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MEASURING EARNINGS INEQUALITY: AN ECONOMIC ANALYSIS OF THE BONFERRONI INDEX

Authors


  • Notes: I thank Conchita D'Ambrosio, two anonymous referees, and the participants of the Turkish Economic Association Conference in Kyrenia for very helpful comments and suggestions. I also thank Erdem Basci, Steve Durlauf, James Heckman, and Rafael Lopes de Melo for their continuous support. The views expressed here are of my own and do not necessarily reflect those of the Central Bank of the Republic of Turkey. All errors are mine.

Semih Tumen, Central Bank of the Republic of Turkey, Head Office, Istiklal Cad, 10, Ulus – Ankara 06100, Turkey (semih.tumen@tcmb.gov.tr).

Abstract

This paper studies the economic content of the Bonferroni index. The most remarkable property of the Bonferroni index is that it overweights income transfers among the poor, and the weights are higher the lower the transfers occur on the income distribution. Hence, it is a good measure of inequality when changes in the living standards of the poor are concerned. There are many problems—especially in labor economics—that fall into this category. Using a version of the assignment model, we show that the Bonferroni index can be formulated endogenously within a mechanism featuring efficient assignment of workers to firms. This formulation is useful in evaluating the interactions between the distribution of skills and earnings inequality with a special emphasis on the lower tail of the earnings distribution. Moreover, it allows us to think about earnings inequality by separately analyzing the contribution of each economic parameter.

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