Public policy and European society University of Castellanza Session 3(a) Inequality and poverty in Europe and the USA November

Outline l Inequality »Measuring »Causes l Poverty »Measuring »Comparing between EU Member States

Income distributions Income distributions are more or less equal and have different shapes

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

Income distributions l Continuous distribution »Groups are statistical not social l 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). Are rich countries more equal?

Growing inequality in USA Source: Ryscavage, p59. The table is based on percentages of units: It shows the share of all income (‘Percentage of Income’ received by each 20% (‘Quintile’) of the population

Gender equality and social inequality…. Source: Ryscavage. P.98. Chart shows during the 1960s and 1970s 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. And what does this say about inequality between households?

Why is USA more unequal than Europe? l Overall government spending »Higher in Europe (EU15) than USA, especially on social programmes transferring to households; US military spending far higher l State programmes »Income support »Health care »Sickness and injury »Disability »Pensions l Impact of »Taxation »Labour market regulation »Goods market regulation »But charity? l Overall – USA more equal than Europe especially because (a) ‘The American poor are reall]y poor’ (b) Big government tend to reduce inequality (but Italy) [c] American rich are really rich Source: Alesina and Glaser, chapter 2

Growing inequality: some possible causes l Globalisation –Falling demand for unskilled labour –Competition for unskilled jobs through outsourcing and/or mass immigration l Sectoral and structural change –Fewer well-paid male manual jobs (see ‘Full Monty’ film) –Service sector more polarised than manufacturing industry –Mass unemployment –New impact of women’s labour force participation l Earnings inequality within sectors –Privatisation & marketisation –Lower demand for unskilled –Winner takes all job market’ –Managers able to demand higher ‘remuneration’ especially in financial services l Political »Tax cuts and changes benefit rich »Reduced income support and welfare »Decline of trade unions

Defining poverty l Absolute 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? l 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 l Headcount »Number of people below a specific level of income l Depth of poverty »Attempt to measure how many poor are very poor- i.e. their distance from the poverty line l 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 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 In EU27 16% of the population are in poverty – ranging from 10% in the Czech Republic and the Netherlands to 21% in Latvia Children and old people are usually more likely to be in poverty

Children in poverty EU 2005 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 Some countries are much more effective than others at reducing poverty in single parent households