Income Inequality and Relative Deprivation: A Formal Theoretic View

In a time of increase of inequality, does people’s frustration or feelings of deprivation rise? If it is yes, how do theories of relative deprivation explain these kinds of relevance between objective economic situation in a society and subjective feeling of individuals?

This paper aims to present a formal theoretic view of the relationship between income inequality and relative deprivation by applying and developing Shlomo Yitzhaki’s previous works. Yitzhaki (1979) defined indices of individual and societal degree of relative deprivation emerged by income comparison among reference group, and demonstrated explicit link between indices and the notion of the Gini’s inequality coefficient.

In this paper, especially, I try to describe and explain two paradoxes relevant to relative deprivation occurring in the time of modernization from a formal theoretic view. First paradox regards the tendency that a disappearance of class barrier as reference groups in terms of income comparison rather results in increase of people’s relative deprivation. Second paradox is related to economic growth which tells that increase of amount of income in a society rather increases individual and societal relative deprivation under certain conditions. 

A formal theoretic model will be introduced so as to solve these paradoxes. Furthermore, some implications from the model for understanding contemporary situations in advanced countries will be discussed.