2024-11-10 18:38:00
Wage gaps regularly shock public opinion, especially since there may seem to be no effective tool to reduce them. A path that is still little exploited deserves to be: the information provided to consumers to inform their choices. What if tomorrow product labels included information on the degree of inequality existing in the companies that produce them…
The recent elections, the summit declarations of the G20 or the recurring and passionate debates linked to CEO remuneration regularly place the question of inequality at the heart of the news. If certain intuitions on the subject are widely shared, the definition of the “good” policy to fight against inequalities is more complex, as it depends on the attitude of society and each of its members towards this who is fair or not.
However, recent research in behavioral economics could shed light on these debates. If taxation and redistribution are powerful tools to fight inequality, they are also highly contested. The good news brought by behavioral economics is that there are other ways to fight against inequalities, in particular by acting instead on the information available to consumers.
The consumer perspective
Traditionally, behavioral economics works under the assumption that how a person feels about a given inequality depends on how it affects them. Hence two perspectives studied in this work:
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those of the stakeholders, on the one hand, that is to say the people who directly benefit or suffer from a situation. Behavioral economics then studies how individuals feel the inequalities or injustices they experience or produce,
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those of the spectators of the other, who look at the inequalities which do not affect them. The research then highlights their principled support for actions aimed at taking action against inequalities.
However, as interesting and rich as they are, these two approaches neglect a third perspective: studying inequalities from the point of view of the consumer who, on the point of purchasing a good, is informed of those inherent to production and design of these goods. An example is that of the salary gaps between directors, managers, engineers and workers. Or to put it another way, the gap between the highest and lowest salaries. The interest in studying the position of the consumer comes from the fact that he is neither directly involved nor completely external. By purchasing the good, one can consider whether or not it approves of these inequalities. Neither responsible nor disconnected, he finds himself in an intermediate situation of potential accomplice.
This perspective is neglected by classical economic theory, which postulates consumers’ indifference to the inequality associated with a product. Furthermore, in this tradition of thought, any fiscal approach, for example a tax, aimed at reducing inequalities is subject to criticism, because it ultimately harms the consumer by increasing prices. But this relies on the assumption that prices are the only thing buyers care about – an assumption that can be tested.
Consumers willing to pay for a fairer product
Our research which will soon appear in Management science indicate that a significant majority of consumers – around 80% in England and the United States – are prepared to pay a little more for a good whose production would require less extreme inequalities, for identical product characteristics.
To do this, a behavioral experiment was carried out on representative samples of the English and American populations. Participants in these studies were informed of the price and an indicator of income inequality for two household products, with otherwise comparable characteristics. Then, they were invited to buy one of the two. People were willing to pay more if it reduced inequality. The point to emphasize is that this concerns even people who consider certain inequalities to be normal, because they would reveal differences in abilities or talents. This suggests that although it has been demonstrated that fairness makes many people accept inequality in general, but most believe it cannot justify extreme levels of inequality.
A different amount depending on political opinions
The study also shows that willingness to pay more to fight inequality is widespread across the political spectrum. What varies across political views is how much people are willing to spend. For example, right-wing voters are not willing to pay as much to reduce inequality as left-wing voters. The difference is made in the gap in inequalities between the highest and lowest paid who, according to them, justify paying more for a good. For the right-wing voter, this threshold is higher. The fact remains that there is a sort of agreement to condemn the most significant inequalities. This explains the apparent contradiction between our results (80% of people are prepared to pay more to avoid purchasing a good produced in conditions of extreme inequality) and the result indicating that less than half of those questioned support the policies of redistribution aimed at reduce inequalities.
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Our results therefore suggest that a consumer information policy could help to reduce inequalities at the global level – and that it could achieve this by gaining more support than traditional redistribution policies. But to succeed, the key would then be to create the conditions for good information.
Being able to identify the most “unequal” products
Our study concerns situations where consumers are informed of the inequalities associated with each good. Decades of psychological research have shown that the desire to avoid negative consequences or bad goods is stronger than the appeal of better products. To put it another way, encouraging individuals not to do bad is more powerful than betting on their desire to do good. This goes against existing social labels, such as Fairtrade or B-Corp, which highlight “virtuous” products. A universal information system clearly identifying “poorly performing” products would be much more effective.
It remains to determine an indicator accepted by the majority of the degree of inequalities “contained” in a product. Our research explored different indices, includingindex or coefficient of Giniand an index close to Nutri-score. We also studied a simple measure of the wage gaps involved in the production of a product, given by the ratio between executive salaries and the average salary.
Find the right indicator
We find that the latter is generally considered to be the most understandable and the most informative. In this form, consumers are willing to pay more if it helps reduce inequality. However, this is precisely the index that large publicly traded companies are now required to disclose, following recent regulations in the United States, the United Kingdom and several European Union countries. In addition, this indicator has another advantage: the data necessary for its calculation are already collected by governments. All that remains is to make them accessible to the public, whether at the level of individual products or, more easily, at the level of product types and producers.
Indeed, a simple policy to mitigate inequalities would be to publish general indicators of inequality levels by type of product and producer, then encourage the communication of the scores obtained by products to consumers, for example via a mobile application like those that already exist for nutritional information.
Thus, even if the inequality indicator of a good is not disclosed by the company producing it, consumers could rely on the general value relevant to the type of product and producer. Given the misperceptions current levels of inequalitythese basic indications will generally be enough for information about inequality to have an impact on purchasing behavior. Additionally, it will incentivize “high-performing” companies to disclose their inequality data, making it easier for consumers to identify “low-performing” products.
The change in perspective – from the passive spectator of redistribution to the consumer refusing to be complicit in extreme inequalities through their purchases – reveals a renewed approach to the fight against inequalities based on information. It promises greater public engagement than traditional policies. Its implementation requires only light regulation, based on behavioral research in this area.
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**Interview with Dr. Marie Lefebvre: Behavioral Economist and Inequality Researcher**
*Date: November 10, 2024*
**Interviewer:** Thank you for joining us today, Dr. Lefebvre. Your recent research highlights the vital role that consumer information can play in addressing social inequality. Could you summarize your findings for our audience?
**Dr. Lefebvre:** Thank you for having me. Our study reveals that approximately 80% of consumers in the UK and the US are willing to pay more for products that are associated with fairer income distribution among workers. This indicates a strong desire among consumers to make ethical purchasing decisions, even if they sometimes view certain inequalities as acceptable. The key point is that while many tolerate some level of inequality, they draw the line at extreme disparities.
**Interviewer:** That’s fascinating. How do you envision implementing this consumer information approach in practice?
**Dr. Lefebvre:** One effective method would be to standardize the information on product labels concerning income inequality within the companies producing them. For instance, a clear indicator of wage gaps, such as the ratio of executive salaries to the average worker’s salary, could be included. Past regulations already require companies to disclose these figures, so it’s about leveraging existing data to inform consumers.
**Interviewer:** Your study also mentions political differences in willingness to pay for fairer products. Can you elaborate on that?
**Dr. Lefebvre:** Absolutely. While there is broad agreement across the political spectrum against extreme inequalities, the amount consumers are willing to spend to mitigate those inequalities varies significantly. Left-leaning individuals tend to support spending more on fair products than their right-leaning counterparts. This suggests that while there’s a shared concern for addressing inequality, the solutions individuals are willing to back can differ.
**Interviewer:** It sounds like there’s a disparity between consumer support for ethical products and their support for traditional redistribution policies. Why do you think that is?
**Dr. Lefebvre:** That’s a critical observation. Many consumers want to make a positive difference through their choices without necessarily supporting government-led redistribution, which can be controversial. By providing them with the right information, we can empower consumers to take action in their purchasing power, which can lead to more sustainable changes in inequality compared to government interventions.
**Interviewer:** You referred to the importance of informing consumers about “poorly performing” products. How does this differ from existing ethical labels?
**Dr. Lefebvre:** Research suggests that negative messaging—encouraging people to avoid bad products—often resonates more with consumers than positive labeling. Therefore, creating a universal system that clearly identifies products produced under conditions of extreme inequality could be more effective than existing social labels like Fairtrade or B-Corp, which focus on promoting positive qualities.
**Interviewer:** Lastly, what do you believe are the next steps for this research and its implications in society?
**Dr. Lefebvre:** The next steps involve developing a widely accepted indicator of inequality on product labels and collaborating with policymakers to integrate this information in a way that is accessible to consumers. Our ultimate goal is to drive consumer behavior toward more equitable choices, helping to address social inequalities at a grassroots level.
**Interviewer:** Thank you, Dr. Lefebvre, for sharing your insights. It’s clear that consumer awareness and informed choices can play a substantial role in tackling inequality.
**Dr. Lefebvre:** Thank you for having me. It’s been a pleasure discussing this important topic with you.
