Income Disparity

Theories of Income Disparity

Explanations of income disparities derive from more general theories of social organization, typically categorized as consensus and conflict theories. Consensus theories posit that social order arises from shared objectives, values, and the evaluation of individual and group behavior. Conflict theories posit that social order is imposed by the exercise of power. Consensus theories include functionalism in sociology and microeconomic price theory in economics. Conflict theories include Marxist and Weberian theories.

Functionalism asserts that, given a complex division of labor, societies must have some mechanisms to allocate individuals to jobs. Jobs can be ranked according to importance and requisite skills, and individuals can be ranked according to their diligence and ability. Inequality is the social mechanism that allocates the most qualified individuals to the most important jobs. Similarly, microeconomic price theory asserts that, in market societies, the price mechanism assures that markets will “clear”; that is, prices will rise or fall until completion of all desired exchanges of goods and services. At this price, supply equals demand, and the wage rate equals the value produced, thus maximizing the total value of production. Income differences represent productivity differences. Each individual, in maximizing his or her income, will obtain the skills which make the best use of his or her abilities.

Conflict theory asserts that disparities in income or, more generally, in life chances, result from conflict among individuals and groups over the distribution of resources. Marx and his theoretical descendants assert that, in all societies, those who own productive assets (land and other forms of capital) exploit those who do not. Those who do not own productive assets cannot acquire necessities, such as food, clothing, or shelter, unless they can access the assets of others. To do this, they must relinquish a share of what they produce to the asset owner (e.g., as rent). Although not explicit in most Marxist accounts, skill (productivity) differences can be incorporated into the theory as “human capital” assets. From this perspective, income disparities reflect disparities in the ownership of productive assets.

[Page 487]Weber and his theoretical descendants do not disagree that property ownership is important, but they assert additional important aspects of power in society: One's relative position in markets for capital and for labor (“class”), the social regard of others (“status”), and collective organization for the rational pursuit of interests (“party”). Any or all of these aspects of power may be used to deny opportunities to others and monopolize opportunities for oneself and those like oneself. Income disparities therefore reflect disparities in the distribution of economic, social, and political power.

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