Public policy and European society
University of Castellanza
Session 3(a)
Inequality
in Europe and the USA
March 2 2012
Outline

Inequality
» Measuring
» Causes
How and why is the USA so different?
 Recent changes in Europe

Income distributions
Proportion of Population in Income Bands
USA
UK
>200
150 to 200
Sw eden
>120 to <150
>80 to <120
Italy
>50 to <80
<50%
Germany
France
0%
20%
40%
60%
Population (adult equivalent)
80%
100%
Income
distributions are
more or less
equal and have
different shapes
Defining income

Different sources of income
» Primary employment
» Property income
» State transfers
» Imputed 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%?
– Decile (or quintile) ratios (ratio of richest to poorest)
» 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
U
Es K
to
nia
La
t
Po via
rtu
ga
l
Sl
ov
en
Sw ia
e
De den
nm
a
Fi rk
n
Cz lan
ec d
h
Re
Au p
s
Be tria
Lu lg
xe ium
m
Ne bo
t h urg
er
lan
ds
Cy
p
Hu rus
ng
ar
Fr y
a
G nce
er
m
Lit any
hu
an
ia
M
alt
a
Sp
ai
Po n
lan
Ire d
lan
G d
re
ec
e
I
Sl t aly
ov
ak
ia
40.0
35.0
30.0
25.0
20.0
15.0
10.0
5.0
0.0
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
And what does this say
early 1970s.
about inequality
between households?
Growing inequality in USA…
For the last 40 years:
the very rich have got
richer; the poor have
stayed the same
Why is USA more unequal than
Europe?

Overall government spending
»

State programmes
»
»
»
»
»

Income support
Health care
Sickness and injury
Disability
Pensions
Impact of
»
»
»
»

Higher in Europe (EU15) than USA, especially on social programmes transferring to
households; US military spending far higher
Taxation
Labour market regulation
Goods market regulation
But charity?
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

Globalisation
– Falling demand for unskilled labour
– Competition for unskilled jobs through outsourcing and/or mass immigration

Sectoral and structural change
–
–
–
–

Earnings inequality within sectors
–
–
–
–

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
Privatisation & marketisation
Lower demand for unskilled
Winner takes all job market’
Managers able to demand higher ‘remuneration’ especially in financial services
Political
»
»
»
Tax cuts and changes benefit rich
Reduced income support and welfare
Decline of trade unions
The big difference
between the USA
and Europe seems
to be political
UK: more equal
Germany: more unequal
European convergence
Equal societies
(e.g. Sweden,
Germany) have
been getting more
unequal; but some
unequal societies
(e.g UK) have got
more equal