Olga Cantó Sánchez via The Conversation | In many developed countries inequalities in income and economic poverty has increased over the last four decades. Studies of the issue link this progressive increase to the lack of improvements in social policy to correct the growing economic vulnerability of broad sections of the population, which suffer from precarious work linked to temporary and part-time employment and low wages.
A state which intervenes less than it should
Thus, lacking major intervention by the state, the progressive deterioration in labour conditions from the seventies until now lies behind the growing inequality and impoverishment of the population in many wealthy countries.
The sharp economic recession in the last decade, worsened by Europe´s fiscal consolidation policies, has contributed to the deterioration in purchasing power suffered by many low and medium income families, increasing the number of families living below the poverty threshold, especially in the south of Europe.
Increasing inequality of income
The authors of the latest report on global inequality, published by the World Inequality Lab in 2018, conclude that income inequality has increased in practically all regions on the world in recent decades, although at different speeds.
Since 1980 income inequality has increased in the US, China, India and Russia, and also in European countries, but with significant differences in levels and tendencies. In other words, it is observed that countries with similar levels of development have very different levels of inequality, which shows the importance of national policies and institutions in influencing it.
Proof of this is that Europe and the US had similar levels of income inequality three decades, but today are in very different situations.
Focusing the discussion on more developed countries, the report concludes that in the US participation in the wealthiest 1% of national income has doubled in the last three years, while in western European countries this participation has increased much more slowly.
In addition, in the US the participation in the poorest half of the population in national income has fallen by a third, whereas in Europe it has remained almost stable, falling only slightly.
Differences between the US and Europe
According to the authors, the keys to understanding these differences between the US and Europe are, firstly, the enormous educational inequality in the US which does not stop growing and drives wage inequality, and, secondly, the growing increase in inequality in the income from capital in that country and its ever less progressive tax system. In Europe it is important to highlight the important divergences observed between countries over recent decades, both in the size of inequality and in its tendency, which is closely linked to the different functioning of the labour market in each country and the level of protection offered by each welfare system.
In this line of thought, recent works on the issue show that the 27 European countries are different in the scale of redistributive effects of their systems of taxes and benefits and their temporal evolution over the last decade has also differed depending on the evolution of market incomes and the reforms carried out during the recession.
Austerity policies and increases in inequality
In general, recent empirical evidence points to the association in many EU countries between austerity policies and the increases in inequality in disposable income, principally in the high part of the distribution. It is not like that in periphery countries like Spain, where increases in public incomes have been achieved through increase personal and consumption taxation, rather than increasing taxes on profits and capital gains.
As a consequence, in southern European countries the economic recession combined with fiscal consolidation has drive the increase in inequality of disposable income and the reduction in the purchasing power in many modest households, located in the lower tail of the distribution.
As revealed in multiple recent reports, Spain is one of the OECD countries where income inequality has grown most during the recession and is currently among the four countries with the greatest Gini coefficient in the EU, only behind Bulgaria, Lithuania and Latvia.
What maintained our income inequality close to the level of other countries was the compression of market incomes and the weight of the contributary pension system, which made it hard to see that the rest of our tax and benefit system, even then, was not reducing inequalities as were those in neighbouring countries.
When the recession arrived
As a consequence, when the recession arrived and both unemployment and underemployment increased, the growing inequality in market incomes made clear the weakness of our welfare system and that without progressive reforms we would risk placing ourselves at the head of inequality of disposable income in EU countries as a whole.
Unfortunately, the recovery of growth and reduction in unemployment from 2015 until today, alone, has not been able to return us to the levels of income inequality from before the recession, as is concluded by the authors of the Report on Economic and Material Welfare of the Social Observatory of the Caixa, and it is worrying to see clear signs recent years of an increase of poor workers as a proportion of the population and of precarious employment.
In little more than a decade, the proportion of the population which is underemployed, people who live in households where those employed are below 20% of their work potential, has increased in our country from 3 to 7%, and workers who live in poor households has gone from 14 to 16%.