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Income Inequality

The Link Between Income Inequality and Public Services is Stronger than I Realized (Thanks to Emma Seery for Putting Me Straight)

Duncan Green's picture

Oxfam has been banging on to good effect recently about extreme global inequality in income and wealth. Over many years, we have also been making the case for universal health and education. It turns out the link between the two is stronger than I’d realized, according to ‘Working for the Many: Public Services fight Inequality’, a new paper published today.

We normally discuss inequality before and after tax (eg it’s progressive taxation that really brings Europe’s inequality down). But recent work published by the OECD and World Bank has put a monetary value on the ‘virtual income’ provided by public services. This produces some startling findings on inequality.

Public services mitigate the impact of skewed income distribution, and redistribute by putting ‘virtual income’ into everyone’s pockets. For the poorest, those on meagre salaries, though, this ‘virtual income’ can be as much as – or even more than – their actual income. On average, in OECD countries, public services are worth the equivalent of a huge 76 per cent of the post-tax income of the poorest group, and just 14 per cent of the richest. It is in the context of huge disparities of income that we see the true equalizing power of public services.

‘Working for the Few’: Top New Report on the Links between Politics and Inequality

Duncan Green's picture

As the world’s self-appointed steering committee gathers in Davos, 2014 is already shaping up as a big year for inequality. The World Economic Forum’s ‘Outlook on the Global Agenda 2014’ ranks widening income disparities as the second greatest worldwide risk in the coming 12 to 18 months (Middle East and North Africa came top, since you ask).

So it’s great to see ‘Working for the Few’, a really excellent new Oxfam paper by Ricardo Fuentes and Nick Galasso, tackling an issue best summed up by US Supreme Court Justice Louis Brandeis in the aftermath of the Great Depression, ‘We may have democracy, or we may have wealth concentrated in the hands of the few, but we cannot have both.’ i.e. the politics of inequality and redistribution.

The Brandeis quote is particularly relevant because this time really is different. After the 2008 global meltdown, we have not seen anything like the New Deal, in terms of redistribution or reform. The paper argues that this is because political capture by a small economic elite is much more complete this time around.

Is Inequality All About the Tails? The Palma, the Gini and Post-2015

Duncan Green's picture

Alex Cobham and Andy Sumner bring us up to date on the techie-but-important debate over how to measure inequality

It’s about six months since we triggered a good wonk-tastic discussion here on Duncan’s blog on how to measure inequality. We proposed a new indicator and called it ‘the Palma’ after Chilean economist Gabriel Palma, on whose work it was based. We suggested the Palma would complement, or perhaps even replace the (in our view) less useful Gini index. Here we bring things up to date with a look at inequality in the post-2015 debate, and present some further findings on the relative merits of Gini and Palma, based on our new paper.

First, post-2015 and all that.

Last week the Center for Global Development held an event in Washington DC to discuss the best income inequality measures for post-2015, with both a technical panel (video) comparing alternative measures, including the median, the Palma, the Commitment to Equity indicator and a multidimensional approach.

There was also a ‘user’ panel (video) with wonks from the IADB, IMF, Oxfam, UNICEF and the World Bank, discussing the policy need and the scope for implementation. While panelists and other participants did not agree on the idea of a post-2015 inequality goal or target (surprise, surprise), there was near unanimity on the importance of measuring income inequality, and doing so better than we do now.

Merit, Privilege or Slumdog Millionaires? Income Inequality and Social Mobility

Duncan Green's picture

In memory of Sebastian Levine, who liked to read these posts.

This post is written by Ricardo Fuentes-Nieva, Oxfam’s Head of Research (twitter @rivefuentes)

In Danny Boyle’s movie Slumdog Millionaire, the young character wins a large pot of money against all odds. The movie is a fantasy tale for all practical purposes. The hero knows the responses posed to him in a quiz show through a number of coincidences and lucky breaks. It was his only chance to become wealthy.

What type of societies give better, more just chances to everyone? What is the connection between opportunity and socio-economic disparities? There are, at the risk of being simplistic, two broad sources of inequality: inequality resulting from individual entrepreneurship and effort (I’ll call it merit inequality) and the inequality that reproduces privilege and elite capture (I’ll call it privilege inequality).

A simple way to discover whether inequality is actually a result of merit is to think how far effort and hard work can take us. I recently heard Kaushik Basu, the new Chief Economist at the World Bank, detail an anecdote about this during a meeting with civil society people in London.  When Basu visits his home city of Kolkata he goes for long walks and sometimes he wanders around a privileged district that stands in sharp contrast with the nearby slums. The close proximity of the two vastly different lifestyles ensures that slum dwellers also visit this district. Then Basu said, to the best of my recollection: “it is not fair to tell a kid in the slum that by working hard he will be able to achieve the wealth needed to live in that neighbourhood.”

We Are Here, Now Change the Subject

Sina Odugbemi's picture

According to the distinguished  political scientist, Sidney Tarrow, Occupy Wall Street -- and I suppose similar movements breaking out in much of the industrialized West --  are 'We are here' movements. For now, all they saying is: 'Recognize us!' As he points out, 'We are here' movements can either fizzle out or morph into something more powerful and insistent. It is too early to tell what will happen in this case. What he is clear about is that Occupy Wall Street is a wake-up call to the governing elite, one that members of that elite had better heed. The entire Foreign Affairs piece is worth reading.