Does income inequality matter?
Australian economist, now Labour MP, Andrew Leigh spoke at the Sydney Institute recently on the subject of “Why Inequality Matters, and What We Should Do About It.” The notable point about Leigh’s position on income inequality is that while he thinks it should be reduced for moral reasons, such as whether the gap between the rich and poor reduces social cohesion and levels of social mobility, he does not think that it should be reduced because there is a clear relationship between income inequality and negative social outcomes.
Leigh’s position was influence by his own research into the relationship between income inequality levels and health. It is significant because it challenges Richard Wilkinson and Kate Pickett’s position, popularised in their 2009 book, The Spirit Level, that it is the income gap which now drives differences in life outcomes in developed countries and that more equal societies, on average, have healthier and happier societies than more unequal ones.
According to Treasury’s 2011 “Living Standards” paper, New Zealand has about the seventh highest level of income inequality among the OECD countries, and the gap between rich and poor widened dramatically between the mid-1980s and the time just before the global financial crisis. We should consider Leigh’s research and thinking on income inequality, and its implications, as we grapple with whether and to what extent reducing the income gap matters for improving New Zealanders’ quality of life.