1. 1 Shrinking middle classes: Public policies and polarization of incomes Louis Chauvel with Eyal Bar-Haim University of Luxembourg louis.chauvel@uni.lu http://www.louischauvel.org IRSEI Institute for Research on Socio-Economic Inequality www.louischauvel.org/espanet_2015.htm

2. 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. 3 http://orbilu.uni.lu/handle/10993/18773 Chauvel, L. (2014), The Intensity and Shape of Inequality: The ABG Method of Distributional Analysis. Review of Income and Wealth. doi: 10.1111/roiw.12161 http://www.louischauvel.org Welfare Regimes, Cohorts and the Middle Classes http://orbilu.uni.lu/handle/10993/7040

4. 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, 405-423, 2005. Alderson, Arthur S. and Kevin Doran. 2013. “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, 2013. Mau S. (2012) Lebenschancen. Wohin driftet die Mittelschicht? Suhrkamp Verlag (Frankfurt/M).

5. 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. 6 The strobiloid = graphing changing shapes

7. 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. 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. 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. 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. 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

12.  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. 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. 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. 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. 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. 17 The strobiloid = graphing changing shapes

18. 18 The isograph = graphing local level inequality

19. 19

20. 20

21. 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. 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. 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. 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. 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

26. hv 26 1 2 3 4 5 Average isographs of a typology of 25 countries early 1990s’ and in the 2000s’

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

28. 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. 29 Isographs of before/after Redistribution in 23 countries in the 2000s’