Public policy and European society University of Castellanza Session 3(b) Income inequality and poverty November 12 2009

Gradients of Inequality Income distributions Growing inequality Poverty

Defining income Different sources of income Before or after tax Primary employment Property income State transfers Inputed income (e.g. state education) Before or after tax Unit: Individual or household Sources: surveys, tax returns

Income distributions Continuous distribution Groups are statistical not social Measuring Income inequality Gini coefficients 0=complete equality, 1 = complete inequality Percentages of units (people/ households) What is the income of (e.g.) the poorest 10%? Percentages of income What percentage of units have (e.g.) less than 50% of the average (mean or median) income?

Income inequality within EU: Gini coefficients The Gini coefficient is the simplest measure of inequality of any distribution: 0 means total equality (everybody is equal) and 1 total inequality (1 person has everything). The chart suggests there is little relationship between economic growth, overall wealth and the extent of inequality.

Growing inequality in USA Source: Ryscavage, p59.

Gender equality and social inequality…. Source: Ryscavage. P.98. Chart shows during the 1960s and 1970s this initially means growing equality amongst women (the period when women began to enter the workforce), but then from the late 1970s inequality amongst women increases. By contrast inequality amongst men has been rising since the early 1970s.

Growing inequality Globalisation Sectoral and structural change Falling demand for unskilled labour Competition for unskilled jobs through outsourcing and/or mass immigration Sectoral and structural change Fewer well-paid male manual jobs Service sector polarised Mass unemployment New impact of women’s labour force participation Earnings inequality within sectors Privatisation & marketisation Lower demand for unskilled Winner takes all job market Political Tax cuts and changes benefit rich Reduced income support and welfare Decline of trade unions

Defining poverty Absolute poverty Relative poverty Minimum necessary for ‘survival’ (Rowntree, early 20c) USA poverty line 1963 ‘minimum needed to purchase bare necessities’ BUT social definitions of ‘minimum’ – the same in Calcutta and London, even Warsaw and Dublin? Relative poverty Related to ‘normal’ income in society Frequently linked to notions of social participation and ‘inclusion’ [People are poor who…]lack the resources to obtain the type of diet, participate in the activities and have the living conditions which are customary, or at least widely recognised or approved, in the societies to which they belong (Townsend 1979: 31 quoted in Mingione 1996:8). This assumes a ‘cut off point’ in income below which people are excluded – which in principle can be empirically located Assumes social consensus on what is ‘normal’ which may itself be more plausible in relatively egalitarian societies! The EU has agreed a ‘poverty line’ for each Member State of 60% of the median income in that Member State. Using this definition we can see how many people are in ‘[relative] poverty’, we can even attempt to abolish poverty.

Measuring poverty Headcount Depth of poverty Risk of poverty Number of people below a specific level of income Depth of poverty Attempt to measure how many poor are very poor- i.e. their distance from the poverty line Risk of poverty Income poverty does not necessarily mean poor living standards (housing, already purchased consumption goods etc) Movement in and out of poverty: people may only be ‘poor’ for very short periods

Poverty rates in the EU 2003 At risk of poverty rate by country 2003; ‘at risk’ of live in households where household income ‘is below 60% of the national equivalised income. Source: Joint Report on Social Protection and Social Inclusion 2006; data from Eurostat.

‘At risk thresholds’ EU 25 2005 Illustrative values for a household of two adults with two dependent children (under 14); threshold is 60% of the median income in the specific Member State

Poverty in the EU c2007 Children and old people are usually more likely to be in poverty In EU27 16% of the population are in poverty – ranging from 10% in the Czech Republic and the Netherlands to 21% in Latvia

Children in poverty EU 2005 Some countries are much more effective than others at reducing poverty in single parent households Chart shows % of all children and of children in different households who are ‘at risk’ of poverty in the different EU member states: from Sweden at the lowest to Poland at the highest. Source: Joint Report on Social Inclusion....2008.

National or European standards? Taking those with less than one third of average income in EU as in extreme poverty For total population of EU15 (1997) Total 2.7% Luxembourg 0.4% France 2.1% Greece 9.4% EU22 (EU25 less Latvia, Lithuanian and Slovakia) France 1.9% Poland 34.6% Estonia 51.8% EU27 France 1.8% Bulgaria 63.6% Source Schmitter & Bauer (2001)

National or European standards? The median income in Romania is far less than the poverty threshold in most EU states Source: Fahey (2007) using 2001 EU indicators

New welfare state? New demands New risks New state Criticism Choice - those who have least choice are usually poorest Empowerment Potentially these can drive up standards and above all reduce ‘capture’ of welfare systems and services by providers (e.g. education, health, social work…) Recognition of diversity and lifestyle change (e.g. family form) New risks Growing changes over life course, especially but not only in employment, often unpredictable New state From remedial to enabling (e.g. Life Long Learning) From passive to active support (e.g. Active Labour Market Policies) Reconciliation of social diversity with social solidarity (Rights and duties) Criticism Risks under-estimating growing income inequality and poverty (e.g. new ‘working poor’ in Germany) Undermines public ethos in state services