Stage of pricing strategy predicts earnings: A study of informal economics.

An individual’s income results from the way or ways in which they work and how they are paid. In recent years, income disparities have been rising in a number of countries (e.g., Piketty & Saez, 2003). A common notion is that income disparity can be reduced by creating equal opportunity for education for all individuals. To put this idea to the test, we examined the relative contributions of education, of country of origin, and of stage of development to people’s income. Specifically, the stage of pricing strategies used and the level of education were used to predict income. Participants were individuals who worked in the informal economies within 2 countries: Brazil and the United States. Two groups of people were studied: people who sell things on the sidewalks or at flea markets (peddlers) and people who transport goods (carters). All participants were asked how they set their prices, and how much money they earned either per day, per week or per month. A regression analysis showed that behavioral stage of an individual’s pricing strategy and their country of origin were the best predictors of income obtained, R(44) 0.705, (R .497; F(1, 44) 20.78, p .0005). Stage and country both contributed significantly to the income obtained; for stage, 0.408, and for country, .501. A second regression analysis that included education found that education did not significantly predict earnings, over and above stage and country of origin. These results indicate that education by itself may not be enough to increase earnings and decrease income disparities. Unless there are interventions to raise individuals’ developmental stage social stratification will likely continue to exist and even to increase.