accumulate wealth assuming blithely that the lower levels are contenting themselves simply because they are surviving.

All that is necessary is a match to light the tinder.

[Arthur Eckart]

Lafayette, the relationship between income inequality and mortality is less clear in rich countries than in poor countries. In the global economy, it seems more likely greater equality in Europe will cause more social upheaval than greater inequality in the U.S., since living standards for most have risen faster in the U.S., while Europe has placed more economic constraints.

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