By: Alex Guyver,
on 9/14/2016
Amartya Sen’s famous study of famines found that people died not because of a lack of food availability in a country, but because some people lacked entitlements to food. Can the same now be applied to the causes of global poverty?
The post The poverty paradox appeared first on OUPblog.
By: ErinF,
on 5/31/2015
Recent events in Baltimore, Ferguson, and other places have highlighted the explosive potential of discrimination and inequality. Much attention has been paid to police practices, the long-term effect of joblessness, and the trauma of the criminal justice system incarcerating large numbers of African-Americans. This focus on the present is understandable. It is also insufficient. There is a need to understand and address the huge disadvantages, and indeed disabilities, imposed on future generations by pre-natal conditions.
The post Unequal at birth appeared first on OUPblog.
By: Kate Guenther,
on 4/8/2015
On the surface, inheritances are a source of moral repugnance. When we think of inheritances, we tend to think of families like the Rockefellers and Vanderbilts whose great fortunes were passed from one generation to the next. We also tend to think of “trust fund babies” – those rare individuals who have received enough money in inheritances or gifts (often in the form of a trust fund) so that they have no need to work over the course of their lifetime.
The post Are inheritances really that bad? appeared first on OUPblog.
By: Samantha Zimbler,
on 11/30/2014
How has the average American income shifted since the US Census bureau began collecting data in the 1950s? Are median wages rising or falling? Andrew Beveridge, Co-Founder and CEO of census data mapping program Social Explorer, gives us the hard data on income inequality in the United States. In the short video below, Beveridge analyzes decades of income data from the American census to illuminate the factors causing this economic disparity, which has increased significantly over the past four decades. Exploring median average income and wages through time, along with the implications behind these changes, allows for a more complete picture of the increasing wealth gap among modern-day Americans.
Featured image credit: A man sleeping under a luxury condo sign on the street of The Bowery in Manhattan. Photo by David Shankbone. CC-BY-SA-3.0 via Wikimedia Commons
The post Income inequality in the United States appeared first on OUPblog.
By: DanP,
on 9/10/2014
Quite abruptly income inequality has returned to the political agenda as a prominent societal issue. At least part of this can be attributed to Piketty’s provoking premise of rising concentration at the top end of the income and wealth distribution in Capital in the Twenty-First Century (2014), providing some academic ground for the ‘We are the 99 percent’ Occupy movement slogan. Yet, this revitalisation of inequality is based on broader concerns than the concentration at the very top alone. There is growing evidence that earnings in the bottom and the middle of the distribution have hardly risen, if at all, during the last 20 years or so. Incomes are becoming more dispersed not only at the top, but also more generally within developed countries.
We should distinguish between increasing concentration at the top and the rise of inequality across the entire population. Even though both developments might take place simultaneously, the causes, consequences, and possible policy responses differ.
The most widely accepted explanation for rising inequality across the entire population is so-called skill-biased technological change. Current technological developments are particularly suited for replacing routine jobs, which disproportionally lie in the middle of the income distribution. In addition, low- and middle-skilled manufacturing jobs are gradually being outsourced to low-wage countries (see for instance Autor et al., 2013). Decreasing influence of trade unions and more decentralised levels of wage coordination are also likely to play a role in creating more dispersed earnings patterns.
Increased globalisation or technological change are not likely to be main drivers of rising top income shares, though the larger size of markets allows for higher rewards at the top. Since the rise of top income shares was especially an Anglo-Saxon phenomenon, and as the majority of the top 1 per cent in these countries comes from the financial sector, executive compensation practices play a role. Marginal top tax cuts implemented in these countries and inherited wealth are potentially important as well.
So should we care about these larger income differences? At the end of the day this remains a normative question. Yet, whether higher levels of inequality have negative effects on the size of our total wealth is a more technical issue, albeit not a less contested one in political economy. Again, we should differentiate between effects of increasing concentration at the top and the broader higher levels of inequality. To start with the latter, higher dispersion could incite people to put forth additional effort, as the rewards will be higher as well. Yet, when inequality of income disequalises opportunities, there will be an economic cost as Krugman also argues. Investment in human capital for instance will be lower as Standard & Poor’s notes for the US.
High top income shares do not lead to suboptimal human capital investment, but will disrupt growth if the rich use their wealth for rent-seeking activities. Stiglitz and Hacker and Pierson in Winner-Take All Politics (2010) argue that this indeed takes place in the US. On the other hand, a concentration of wealth could facilitate large and risky investments with positive externalities.
If large income differences indeed come at the price of lower total economic output, then the solution seems simple: redistribute income from the rich to the poor. Yet, both means-tested transfers and progressive taxes based on economic outcomes such as income will negatively affect economic growth as they lower the incentives to gain additional wealth. It might thus be that ‘the cure is worse than the disease’, as the IMF phrases this dilemma. Nevertheless, there can be benefits of redistribution in addition to lessening any negative effects of inequality on growth. The provision of public insurance could have stimulating effects by allowing individuals to take risks to generate income.
How to leave from here? First of all, examining whether inequality or redistribution affects growth requires data that makes a clean distinction between inequality before and after redistribution across countries over time. There are interesting academic endeavours trying to decompose inequality into a part resulting from differences in effort and a part due to fixed circumstances, such as gender, race, or educational level of parents. This can help our understanding which ‘types’ of inequality negatively affect growth and which might boost it. Moreover, redistribution itself can be achieved through multiple means, some of which, such as higher heritage taxes, are likely to be more pro-growth than others, such as higher income tax rates.
All things considered, whether inequality or redistribution hampers growth is too broad of a question. Inequality at which part of the distribution, due to what economic factors, and how the state intervenes all matter a great deal for total growth.
The post Increasing income inequality appeared first on OUPblog.
By: Alice,
on 5/21/2014
Technology is changing. The climate is changing. Economic inequality is growing. These issues dominate much public debate and shape policy discussions from local city council meetings to the United Nations. Can we tackle them, or are the issues divisive enough that they’ll eventually get the better of us? In terms of global poverty, economist Marcelo Giugale believes that human beings have the resources and will to overcome the dire state of circumstances under which many people live. In this excerpt from his latest book, Economic Development: What Everyone Needs to Know, Giugale asserts that humans have the means to quash abject poverty on a global scale and make it a thing of the past.
Define poverty as living with two dollars a day or less. Now imagine that governments could put those two dollars and one cent in every poor person’s pocket with little effort and minimal waste. Poverty is finished. Of course, things are more complicated than that. But you get a sense of where modern social policy is going—and what will soon be possible.
Nancy Lindborg trip to South Sudan. USAID U.S. Agency for International Development. CC BY-NC 2.0 via USAID Flickr.
So, where will poverty fighters focus next? First, on better jobs. What matters to reduce poverty is not just jobs, but how productive that employment is. This highlights the need for a broad agenda of reforms to make an economy more competitive. It also points toward something much closer to the individual: skills, both cognitive (e.g., critical thinking or communication ability) and non-cognitive (e.g., attitude toward newness or sense of responsibility).
Second, poverty fighters will target projects that augment human opportunity. As will be explained next, it is now possible to measure how important personal circumstances—like skin color, birthplace, or gender—are in a child’s probability of accessing the services—like education, clean water, or the Internet—necessary to succeed in life. That measure, called the Human Opportunity Index, has opened the door for policymakers to focus not just on giving everybody the same rewards but also the same chances, not just on equality but on equity. A few countries, mostly in Latin America, now evaluate existing social programs, and design new ones, with equality of opportunity in mind. Others will follow.
And third, greater focus will be put on lowering social risk and enhancing social protection. A few quarters of recession, a sudden inflationary spike, or a natural disaster, and poverty counts skyrocket—and stay sky-high for years. The technology to protect the middle class from slipping into poverty, and the poor from sinking even deeper, is still rudimentary in the developing world. Just think of the scant coverage of unemployment insurance.
But the real breakthrough is that, to raise productivity, expand opportunity, or reduce risk, you now have a power tool: direct cash transfers. Most developing countries (thirty-five of them in Africa) have, over the last ten years, set up logistical mechanisms to send money directly to the poor—mainly through debit cards and cell phones. Initially, the emphasis was on the conditions attached to the transfer, such as keeping your child in school or visiting a clinic if you were pregnant. It soon became clear that the value of these programs was to be found less in their conditions than in the fact that they forced government agencies to know the poor by name. Now we know where they live, how much they earn, and how many kids they have.
That kind of state–citizen relationship is transforming social policy. Think of the massive amount of information it is generating in real time—how much things actually cost, what people really prefer, what impact government is having, what remains to be done. This is helping improve the quality of expenditures, that is, better targeting, design, efficiency, fairness, and, ultimately, results. It also helps deal with shocks like the global crisis (have you ever wondered why there was no social explosion in Mexico when the US economy nose-dived in early 2009?). Sure, giving away taxpayers’ money was bound to cause debate (how do you know you are not financing bums?). But so far, direct transfers have survived political transitions, from left to right (Chile) and from right to left (El Salvador). The debate has been about doing transfers well, not about abandoning them.
A final point. For all the promise of new poverty-reduction techniques, just getting everybody in the developing world over the two-dollar-a-day threshold would be no moral success. To understand why, try to picture your own life on a two-dollar-a-day budget (really, do it). But it would be a very good beginning.
Marcelo M. Giugale is the Director of Economic Policy and Poverty Reduction Programs for Africa at the World Bank and the author of Economic Development: What Everyone Needs to Know. A development expert and writer, his twenty-five years of experience span Africa, Central Asia, Eastern Europe, Latin-America and the Middle-East. He received decorations from the governments of Bolivia and Peru, and taught at American University in Cairo, the London School of Economics, and Universidad Católica Argentina.
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The post Can we end poverty? appeared first on OUPblog.
