The standard “no problem” explanation of income inequality goes as follows: people have different incomes because they have different levels of human capital and productive abilities. Some earn more because they contribute more – to their employers but also to society. They simply deserve, in a moral sense of the word, their higher incomes because of the level and nature of their contributions. Increasing differences in income levels are then simply the reflection of an increasing gap in productivity and human capital between some groups in society.
However, there’s something wrong with this story: it hints at one important element but fails to draw the necessary conclusion from it. Some people contribute more in a quantitative sense of the word, in which case higher returns are probably morally justifiable. If you work more, few would begrudge you your higher income. However, that’s not the type of income inequality that is most common. Usually, people are believed to contribute more in a qualitative sense of the word and get paid more as a result (or vice versa, because they get paid more, they are assumed to have contributed more in a qualitative sense). No one claims that the salary of a CEO should be higher than that of a taxi driver doing two other jobs on the side because the former works more than the latter. He probably doesn’t. The justification people give for a higher salary for the CEO is almost always about quality. (See also here).
Now, how does a society decide which types of contributions are of a higher quality and are therefore more deserving of higher remuneration? In part, the “market” decides: skills and contributions that are highly valued by consumers will earn you a higher income. But biases, prejudices and market manipulation are also factors that determine which contributions are valued higher. For example, there’s a widespread bias in favor of people with a university degree even though their objective skills may not always be higher than those of less educated people; advertisement and popular culture instill the perception that beautiful people are more deserving; stars in sport and music are believed to deserve a very high income, higher than that of the “stars” in science for example. And then there’s the perfectly circular reasoning that some contributions are more deserving because they yield higher earnings.
Many of these social decisions about desert are arbitrary, biased, irrational and unjustifiable. And in no case is there an attempt to justify them on moral grounds. Hence, you cannot conclude that more productive contributions are a moral justification for higher income levels if you first fail to justify which types of productive contributions are morally superior and more deserving.
You could counter this by saying that all skills and contributions, no matter in what field, are in and of themselves sufficient to warrant higher pay. But then you admit that all skillful and productive people across different fields should earn similar incomes, and that is plainly not the case.
So, even if income inequality could be justified on a moral basis – by first deciding in a rational and unbiased way which skills and contributions are morally superior and then paying more to those people who have been identified as having more of those skills and contributions – that is not how it’s done in practice. And I doubt that it can be done, because there will never be agreement on the choice of morally superior skills and contributions.
Of course, the absence and, presumably, impossibility of a desert based argument for income inequality doesn’t mean that there can’t be other, more successful justifications of income inequality. The most common one is based on incentives rather than desert. We want people to do good, worthwhile and valuable things, and generous rewards for the skillful and productive is one way of having these things. Again, there’s the problem of deciding in an unbiased and rational way which things are indeed valuable, but we may assume that the market offers a close approximation: what people want to buy and consume will often be valuable to them. Perhaps not always valuable in the sense of “valuable after rational reflection free of biases”, but that sense may be unrealistic anyway. So let’s accept – grudgingly in my case - that we don’t have to decide what exactly needs to be incentivized and what is worth incentivizing.
However, even if we assume that value and desert equal market success, there’s a problem with the incentive based argument for income inequality. It’s not right to force morality through the payment of incentives. Ideally there should be good will, and people have to do things of value for their own sake, not because they are incentivized to do it (as G.A. Cohen has argued numerous times).
The conclusion is that income inequality as it is now structured in all societies is not justified and probably not justifiable from a moral point of view. And that this is the only point of view from which it should and could be justified. Of course, the lack of a justification is only one thing that’s wrong with income inequality. More on what’s wrong with it is here, here, here and here. There’s also my old paper about it here.