demand relative to supply, such as high school graduates without work
experience, earn much less.
Such differentials in income, as we discussed in Chapter 14 , can be
either temporary or equilibrium phenomena. The temporary differentials,
caused by changes in demand or supply in specific industries or regions,
will eventually be eliminated by the mobility of workers. Equilibrium
differentials will persist, whether they are created by differences in non-
monetary aspects of the job or by differences in human capital or
acquired or inherited skills.
Equilibrium differences in income seem unfair to many people. A free-
market system rewards certain groups much more than others. Because
the workings of the market may be stern, even cruel, society often
chooses to intervene. Should heads of households be forced to bear the
full burden of their misfortune if, through no fault of their own, they lose
their jobs? Even if they lose their jobs through their own fault, should
they and their families have to bear the whole burden, which may include
starvation? Should the ill and the aged be thrown on the mercy of their
families? What if they have no families? Both private charities and a great
many government policies are concerned with modifying the distribution
of income that results from such things as where one starts, how able one
is, how lucky one is, and how one fares in the labour market. We discuss
many government policies of this kind in Chapter 18.
We might all agree that it is desirable to have a more equal distribution of
income than the one generated by the free market. We might also agree