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I was taught, in Cambridge, England, and Cambridge, Massachusetts, to ask, "Who gains and who loses?" from an economic change or policy. This is a question that is often missing from today's media discussion and policy debate. Many economic models assume identical representative agents carrying out sophisticated decision-making, where distribution issues are suppressed, leaving no space to consider the justice of the resulting outcome. For me, there should be room for such discussion. There is not just one Economics.
The choice between consumption and income depends on the purpose of the analysis. In the case of poverty measurement, the answer depends on which of two different conceptions we espouse. The first concept is concerned with the standard of living; the second concept is concerned with the right to a minimum level of resources. Historically, studies of poverty have adopted the first approach, and those that measured income did so on the grounds that low levels of income allowed little scope for saving, so that the income provided a good basis for measuring consumption. [...] The difference between the two approaches can be illustrated by the measurement of poverty for men and women. On a standard-of-living approach it may be legitimate to set different poverty lines for men and women, on the grounds that women have smaller nutritional needs, and this was indeed the case with the US official poverty line in its early years. [...] On a minimum-rights approach, such differentiation would be unacceptable.
The use of consumer spending as an indicator of poverty or overall inequality is open to the objection that spending, like income, is a means to an end. Crucial inequalities can arise in the process of consumption: in the activity of converting money into goods and services. These include differential access to goods and services on account of different prices [...]
consumption inequalities: more expensive supermarkets; higher energy prices/rent; non-availability of goods and services like loans; spatial differences like access to healthcare or parks or education
[...] in the labour market "the most important change was the influx of women into the job market, particularly of married women with children." In 1947, one-fifth (22 per cent) or married women (living with their husbands) were in the paid labour force; thirty years later, the figure was close to one-half (47 per cent). [...] In the immediate postwar perod, it appears that increased participation enhanced the earnings of households in the lower part of the distribution. Summarising the postwar US experience, Nan Maxwell writes that "for husband-wife families prior to 1970, equalizing impacts stem from relatively high participation rates of women married to low-earning men." However, after 1970, "increased participation came mainly from women with above-average earnings growth who were married to high-earning men. Hence, continued increased female labor force participation may increase inequality for dual-earning husband-wife families."
two waves: initially, only the women who really NEEDED to work (to complement their husband's low income) did so; in the second wave, more women who didn't really need to work (because their husband made enough money) but wanted to increase their income by a substantial amount (because they could get good jobs) started working
From this account, it is clear that the relationship between unemployment and inequality is an intricate one [...] Nonetheless, involuntary unemployment is of concern in its own right, and for this reason alone it receives considerable attention in what follows. Unemployment, and attendant job precariousness, are themselves sources of inequality. A person rejected by the labour market is suffering a form of social exclusion, and even if full income replacement were to allow his or her standard of living to be maintained during unemployment, the individual's circumstances would have worsened. Above all, it is a matter of agency and a sense of powerlessness. [...]
depends on whether there's good unemployment insurance etc
With the qualification that we have insufficient information about incomes at the top, we see in Latin America an episode of falling inequality that extends over a wide range of countries. [...] "there is no clear link between the decline in inequality and economic growth. Inequality has declined in countries which have experienced rapid economic growth, such as Chile, Panama, and Peru, and in countries with low-growth spells, such as Brazil and Mexico. Nor is there a link between falling inequality and the orientation of political regimes. Inequality has declined in countries governed by leftist regimes, such as Argentina, Bolivia, Brazil, Chile, and Venezuela, and in countries governed by centrist and center-right parties, such as Mexico and Peru." Rather, they suggest that the fall was brought about by a reduction in the wage premium for more educated workers, and by progressive government transfers.
skilled workers need to stop making so much more than unskilled, and there needs to be a safety net
- globalisation
- technological change (information and communications technology)
- growth of financial services
- changing pay norms
- reduced role of trade unions
- scaling back of the redistributive tax-and-transfer policy
[...] we risk creating the impression that inequality is rising on account of forces outside our control. It is far from obvious that these factors are beyond our influence or that they are exogenous to the economic and social system. Globalisation is the result of decisions taken by international organisations, by national governments, by corporations, and by individuals as workers and consumers. The direction of technological change is the product of decisions by firms, researchers, and governments. The financial sector may have grown to meet the demands of an aeing population in need of financial instruments that provide for retirement, but the form it has taken and the regulation of the industry have been subject to political and economic choices.
rise in inequality due to changes in the balance of power
[...] the decline in unionisation is the result of the bias in technical change towards skilled workers. Technological change biased towards skilled workers undermines the coalition between them and unskilled workers that provides the basis for union bargaining power, and the consequent decline in unionisation amplifies the rise in wage dispersion.
divide and conquer applied to the workforce on the part of management (as a proxy for capital)
One reason for there being no comparable unemployment target is that there is a degree of ambiguity about the goal itself. Indeed, we have to ask why the US Congress is seeking "maximum employment." Why is it better to increase the number of sixty-four-year-olds stacking supermarket shelves? To pursue this further, we have to distinguish between intrinsic and instrumental reasons for seeking to increase employment. The instrumental reason is that with which I began the chapter: that employment is the principal route for individuals and their families to escape poverty and for societies to return to lower levels of inequality. [...]
[...] the labour-market goal should be stated, not in terms of maximising employment but in terms of minimising involuntary employment [...]
he differentiates between people who choose to not work (because they want to look after their children, for instance) and those who are looking for more work
[...] When richer families have more children, inequality is reduced [...] "The average upper middle-class familiy is only two-thirds of the size of the average working-class family. Hence, in the absence of modifications introduced by marriage, fresh accumulations, and taxation, the distribution of property would be likely to become more and more unequal." [...] better-off families having fewer children and hence accentuating the tendency towards greater inequality.
But what exactly is the output of the financial services sector? [...] If one investment fund is outperforming another through picking the right shares, is not another fund losing on the other side of the equation? What makes it a positive-sum rather than a zero-sum business? [...] "Common sense suggests that if a closed circle of people continuously exchange bits of paper with each other, the total value of these bits of paper will not change much, if at all. If some members of that closed circle make extraordinary profits, these profits can only be made at the expense of other members of the same circle." [...]