Varieties of Economic Inequality

Sebastiano Fadda, Pasquale Tridico, Sebastiano Fadda, Pasquale Tridico

• Publisher: Routledge
• Year: 2016
• Print ISBN:
  9780367356859
• eBook ISBN:
  9781317402138
• Topic: Economics
• Subtopic: Economic Theory
• Index: Economics

Recently, the issue of inequality has regained attention in economic and political debates. Although this interest is welcome, the debate is still mostly focused on income or wealth distribution, which is an important aspect but does not present a complete view of inequality. Most of the theoretical and empirical studies produced by economists concern personal income distribution or factor income distribution. This is more evident in the studies of the evolution and characteristics of contemporary capitalism and globalization.

Varieties of Economic Inequality considers both theoretical perspectives and empirical evidence of aspects such as income, gender, race, technology, power, region, education and class. Ultimately, this text rejects the idea of supposed long run constant factor shares, the positive effects of inequality and the greater importance of absolute level of income compared to its unequal distribution, and instead reveals the structural inequalities that exist within societies.

This book advocates a move away from the focusing on inequality at the level of the individual and suggests policy for eradicating these various forms of inequality. It is suitable for those who study political economy, social inequality as well as economic theory and philosophy.

Part I
Definitions and approaches

1
Not just slicing the pie

The need for a broader approach to economic inequality

Pasquale De Muro

Introduction

In 1958, in the first edition of The Affluent Society, John K. Galbraith wrote that “few things are more evident in modern social history than the decline of interest in inequality as an economic issue” (p. 72). The current attitude is quite different, and in fact Milanovic´ (2007), one of the contemporary leading scholars of income inequality, wrote that “world inequality is a topic whose time has come” (p. 3).

At first, because of the effects of late globalization and the post-Fordist accumulation regime, then because of the social impact of the Great Recession, the issue of inequality has recently regained attention in the economic and political debate. The dispute is particularly lively in the USA,¹ where even President Obama and New York’s Mayor De Blasio have addressed the issue in some of their public speeches, while Europe – once very concerned about social justice – is now mostly focused on macroeconomic imbalances rather than on its polarizing living standards.

Although we must welcome and support this renewed interest – that reconnects contemporary “economics” to classical “political economy” – we should, however, also notice that unfortunately the debate is still mostly focused on income and/or wealth distribution, i.e. “how the pie is sliced” (Rycroft, 2013), which is a very important but rather narrow view of economic inequality. Even if in the last decades some scholars have introduced and developed more comprehensive and multidimensional approaches to economic inequality (Maasoumi, 1986, 1999; Sen, 1992; Tsui, 1995, 1999 ; Weymark, 2006; Decanq et al., 2009; Decancq and Lugo, 2012; Aaberge and Brandolini, 2015), most of the past and current debate as well as of theoretical and empirical studies produced by economists concern personal income distribution or factor (functional) income distribution. This is more evident in the studies of the evolution and characteristics of contemporary capitalism (Piketty, 2013) and globalization (Cornia, 2003; Maskin, 2014).

A common justification for the focus on income and wealth distribution is that it is considered the “mother” of most other forms of inequality or the “fundamental inequality of capitalism” (Piketty, 2013). Namely, (1) income distribution is generally deemed a paramount sign and indicator of overall inequality, (2) other inequalities are considered a reflection of income distribution, i.e. income may be used as proxy of other variables, and (3) a better income distribution is regarded as a necessary and often sufficient condition for reducing many other inequalities. In those monetary approaches,² income or wealth (re)distribution is largely identified with the social justice issue.

Following a pioneering but not well-known article of Sen (1997),³ this work aims at showing that, notwithstanding their importance and role, the exclusive focus on income and wealth has some relevant drawbacks, and it suggests that a broader approach is needed. Section 2 of the paper concerns some relevant semantic problems. In section 3, the limitations of the conventional monetary approach are presented, while section 4 illustrates the complexity of inequality, across multiple dimensions and scales. In the last section, there will be some general conclusions.

Unequal meanings

Before proceeding to our analysis, it is useful to make some preliminary clarifications on the terminology that will be used, in order to avoid possible misunderstandings. The first clarification concerns the term “multidimensional”, that has been cited above and is widely used in the recent studies on poverty and inequality measurement. In the vast literature on inequality, there is of course already some attention about the many dimensions of inequality. However, the term “multidimensional” sometimes is used with different, inconsistent meanings. For instance, Sawyer (1989) wrote that “there are many dimensions to inequality, and this would include inequality between and within social classes, between regions and countries” (p. 17). Likewise, also “race”,⁴ gender and sexuality are often considered as dimensions of inequality (Ferguson, 2016), especially by non-economists. On the other side, Stewart (2002), while introducing the concept of “horizontal inequalities”, emphasized that they are «multidimensional—with political, economic and social elements» (p. 2).

What Sawyer and other scholars mean is that there are many levels,scales(regions, countries, …) or groups, units (class, gender, …) to income inequality. However in that conventional approach there is only one metric: the monetary metric based on income or resources.

In this work, the term “dimension” will be used with a different meaning: dimension refers to the metric (or space) used for the inequality assessment. Therefore, if we analyse income inequality across regions or across classes, we are using different levels – e.g. regions and classes – but the same dimension – income. If we assess education or health inequality across regions or across classes, those will be different dimensions of inequality, as the metrics are education or health – rather than income – measured across different levels or groups. If, for example, we use jointly education, health and income across one or more units, that will be a multidimensional approach. In this sense, multidimensional inequality refers to the fact that inequality is measured and assessed using different metrics, not just different scales. When different units are used, such as individuals and countries, in this work it will be called multiscale inequality. An example of the latter can be found in the debate about the effects of globalization: scholars compare the trend of income inequality between countries (using the average or median national income), within countries (usually between individuals or households), and between all individuals in the world. Regarding inequality between countries, Milanovic´ (2007) defines it as “Concept 1” of inequality, or unweighted international inequality, if each country is not weighted according to its population size, while he defines it as “Concept 2” of inequality, or weighted international inequality if we weight each country. Accordingly, he defines “Concept 3” of inequality the distribution of income across all individuals in the world. As we can see, Milanovic’s concepts of inequality are multiscale, but not multidimensional. The same limitation characterizes the debate about the effects of globalization on inequality at any scale.

Furthermore, we may assess multidimensional and multiscale inequality at the same time. For instance, in the “Inequality-adjusted Human Development Indicator” (IHDI) included in the Human Development Report (HDR) of UNDP since 2010, we have three dimensions (income, education, health) and two scales: between countries (though UNDP do not present a measure of intercountry inequality) and between individuals within countries.⁵

Another common misunderstanding concerns the supposed equivalence between income (or wealth) inequality and “economic” inequality. Some authors that study income or wealth distribution, instead of using the general term “inequality”, prefer to use the expression “economic inequality”, which seems more precise and informs the reader about the fact that the focus will be on income or wealth. Therefore, economists who are aware of the many dimensions of inequality, consider income and wealth distribution as “the economic dimension of inequality” (Atkinson, 2015, p. 14). On the contrary, according to Sen the distinction between income inequality and economic inequality is important, because of “the presence of causal influences on individual well-being and freedom that are economic in nature but that are not captured by the simple statistics of incomes and commodity holdings” (Sen 1997, p. 398). Accordingly, in the following section we will not use “economic” and “income” inequality as synonyms.

A narrow focus

There is no need to prove that the economic and political debate on inequality is almost entirely focused on income and wealth distribution. There is an extensive scientific and grey literature on inequality and in those writings, with very few exceptions, inequality means unequal income distribution. A leading example is the several excellent works on inequality by Atkinson, the “godfather” (Chu, 2015) of these studies. Even in his latest book on the subject, after discussing “what do we mean by inequality”, Atkinson concludes that “income is only one dimension, and differences in income should be interpreted in the light of differing circumstances and of the underlying opportunities. But it remains the case that achieved economic resources are a major source of injustice. That is my reason for concentrating here on the economic dimension of inequality” (Atkinson, 2015, p. 14), which for him it is measured by income and wealth. The problem is that for many economists “achieved economic resources” are the major source of injustice.

There are a number of interrelated reasons why the narrow focus on income and wealth is inadequate to the analysis of economic inequality, especially in a capitalist world-economy. Some of these reasons have been presented by Sen in his works, others have Marxian roots.

First, the focus on income and wealth leads to neglect or to leave in the background non-income economic and social inequalities that cause other not less severe and intolerable social injustices, which interact and couple with income inequality. Although, according to the conventional wisdom “achieved economic resources are a major source of injustice”, gender or ethnic discriminations in the labor market, for example, may be even a greater source of injustice, which may not be alleviated or compensated by better income distribution. For instance, the current participation of women to labor market (i.e. the “activity rate”) in Italy is around 54 per cent compared to 74 per cent for men: assuming that in general this is not a choice by women, that dimension of inequality is not less severe or unjust than the existing gender income inequality in Italy, neither can be measured or evaluated just looking at income and wealth distribution by gender. As a matter of fact, the exclusion from labour market is not just a deprivation of income and livelihood but also a source of many non-material severe deprivations and troubles that have been well documented by labour scholars. Another illuminating example is “racial” health inequality in the USA: “Although health outcomes have been tied to income and social economic status, there are black-white differences in life expectancy of at least 3 years at every level of income” (Devi, 2012, p. 1043). Is “living less” not a major source of injustice?

In our examples we cannot assume or conclude –as generally is done in the economic and political debate – that income inequality has a policy priority over employment or health inequality, neither we can assume that the reduction of the former may automatically lower the latter. Also, we cannot think that employment and health inequality are not constituents of economic inequality.

Some economists focus on income inequality because they think that non-income inequality is the field of other social scientists, but unfortunately even many sociologists, political scientists and legal scholars largel...

Table of contents

• Cover Page
• Half Title page
• Series Page
• Title Page
• Copyright Page
• Contents
• Figures
• Tables
• List of Contributors
• Acknowledgements
• Introduction Bridging theories and evidences of varieties of inequality
• Part I Definitions and approaches
• 1 Not just slicing the pie The need for a broader approach to economic inequality
• 2 Income inequality What causes it and how to curb it
• 3 Gender, class and the crisis
• 4 Economic inequality, political power and political decision-making The case of the “middle-income trap”
• Part II Empirical evidence and policy suggestions
• 5 Welfare models, inequality and economic performance during globalisation
• 6 Labour market institutions and wage inequality within education groups in Europe
• 7 Do rights matter? Comparing inequalities in the governance of the EU
• 8 Modern technologies, modern disparities Regional inequalities in innovations in the EU countries.
• 9 A classification of school-to-work transition regimes
• 10 Youth unemployment and the disadvantages of the young in the labour market
• Index