The measured inequality of annual income ________ the actual inequality of lifetime income because ________.

Question

Quizplus · Accepted Answer

The measured inequality of annual income overstates the actual inequality of lifetime income because different households are at different stages in the life cycle. Annual income inequality is more affected by short-term factors such as job loss or promotion, whereas lifetime income inequality takes into account long-term factors such as education and career choices. Therefore, households that currently have low income may still have high lifetime income potential.

The Measured Inequality of Annual Income ________ the Actual Inequality