equality

Drivers of inequality – three overlooked factors

When talking about the causes and cures of within-country inequality, discussion often focuses on politics. Taxation is usually the main bone of contention, arguing over higher or lower taxes for the wealthy, or whether particular forms of taxation are progressive or regressive. Or it might be the role of unions or the virtues of a minimum or living wage. Either way, inequality is usually framed as the government’s fault.

I’m reading Joseph Stiglitz’s book The Price of Inequality at the moment. It’s a big book and I expect he’ll get to other factors in due course, but he points the finger at government as the main problem. “Even though market forces help shape the degree of inequality, government policies shape those market forces. Much of the inequality today is a result of government policy, both what the government does and what it does not do.”

That’s true, but if we only look at government policy, we’ll only get so far in fixing the problem. Inequality has to be understood within broader trends. The three point below are not an exhaustive list (and neither are these things apolitical) but here are three things that don’t get as much attention as they need in the equality debate.

Technology – There are contributing forces to inequality that are, outside of a luddite dictatorship, more or less outside of the government’s control. The advance of technology, computerization and internet communications in particular, may have made inequality worse. This is because computers can now do work that used to be done by people, and they replace a specific sort of job: routine, medium-skilled work.

Over the last 30 years or so, that has lowered demand for medium-skilled labour, suppressing wages in the middle. You can’t computerize painting a ceiling or arguing a case in court, so low skilled manual labour and highly skilled specialist jobs have been less affected. This has polarized the workforce.

This is nothing new, in that every new machine that makes things more efficient displaces labour – from the mechanization of agriculture to the Fordist production line. (It’s one of the reasons why hailing entrepreneurs as ‘job creators’ is more Randian idealization than reality – plenty of entrepreneurial ideas actually destroy more jobs than they create.) There’s no easy solution to this, which makes it all the more important that we don’t ignore it when discussing inequality.

Globalization – Another trend over the last few decades has been the shift to global production of goods and services. There have been two waves to this. In the first, companies closed factories in the West and shifted production to developing countries. A fortune was saved in wage bills, and manufacturing jobs have been lost by the millions across the developed world.

After manufacturing, a second wave saw service jobs move offshore too, using the rapid communication capacities of the internet. Customer services or IT support can be run just as effectively from India, at a fraction of the cost. The end result of this globalization of labour is increased competition, again eroding medium skilled jobs and suppressing wages. Daniel Alpert covers this well in his book The Age of Oversupply.

Globalization has been driven in large part by technology, so it overlaps with the point above, but it’s also been a product of financial liberalization and global political change. Another big factor has been the low oil price, and some of the economics may tilt back in favour of localization as the oil price rises. One thing is for sure – if we’re not taking it into account, our solutions are unlikely to make much difference.

Work time – Another factor in inequality is working hours. Those who work part time obviously earn less than those who work full time. When jobs become harder to come by, for the two reasons above or in recession, some people are going to end up in part time jobs who would prefer to be working full time. The more people there are in part time work or on zero hours contracts, the greater the impact will be on inequality.

Since women are more likely to work part time, disparity in work time is closely related to income inequality between men and women. Similarly, reducing the pay gap between men and women in the workplace would reduce inequality overall.

Incidentally, those on temporary contracts typically earn less too, even when those are full time posts. The dependence on temporary contracts during times of uncertainty also contributes to inequality. Nef’s book Time on our Side is a good place to start to understand work time and inequality.

64 comments

  1. Can’t argue with most of what you have stated-however correcting those issues of inequality will be impossible as matters stand-those that run this world and we know who they are will fight against anything that disrupts their avenue of profit. Over population is and will be the stumbling block for measures to imrpove inequality, whether in Europe or Asia for that matter. The future holds many very complicated issues to be overcome-question is; have those that care the strength of voice to be listened to? Doubtful I would say-Western Europe in grave danger.

    1. Dangers yes, but also a growing awareness that inequality can’t be ignored. The number of politicians prepared to talk about it grows every year, certainly in Britain. It could be an election issue in 18 months time, if the opposition choose to pursue it.

  2. Brother!

    Inequality You write about inequality but seem to overlook the big case of inequality: the developed world vs. the developing world. Most people in the developed world is far better off than most people in the developing world. This means that employees constant struggle for more money is pretty irrelevant to the situation. Only one major group in the West deserve attention in this resepect, the unemployed. What, in my opinion, is most needed, is the transfer of funds from rich people in the West to projects of building infrastructure in under-developed countries (cfr. Bill Gates). This can be done by taxing the wealth of the rich. DS

    Date: Tue, 7 Jan 2014 13:00:52 +0000 To: dsj@hotmail.no

    1. Apologies – I have neglected to say what sort of inequality I’m talking about. The post is about inequality within countries, and I’ve amended the first line to make that clear.

      This post is about within-country inequality, but of course equality between countries is important too. Whether that can be addressed through taxation or not is a tricky one though – it’s hard to raise global taxes without a global government, and I’m not sure anybody wants that.

      1. While Globalisation may have increased in-country inequality it has also definitely decreased global inequality – the globally the poor are on average getting richer that the already rich and that is because they can sell their labour in a global market. Should really mention the positive at the same time as the negative.

      2. 1. On inequality between countries. Tax the rich only a fraction of a percent 🙂 That is all it takes. Any government can do that. Next: transfer the money to infrastructure building in the developiong world.

        2. Global government: This is pretty risky business. If such a government fails (in one way or another), then all of us is in dire straits. Then you cannot flee or move anywhere.

    2. Under-developed countries need to get rid of their corrupt governments first of all, and they can only do that themselves. Infrastructure projects are part of the corruption. Good infrastructure enhances land values, putting money into the pockets of the already wealthy in both the “poor” countries and in the first world. The Jubilee Line Extension generated an aggregate land value uplift of £10.5 billion at a public expenditure of £3.5 billion.

  3. Sigh. Inequality started with land enclosure. There are those who own land and receive rent. There are those who own no land and must pay rent and work for wages, which will be the least they will accept.

    Why does this need to be constantly repeated and despite this, since the time of William Cobbett and John Claire, ie going on for almost two centuries, still mostly falls on deaf ears?

      1. That would be the idea of land enclosure, not the Land Enclosure Acts. As I said, this isn’t an exhaustive list and there are other things that don’t get enough attention within the debate about inequality – land access is one of them.

        1. Then you are getting back to that romantic notion that there was no inequality in hunter-gatherer societies. Rousseau has a lot to answer for.

      2. In Saxon England, the relationship between classes would have been in accordance with the Christian principle that the higher are meant to serve the lower. The “upper” classes carried out the duties and responsibilities of government and these included ensuring that every household had the means of supporting themselves. An intelligent peasant boy or girl would have been encouraged to use his or her talents within the church. Remember that the whole concept of careers and self-advancement is quite recent. People with talents were expected to use them for the benefit and in the service of everyone else.

  4. In the UK there isn’t a gender pay gap. It is a motherhood gap. Women who do not have children earn as much as male equivalents. In fact women earn more for part time work then men who work part time.

    1. A Tim Worstall hobby horse, I seem to remember. Easy for him to say, but it isn’t just about lost earnings while women take care of small children. It’s about their earnings and promotion potential once they return. Or the fact that having earned less in their working lives, women are more likely to spend their pension years in poverty.

      It’s easy to overstate the gender pay difference – Worstall does have a point – but it’s part of a broader inequality that we shouldn’t be complacent about.

      1. It is hardly surprising that mothers have lower earning potential after they return to work. They have less experience than peers who didn’t take a career break and the evidence is that they are less hungry for promotion (having something more important than work). The question is that if that part of inequality is down to choice (motherhood is a choice) then how much is it an issue we should be worrying about. If I choose to work less I’ll have a smaller pension too. How much should I expect those who chose to work harder bail me out?

        1. It’s not about you bailing people out. It’s about men and women receiving the same wage for the same work, and not being disadvantaged by choosing to care for their own children.

          The experience of women who are ambitious suggests that there is too much complacency here – it’s not really good enough to quote evidence that ‘women don’t want to be promoted’, if some of them do.

          Besides, you might only step out of work for two or three months to have a baby, but still have lower pay and fewer promotion prospects in the long run. There is a discrimination problem there and we shouldn’t ignore that, and it’s not just about wages either. The specific gender wage gap is a small part of a larger issue.

          There’s no need for hysteria on the subject, and we’re better than we used to be. But other countries have a lower gender wage gap, which suggests it isn’t inevitable.

          1. A woman who steps out of work for only 2-3 months to have a baby and comes back working as many hours as before, prepared to make the same sacrifices as before to climb the greasy poll is highly unlikely to suffer lower pay and promotion prospects. The thing is most women take longer leave and when they come back aren’t as committed and look to work less.

            A woman who has two children who takes her full 12 months each time has therefore two years less experience than a childless woman who started working at the same time. Since those two years can’t be made up and on average more experienced people are more productive you would expect a mother to earn less over her life time. As they are less experienced they are not doing the same work output so it is fair they earn slightly less.

            Promotion often depends on commitment to the business. Motherhood often makes women reassess their priorities so that they don’t want to work every hour God sends. This puts them at a disadvantage to colleagues who are. But it is hardly fair on the committed to discriminate in favour of people who are working less hard for their employer because they chose to have children.

            That said some businesses do discriminate against employing women with children and even women of child bearing age. But that is because of the costs that maternity places on companies. Statutory maternity pay is eventually repaid but management time, training and agency costs are not. Since losing a team member for a year is disruptive it is hardly surprising that employers, particularly small businesses, would seek to avoid that. Where is does happen as wages and other costs of employment come out of the same pot (higher non wage costs are reflected in lower wages) then women with children being paid less is a reasonable outcome.

          2. Again, easy for you to say. As we’ve established many times over, you don’t have a problem with inequality, so you’re predisposed to assume there’s no problem here.

            It’s all a matter of values in the end, and yours are different to mine.

    1. There needs to be clarification about equality of opportunity and equality of outcome. Too many commentators and politicians get concerned about equality of outcome without first addressing equality of opportunity. All humans have an equal right to a share of the surface of the planet, sufficient to allow for their survival.

    2. I think that your smug superiority is moral preening for policies that harm those you claim to wish to help. That doesn’t matter though as long as you can feel you are better than those who disagree with you. Evidence be damned.

      1. “policies that harm those you claim to wish to help”

        That is a big assertion. Personally I am partly in agreement, based on observation of past experience. But could you be more explicit? What mechanisms do see at work here that makes policies counter-productive? What alternative policies would you propose and why do you believe these would work?

        1. My evidence is that your solutions to the issue would be harmful. Such as regulations to enhance maternity leave entitlement that make employers wary of hiring women of child bearing age.

          1. Sorry, how is that ‘my solution’? This is the first time I’ve ever mentioned gender inequality as far as I remember, and here only in passing.

            Show me some evidence that inequality isn’t socially harmful.

        2. Speaking from personal experience, I would say that pretty much everything in Sweden is 10% better than in Britain, apart from the weather. Is it coincidental that by any measure there is less inequality in the Scandinavian countries? A contributory factor could be that the land was taken off most of the aristocracy in the later 1680s.

          1. Anecdotal evidence is always problematic. Personal impressions are coloured by many factors. Otherwise you risk the ‘My Gran smoked 100 a day and lived to 100’ discussions which illuminate nothing.

      1. Really? Then you lose.

        The industrial revolution was a huge driver of inequality, so much so that it sparked the luddite movement, the chartists, socialism, communism and various others in response. It proves my point far more than yours. There is only so much inequality that a society can handle before it starts to fray at the edges and political change is needed to put things right.

        1. Was it the industrial revolution or was it the land enclosures that preceded it? What if land enclosures had been carried out in a different way? If, for instance, they had been accompanied by the tax proposals put forward by the Physiocrats? Britain would then have enjoyed the agricultural efficiency of enclosure, but the displaced peasants might well have transformed themselves into a class of skilled self-employed urban artisans who would have driven technical advance at a faster pace than actually happened.

          Something of the sort occurred in Brighton between 1880 and 1914, where artisan craftsmen helped to lay the foundations for advances in the electro-technical industries, internal combustion technology and film making. The oldest electric railway in the world was built at Brighton by local artisans, film pioneer Friese-Greene worked with Brighton craftsmen in the optical industry and the first colour film studio was in Hove.

          Amongst the reasons why this was possible was the availability of suitable premises, the accumulation of a critical mass of individuals with the knowledge and interest to exchange ideas and drive progress, and a community which provided the opportunities for informal contacts, for instance, through the sea swimming club which had been founded in 1859.

          http://www.floatingmemories.co.uk/

          1. That is debatable. The Industrial Revolution destroyed the living of many self employed artisans. Without factory scale it wouldn’t have had the efficiency to succeed so quickly. Many farm workers moved to the cities because of the pull of the freedoms and better wages rather than pushed by the enclosures.

            Always hard to prove or disprove something that never happened.

          2. Farm workers before enclosure were holders of allocated strips and had other rights eg grazing and turbary. They were deprived of their livelihoods. This is well documented from primary sources by Hammond and Hammond in their two books, The Village Labourer and the Town Labourer. And as Ricardo and George observed, the gains went primarily to increase rents of land, leading to the sort of conditions Marx and Engels observed in Manchester in the 1830 and 1840s, and which were also the subject of Royal Commission Blue Books eg on the employment of women and children in coal mines. And as I mentioned earlier, we all know what horrors Marx and Engels led to.

          3. Peasant agriculture can never be very efficient. They were never more than a bad harvest away from starvation and had almost continuious hard labour to scratch a living.

            However you cut it more efficient agriculture means fewer agricultural workers. Those surplus workers would either find it hard to make ends meet in the countryside (no matter what form of enclosures had been used) or moved to the cities to find work. So the ultimate effect would have been the same. The advantage of the industrial revolution was that the increasing wealth it generated allowed improvements in conditions (why UK cities don’t look like those in 1840). Improvements in peasant agriculture took place over much longer periods.

            While horrible the dark satanic mills and the towns the workers lived in were better than the rual poverty they left. We easily romaticise agricultural work because its poverty was less concentrated but was just as real. My keep point is that the majority were already in hardship prior to the Industrial Revolution.

            Asv to teh idea that workers couldn’t afford the output of the Industrial Revolution – They bought coal and clothes and iron utensiles. These were much cheaper. It is nonsense to suggest they were not benfiting because they couldn’t afford to buy a pumping engine – who could?

            The European colonial impulse had been going on prior to the industrial revolution. Raleigh and Columbus were not on Dreadnoughts.

            The Enlightenment produced the French Revolutionary Terror and the Wars of Napoleon. Before that we had the 7 Years War, the first global one. We have always had wars. That said on a hard calculus 100 million dead from Communism stacked up against many billions who have had the chance to live who would not had there been no Industrial Revolution and the trade off suggest the blessing, while mixed is very much in the credit.

            I think the key question is whether one would wish to live as a peasant would have done prior to the Industrial Revolution.

          4. The answer to your key question is to be found in contemporary accounts. Read Hammond and Hammond on the subject, or Cobbett or the poems of John Claire.

          5. There has been more recent research since 1917.

            More recent research is more balanced. An issue is that the Napoleonic wars raised prices so would offset improvements form the Industrial Revolution. A nice balanced summary here.
            http://www.ehs.org.uk/dotAsset/5939a390-8a91-4eb3-ac29-d09e51f7fb08.pdf

            I think even if the early Industrial Revolution did result in a decline (and as I say that is a topic still up for academic debate) it was more than made up for by the undoubted increase since then. Hence my key question (which I’ll clarify) whether one would wish to live as a peasant would have done prior to the Industrial Revolution compared to a modern British existence (which only occurred because of the Industrial Revolution)

        2. I knew you’d say that, But the Industrial Revolution was the greatest driver for the advancement of the human condition ever. You it leaves me with the view that you would rather everyone were equal peasants living lives of back breaking poverty in fifth dying by 40 rather than unequal lives of relative leisure and fulfillment.

          1. The industrial revolution was a very mixed blessing. Initially it gave rise to great hardship for the majority, and that in turn gave rise to Marxism and eventually 100 million dead from that cause.

            And because the people who produced the goods could not afford to buy them, there was a drive towards colonialism in order to find markets, as well as to provide sources of raw materials. This eventually became a scramble for colonies, Dreadnoughts to defend supply lines, two world wars and whole mountain ranges of corpses. That story still has further chapters to be added.

            You need to look at the wider picture.

          2. I asked you for evidence that inequality isn’t socially harmful, and you’ve said ‘the industrial revolution’. My point isn’t to lament the industrial revolution, but to point out that it was a major contributor to inequality – inequality that was then tempered in the 20th century, without having to dismantle industrialisation and go back to peasant culture.

          3. There is a trade off there then – social disprution and rising inequality in exchange for human and societial advancement and social progress with faling inequality later. You could not have had the second without the first.

            Now you seem to decry any rise in inequality even if that could be a phase on the road to greater social advancement. the Industrial Rvolution is an important lesson that you don’t know what the ultimate outcome is going to be. Without the benifit of hindsight if you were writing in 1820 or 1840 you would be denouncing the evils of the industrial Revolution as on a path to permament poverty for almost all. et we know taht was wrong. You could easily be as wrong now.

  5. DevonChap – anecdotal evidence can be highly illuminating. I can’t think of anything that would induce me to stay in Britain. The country is OK for a couple of weeks but I am always relieved to get back on the ship at Harwich after that.

    1. I thought you said you were a scientist. If so I’m surprised to hear you talk like that about anecdotal evidence. That you find Scandinavia nice only applies to you. If I said my child had the MMR vaccine and developed autism, therefore MMR gave him autism that would be an anecdote. You might even find it illuminating and not get your child vaccinated on the basis of it. Wouldn’t make it any less wrong.

      It would be terrible practice to look at half a dozen countries (out of 190+) and then focus on only one element (income inequality any make any conclusions. Poor evidence selection and analysis is the main criticism of The Spirit Level.

      1. So what hard evidence would you like me to provide? Life expectancy? Alcohol-related disease? Housing standards? Road traffic accidents? Crime levels? You could in any case still dispute it, because there are all sorts of other cultural and historical factors that could be causative: the Lutheran tradition, non-participation in two world wars, the Reductions, genetics, statistical methodology. So anecdotal evidence is perfectly valid so long as it is taken as such.

  6. Informal opportunities for the town’s craftsmen and artisans to meet and talk about whatever might have been on their minds but the seaside resort of Brighton in the leading edge of technology in the last two decades of the nineteenth century – Brighton Swimming Club 1891.
    The Winter Bathers of the Brighton Swimming Club

    1. That is indeed a vital one, but there is quite a lot of discussion about that at the moment. I’ve just focused on three things that are overlooked in my opinion.

      Unfortunately there is a lot of talk about the banks and the financialization of the economy, but little will to change it just yet – too much economic growth is riding on it.

  7. My argument is really a very simple one Devonchap: society can only tolerate so much inequality. Push it too far and you have unrest or revolution. That’s obvious from history, and from current affairs, from the Arab Spring to the troubles in Brazil recently over the World Cup.

    You appear to be denying this, and that I have trouble understanding. Do you genuinely believe that inequality can rise forever with no consequences?

    1. I’m not sure there is a limit to inequality, provided that all are getting better off. It is slow, stagnant or declining wealth that creates the unrest. I only care that someone is a trillionaire if to become so I feel they have deprived me and my kin of some of that money.

      I actually think that the ‘steady state’ economy would be more strife prone because there wouldn’t be a bigger cake to share out but a zero sum game which would create genuine losers.

      1. I would have thought that an increasing number of people would get upset at the realisation that 4 1/2 days a week they are working either for the tax authorities or for the 1% or the banks. It does not sound like a recipe for stability – there must be a limit to the amount people will tolerate being ripped off.

      2. Of course you think that, because as we’ve established before, you don’t recognise poverty as relative. If you earned a million a year, but the majority of the country were trillionaires, you’d be poor – in all kinds of ways. That’s obvious to most people, which is why the official definition of poverty is relative. It’s apparently not obvious to you, but we’ve argued about that before and I’m not going to bother again.

        I do find it curious though that you like to regularly imply that I want to turn back the clock on industrialisation, when you would appear to be comfortable returning to a system of feudal inequality.

        1. What destroyed feudal inequality was growth, that allowed others to become rich and make the wealth of the landowners much smaller in relation to the rest of the economy and population. Since you don’t want growth I’d rather think you are the one who would be overseeing a return to feudal inequality.

          1. Well, that and the black death, and a few other things – but economic progress and social progress go together. As people get richer, they demand greater political power. As they gain political power, they demand a bigger share of wealth creation. You can’t split the two and say that inequality can be infinite as long as growth persists. Neither does anybody want greater equality in poverty.

            And no, postgrowth economics doesn’t lead to feudal inequality, because tackling inequality is an essential component of postgrowth economics. It takes away the excuse that’s given year after year to those at the bottom of the economic ladder – that because the economy is growing, they’re better off. Since poverty is relative, whatever you think, that doesn’t actually work. But as I say, this whole debate is pointless if you persist in your minority opinion that poverty isn’t relative.

          2. That is a rubbish argument, that since the government has defined poverty as x you will not debate with someone who hold a minority opinion and disagrees with the government. Given you hold minority opinions, which go against government definitions (you aren’t a great fan of GDP) it does seem a bit odd that you give that as your answer.

            “debate is pointless if you persist in your minority opinion.” Spoken as a true authoritarian.

            Relative poverty isn’t the only poverty. You know full well that there are different definitions of poverty. The UN’s $1.25 a day definition of extreme poverty isn’t relative. Are you saying they are wrong and they should not longer persist in their minority opinion?

            You don’t know where post-growth economics leads to because no one has tried it. You assert it won’t increase inequality or absolute poverty but you don’t know that, you believe it. Your distributive ideas seem to be based around the idea that there is a relatively fixed cake and taking more for the rich will mean more for the poor. This is not certain given that wealth can easily be destroyed (the cake can get smaller as well as bigger) and you can get on the wrong side of a Laffer curve if you tax too much. But that would reduce relative poverty. Would making the rich poorer whilst not improving the economic lot of the poor make them happier? Other than satisfying an envious streak (and envy being something a few weeks ago you were decrying to burnish your moral credentials) what good would that do? Still, logic has nothing against “The government agrees with me!”

          3. Wasn’t it the Black Death that destroyed feudal inequality. And wasn’t it the Reformation and the Enclosures that brought inequality back? And was feudal inequality such a bad thing. The feudal superiors had onerous duties nowadays carried out by government – privileges were balanced with responsibilities. A modern equivalent would be for the Duke of Westminster to be required to pay for the provision of a couple of aircraft carriers and for the cost of keeping them in operation.

  8. No, you’re well entitled to your opinions, and what have we been doing if not debating? My point is that your opinions on inequality are coherent and of a piece with your views on poverty. If you don’t think relative poverty matters (absolute does too, it’s not an either/or) then you have no beef with inequality.

    I’d say you have a simplistic view of poverty, and haven’t considered that poverty in developed countries is more about social and political inclusion as it about putting food on the table.

    In other words, it’s not that I won’t debate with someone with minority opinions, but that you come from a completely different political point of view and we can’t discuss inequality without discussing everything else.

    Incidentally, the government doesn’t appear to give a monkeys about either inequality of the number of people in poverty, so the fact that we agree on a definition of poverty is pretty much irrelevant.

    1. I do understand that poverty in countries like the UK is about more than putting food on the table. I’ve been working is some quite deprived schools lately. Which is why I wonder why you are so fixed on relative poverty of income. If we tripled benefits that would not change the social or political inclusion of those on benefits. Their problem is a dependence culture that sadly breeds an attitude that those on benefits are not in control of their lives.

      We need to tackle the hopelessness of being stuck on benefits in a benefit ghetto. That is more about better attitudes and horizons than the exact money in your pocket.

      1. I’m not fixated on relative income, nor do I think we need to triple benefits. But if we’re talking about poverty in Britain, then it is relative. Very few people here are absolutely poor. That’s the luxury of being a developed country.

        Exclusion and inequality go together, that’s what’s important here.

    1. Books, not web sites, are the place to find information that examines this problem in depth.

      The best analysis of the causes of the simultaneous creation of wealth and poverty remains that of Henry George, which begins by looking at the nature of the economic process itself. He wrote several books, the most useful for understanding being Progress and Poverty, published in 1879. This is a bit long-winded for modern readers and I would recommend the Hogarth Press edition published in 1953, which you can pick up for about £5 on the internet. There is a more recent on-line version which is OK, and you can also buy that as an inexpensive book.

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