1 Shrinking middle classes: Public policies and polarization of incomes Louis Chauvel with Eyal Bar-Haim University of Luxembourg IRSEI Institute for Research on Socio-Economic Inequality

The “wage earner society” French-style from expansion to backlash Former elements of “middlization” *Homogenization *Objective upward mobility *Beliefs in progress Contemporary challenges: destabilization of middle classes *New heterogeneity *Risks of downward intergenerational mobility *Anxiety 2

3 Chauvel, L. (2014), The Intensity and Shape of Inequality: The ABG Method of Distributional Analysis. Review of Income and Wealth. doi: /roiw Welfare Regimes, Cohorts and the Middle Classes

4 Alderson, A. S., J. Beckfield and F. Nielsen, Exactly How Has Income Inequality Changed? Patterns of Distributional Change in Core Societies. International Journal of Comparative Sociology, 46, , Alderson, Arthur S. and Kevin Doran “How Has Income Inequality Grown? The Reshaping of the Income Distribution in LIS Countries.” Pp. 51–74 in Gornick, Janet and Markus Jäntti (eds.). Income Inequality: Economic Disparities and the Middle Class in Affluent Countries. Stanford, CA: Stanford University Press. Dallinger, U., "The Endangered Middle Class? A Comparative Analysis of the Role Public Redistribution Plays", Journal of European Social Policy, 23(1), 83–101, Mau S. (2012) Lebenschancen. Wohin driftet die Mittelschicht? Suhrkamp Verlag (Frankfurt/M).

5 0. The central question : different shapes of inequality & the middle classes 1.A new methodological tool: the isograph 2.Data : LIS microdatasets of 25 western countries 3.Empirical changes of isograph shapes 4.Impact of changes : simulations 5.A typology of inequality shapes and the middle classes 6.Conclusions : earnings, redistributions, public policies and the interests of the middle classes

6 The strobiloid = graphing changing shapes

The German Strobiloid 2010 representation of income distribution Upper middle class Lawyers Medical docs Nurses School Teachers Drivers Cleaning laborers Shop assist. Engineers Managers… Indust. workers

8 Previous results: Gini is a convenient but very imperfect measure of inequality (a-unable to show the shape of inequality b- bad representation of the lower strata situation) Questions: 1- Can we improve the existing tools to understand middle classes problems? 2- Is there a single middle class policy or a diversity of policies? (with diverse consequences for the middle classes?) 3- Are these diverse policies empirically relevant? (do we detect cases?) [4- What is the role of primary incomes (earnings+capital inc) distribution and the one of redistribution]

9 The interests of the middle class: Higher incomes => find resources to redistribute (=tax the rich, f.ex.) (lower Gini is good but the poor can benefit even more…) Higher “density” => homogeneity of middle class is politically good (lower Gini is good, in general) Lower distance with the rich => can compete for consumption (lower Gini is good in general) Higher distance with the poor (come on, who will iron my shirts?)

10 0. The central question : different shapes of inequality & the middle classes 1.A new methodological tool: the isograph 2.Data : LIS microdatasets of 25 western countries 3.Empirical changes of isograph shapes 4.Impact of changes : simulations 5.A typology of inequality shapes and the middle classes 6.Conclusions : earnings, redistributions, public policies and the interests of the middle classes

11  Consider log(M) where M is the “medianized” eq income  Logit-rank=log (p / (1- p) ) where p is the “fractional rank” ( 0 < p < 1)  We graph ln(M) by logit(p) => “almost” a straight line 1- From Pareto log-log to Pen’s Parade, and to logit-log Logit (p) Y=Ln(M medianized income) If this is a perfect straight line  = Gini index (Dagum 1975) X=Logit-rank

 Logit-rank transformation is a convenient tool to transform ordinal variables in ]–infinite ; + infinite[ standardized distribution  In the context of distributional analysis, it provides a “net of distributional change” relative reference position of individuals and of groups  It is more convenient than percentiles levels [between 0 and 1] that present border issues  Useful in income volatility analysis and in contexts where “positional” aspects are central 12 Logit-Rank & Applications 0 is median 2 is close to top decile 1 is close to top quartile 3 is close to top vingtile 4 is close to top 2% … 5 is close to top 1%

13 The Isograph = slope on the CF Graph = local inequality Y=Ln (medinc) X=Logit(fr) (1) (2) (3) (4)  (1)Higher inequality at the top  (2) Lower inequality at the top  (3) Higher inequality at the bottom  (4) Lower inequality at the top    The stronger the slope, The higher local inequality Isograph = Slope ISO = Y/X

14 0. The central question : different shapes of inequality & the middle classes 1.A new methodological tool: the isograph 2.Data : LIS microdatasets of 25 western countries 3.Empirical changes of isograph shapes 4.Impact of changes : simulations 5.A typology of inequality shapes and the middle classes 6.Conclusions : earnings, redistributions, public policies and the interests of the middle classes

15 2- Data and measurements : Data : Lis source of medianized equivalized disposable income after tax and transfers (09/07/2015) From 241 country/year samples => 25 western nations with 1990s’ and 2000s’ samples

16 0. The central question : different shapes of inequality & the middle classes 1.A new methodological tool: the isograph 2.Data : LIS microdatasets of 25 western countries 3.Empirical changes of isograph shapes 4.Impact of changes : simulations 5.A typology of inequality shapes and the middle classes 6.Conclusions : earnings, redistributions, public policies and the interests of the middle classes

17 The strobiloid = graphing changing shapes

18 The isograph = graphing local level inequality

19

20

21 0. The central question : different shapes of inequality & the middle classes 1.A new methodological tool: the isograph 2.Data : LIS microdatasets of 25 western countries 3.Empirical changes of isograph shapes 4.Impact of changes : simulations 5.A typology of inequality shapes and the middle classes 6.Conclusions : earnings, redistributions, public policies and the interests of the middle classes

22 The isographs of 3 public policies Initial distribution, Gini = 35% Policy 1, homothetic equalization Gini = 30% Policy 2, median friendly and anti-poor Policy 3, median un-friendly Distribution of 8% of the GDP, initial Gini = 35%, final Gini = 30%

23 Gains and losses of 3 public policies Compared to the initial distribution, Gini = 35% Policy 3, median un-friendly Policy 2, median friendly and anti-poor Policy 1, homothetic equalization Gini = 30%

24 Density changes of 3 public policies Compared to the initial distribution, Gini = 35% Policy 3, median un-friendly Policy 2, median friendly and anti-poor Policy 1, homothetic equalization Gini = 30%

25 0. The central question : different shapes of inequality & the middle classes 1.A new methodological tool: the isograph 2.Data : LIS microdatasets of 25 western countries 3.Empirical changes of isograph shapes 4.Impact of changes : simulations 5.A typology of inequality shapes and the middle classes 6.Conclusions : earnings, redistributions, public policies and the interests of the middle classes

hv Average isographs of a typology of 25 countries early 1990s’ and in the 2000s’

27 Moving countries of the typology of 25 countries early 1990s’ and in the 2000s’

28 A – Distribution analysis is even more complicated than previously thought B – Declining Gini is good, in general, for the middle classes C – Important degrees of freedom exist for middle classes development (or decay) D – Countries with similar Gini indexes may have significantly different shapes E – The income distribution models are relatively stable over time F – Changes in the typology exist (towards more inequality) G – Further research will focus on the role of primary incomes and on redistributions 6- Conclusion

29 Isographs of before/after Redistribution in 23 countries in the 2000s’