Rising Inequality in the West: The Standard Diagnosis
Economists have offered two key explanations for the rise in income inequality in the western world, both of which can in theory also explain why, simultaneously, inequality and poverty have been falling elsewhere in the world. They are the two ‘Ts’: trade and technology.12 In regard to trade, globalization is seen as the all-powerful force at work, reshaping our economies and integrating the far corners of the world into a single marketplace. The world becoming smaller and flatter has allowed each nation to specialize in exporting the goods and services that it can produce relatively more cheaply than others. In particular, each economy has tended to specialize in producing the types of things most suited to its resources, whether that's skilled or unskilled labour. In the richer countries, we find an abundance of skilled labour and so, with trade, the West has specialized in skilled labour-intensive types of goods and services, importing unskilled labour-intensive goods from poorer countries where unskilled labour is abundant and so cheap. Rather than producing such goods for themselves, richer countries now import such goods from countries such as China and Bangladesh. This has increased the demand for unskilled workers in the export sectors of those poorer countries, increasing the wages of unskilled workers there. In the West, by contrast, imports have replaced home production of labour-intensive goods and services, having the very opposite effect.13 Unlike elsewhere, it is skilled workers who have gained, as they are now able to sell their skills to buyers in poorer countries, where there is relatively little supply. Unskilled workers in the West have, by contrast, lost out. They are now competing with unskilled workers overseas, and this has arguably affected both wage growth and jobs.14 One estimate suggests that increased imports from China have cost America 1.4 million manufacturing jobs.15 With unskilled wages in poorer countries having risen from rock-bottom levels at the same time as those in richer countries have fallen from relatively higher levels, the two have begun to converge. That means that global inequality has fallen, whilst in the West it has risen. In other words, poorer groups in the West have lost out not only to skilled workers in their own home countries but also to unskilled workers elsewhere.16
However, despite the recent backlash against globalization, most economists argue that the second ‘T’ ‒ technology ‒ is much more responsible for the uptick in inequality.17 Whilst computerization has helped professional and skilled workers at the top, making them more productive and so increasing their wages, lower-paid workers, such as those in retail, hospitality, cleaning and care, have been largely unchanged by the advent of computers. Low productivity growth in such sectors has, as a result, meant that wages have also been held down, leading to a rising gap between the wages of skilled and ‘unskilled’ workers. There was a time when technological change once benefited unskilled workers, as was the case in the Industrial Revolution, when machines out-competed skilled weavers and spinners.18 But, as Claudia Goldin and Lawrence Katz note, from the late nineteenth century technology began to complement as opposed to replace skilled labour. They argue that expanding educational opportunities were, therefore, key to the way in which the American economy was able to achieve both rapid growth and declining inequality in the course of the twentieth century. However, from the 1980s onwards, the supply of skills has not kept pace with demand for them, leading to a growing gap between the wages of skilled and unskilled workers. This slowdown in educational expansion is, they argue, in part a result of the increasing cost of university education together with the obstacles presented by poverty amongst single-parent families and racial minorities.19 To quote, ‘[t]he slowdown in the growth of educational attainment … is the single most important factor increasing educational wage differentials since 1980 and is a major contributor to increases in family income inequality.’20 The latest technological developments mean that computers are now fast replacing semi-skilled and middle-management jobs – those in the middle of the income distribution. From driverless cars to online sales and legal advice, computing technology is encroaching into more and more lines of work – and not in a way that helps to raise the productivity of workers but that physically makes them redundant. According to Carl Frey and Michael Osborne, one in two of our jobs will be under threat by computers in the next twenty years.21
It seems that the future could be hourglass in shape. Whilst the jobs of skilled workers at the top will be relatively safe, opportunities in the middle are fast disappearing. The implication is that those in the middle must move in one of two directions: upwards, if they can acquire the requisite skills or, failing that, downwards. Unfortunately, evidence gathered so far suggests that it is more likely to be the latter: researchers at the University of Oxford have found that more people in Britain are moving down as opposed to up the social ladder.22 And low-wage sectors, where productivity growth is minimal, are on the increase. This has implications not only for inequality but also for the growth of the economy.
Although most economists have been busy debating the relative contributions of technology and trade to rising inequality, the economist Tony Atkinson took a rather different stance, placing the blame on social and political factors, including the shift towards laissez-faire government in the 1980s.23 Following in his footsteps, Joseph Stiglitz has argued that rising inequality is not inevitable; it is a political choice.24 Others have pointed to the interactions between politics and economics, arguing that globalization has made people and capital much more mobile, reducing the ability of governments to tax and regulate the economy, thereby pushing policy in a more free-market direction. Nevertheless, the economist Peter Lindert has crunched the numbers and argues that ‘the rise in income inequality since the 1970s owes nothing to any retreat from progressive social spending.’25 Although his conclusion is the subject of debate, there is one takeaway point. Rather than politics taking all of the blame for rising inequality, underlying market forces ‒ whether they be technology or trade ‒ cannot be ignored.
So where does Piketty enter our story? So far, we have said quite a lot about income inequality but much less about wealth inequality. In his Capital in the Twenty-First Century, Piketty argues that increasing income inequality feeds through to wealth inequality, not only because people on higher incomes can afford to save and invest but also through the act of inheritance, creating an increasingly uneven playing field for the next generation.26 He notes that if the return on wealth (r) is greater than the economic growth rate of the economy (g), meaning that the value of wealth increases at a faster rate than average wages, the wealthy will move further and further apart from everyone else in money terms. It's for this reason that he recommends a global tax on wealth. However, the problem is not simply that r is rising; it is also that g ‒ the growth rate of the economy ‒ is falling. If economic growth was keeping up with the returns on investments made by the wealthy, as was the case in the twentieth century, then average wages would increase at a faster rate. We would all be sharing in the growing pie. To reduce inequality, we need to grow the economy. As we will see later in this chapter, both rising income inequality and a fall in the growth rate of the economy ‒ one that has helped to pushed g below r ‒ have a common cause. And it is one that has so far gone under the radar, and one that any standard redistributionist package alone cannot solve. It is a global sex problem, one rooted in women's lack of bodily autonomy.
Gender Inequality Meets Income Inequality
Whilst gender and race feature in sociological debates about inequality, they are all too often missing from the economics of inequality. As Kathleen Geier writes of Piketty's book, ‘[t]hough Capital has many virtues, attention to gender, alas, is not one of them.’27 Zillah Eisenstein notes the hypocrisy of many male economists, politicians and religious leaders who take a stand on wealth and income inequality: ‘[e]ach of these men denounces excessive inequality, but without recognising the way that structural racism and patriarchy intimately define economic injustice.’28 Even the way that inequalit
y and social mobility are measured circumvents a proper consideration of gender. Social mobility is commonly tracked by comparing the occupations of fathers and sons, which sidelines differences between men and women. For example, 35 per cent of men born into the poorest quintile of the population will remain there in adulthood. The equivalent figure for women, by comparison, is 47 per cent.29 And, when it comes to measuring income inequality, the standard approach compares household income. However, given evidence that the division of the household pie between men and women is not always equal, inequality measures can underplay the true picture of inequality.30
Figure 4.2 Percentage of individuals with inherited wealth on the Forbes 400, 1982‒2003
Source: Edlund and Kopczuk (2009), Table 4, p. 164
When we turn to the bare-bone facts, we find that women are both under-represented amongst the rich and overrepresented amongst the poor. Starting at the top, the female share of global billionaires in 2014 was 10.5%. Amongst the self-made, it was a mere 2.6%.31 As Forbes 400 data reveal, the wealth of females is based much more on inheritance than is that of men (Figure 4.2), suggesting fewer women ‘make the grade’. Moving to the bottom of the distribution, and given that poverty calculations are difficult to break down by gender, the United Nations has famously albeit controversially claimed that 70% of the world's poor are female.32 Single mothers are also significantly more likely to live in poverty than single fathers.33 As a recent media campaign noted, ‘poverty is sexist’.34
Globally, women earn only 57 per cent of what men earn each year, a figure which is higher than the gender wage gap as it also takes into account women who do not earn.35 Research suggests that occupations dominated by women tend to pay relatively less, even for the same skill level.36 Alice Kessler-Harris and others have argued that women's low pay is not just a result of market forces, but of our ‘gendered imagination’ which assumes that ‘female’ jobs are undeserving of the same pay as jobs associated with men. That particularly includes jobs associated with care which, as the population ages and as more women have entered the labour force, have been on the increase.37
Tackling inequality will require greater efforts to close the gender gap. That, however, will not happen until we deal with unpaid ‒ as well as paid ‒ care.38 According to the International Labour Organization, unpaid caring responsibilities are the key barrier to women ‘getting into, remaining and progressing in the labour force’. Where women have an unfair burden of responsibilities within the home, it feeds through to create inequalities in the marketplace, both directly, by affecting women's ability to engage in paid work, and indirectly, through the way in which society undervalues the types of jobs associated with being female. Globally, women perform more than three-quarters of unpaid care, equivalent to two billion people working full-time without pay.39 And it is not sufficient to excuse it by saying it's women's free choice to prioritize family caring activities over paid work. Not only do women feel the weight of their family's expectations, but evidence suggests that globally, 44 per cent of pregnancies are unintended.40 That means that a lot of care work is taking place that women have not voluntarily signed up to.
Before we leave our all too brief summary of existing research on gender and income inequality,41 we also need to confront a paradox highlighted by Stephanie Coontz: that gender inequality and income inequality have in fact been moving in opposite directions over the last fifty years. As the gender gap has fallen, income inequality has increased. On the one hand, women's greater participation in the labour market has helped to boost family incomes. Research suggests that ‘[w]ithout changes in women's earnings during that fifty-year span, inequality would have grown 52.6 percent faster’.42 On the other hand, there is an increasing propensity for higher-earning men to ‘marry their like’, magnifying the income differences between the top and bottom of the ladder. Calculations suggest that, if couples in the United States formed randomly (such as by picking partners out of a hat), the Gini coefficient (a measure of inequality ranging from 0 to 1) would have a value of 0.34 instead of 0.43.43 Sociologists also point to a growing gap in terms of other aspects of family life. At the top, couples increasingly wait to marry and have children once their careers are well established. However, at the bottom, women tend to have children relatively early in life and increasingly have to take full responsibility for raising them as single parents.44 Unfortunately, many of these children are unplanned, leaving women in a far more precarious financial situation than need be the case, and one that interrupts their educational and working life. In the United States, for example, 60 per cent of births to young unmarried women are unplanned, which is not good when the before-tax poverty rate for single mothers is close to 50 per cent ‒ hardly surprising, given not only the gender pay gap but also the burden of unpaid care.45 Despite it, women's access to birth control and abortion is increasingly under threat.46 Whilst double (high) income households are the norm at the top, an increasing number of single-parent households can be found at the bottom, most of which are female headed, struggling to juggle work and care, and fare far worse than their male-headed equivalents.47 The resultant poverty can have implications for generations to come.48
Addressing inequality will require something more than a standard left-leaning redistributionist package, based on an understanding of class alone; it requires a greater focus on gender equality, one of not only equal pay for equal work but basic female bodily autonomy, along with training and educational opportunities throughout the life cycle, something which neither policy nor the current labour market, based on a male breadwinner model, are set up to provide. The ‘predistribution’ agenda, one that we will come across in chapter 6, can help more generally to ensure that market outcomes are not biased against women, thereby helping equalize outcomes for female- and male-headed households. However, we also need a much greater focus on the distribution of caring responsibilities in the economy,49 the inequality of which has its roots, as we have seen, in the nineteenth century ‘cult of domesticity’.50 At the end of the day, equality in the market cannot be achieved until there is equality within the home; but equality within the home will not be achieved until there is equality in the market. The two types of inequalities are mutually reinforcing. However, making sure that women have more (rather than less) bodily autonomy would, at the very least, be a good place to start.
The Global Sex Problem
Rising income inequality in the West is not only linked to women's (lack of) bodily autonomy there but also to the lack of bodily autonomy of women across the globe.51
Mention sex, and any good economist should instantly think of Malthus. As a bunch, economists have historically been famous for their ‘dismal science’, and Malthus was one of the original doomsters. He was an eternal pessimist. Despite being a religious man, he thought that helping the poor (such as through redistribution and benefits) would be futile. His reasoning was that the ‘passion between the sexes’ meant that population would overpower resources in the economy, keeping the standard of living trapped at a low level for the general population. So, looking back to Malthus, sex and inequality are intertwined.
Malthus's ‘model’ of the economy has been largely discredited by modern-day economists but his thinking about population is still highly relevant. One of the key developments in the last 35 years has been a major expansion in effective labour supply driven by the greater integration of the world economy.52 The result has been decreased bargaining power for workers in the West (contributing to rising inequality) and businesses substituting capital with the now cheaper labour (resulting in lower investment rates, a fall in interest rates and slower productivity growth).
If today's world might look troubling on this count, history shows just how bad things can become. As population recovered from the Black Death and throughout the sixteenth, seventeenth and eighteenth centuries, wages were on a persistent downward trend in most of Europe.53At the same time, many European economies began to stagnate. Howev
er, all was not bleak. As Bob Allen shows, there was one exception to the rule: north-western Europe. In Britain and the Netherlands, wages resisted the downward trend and economic expansion took hold. It was this high-wage part of Europe ‒ not the parts with lower wages ‒ that went on to industrialize and lead the globe. Wages and productivity entered a virtuous circle: high wages encouraged the kinds of technological changes that made workers more productive, which pushed wages up further, encouraging more such productivity-improving investment.
As we saw earlier in the book, the position of women in the economy is central to understanding why the north-western part of Europe was able to sustain a higher wage economy. From early on in history, women in this part of Europe began to gain economic independence; they went out to work and delayed marriage – and so reproductive activity – until they were in their mid-twenties. This lower-population pressure regime helped to prevent wages from being pushed down to subsistence levels. The economy entered its virtuous circle in which high wages and productivity growth positively fed back on each other. That was until the 1970s, when the wages of the working classes in rich countries began to stagnate, and economic growth started to slow down.
As we have gone global, the West has lost its insulation from developments elsewhere in the world. The virtuous equilibrium established since the Industrial Revolution has collided with an altogether different kind of equilibrium. Outside of the West, large parts of the world are in the opposite of a virtuous circle. They are in a vicious one, one in which wages are low and there is little incentive to invest and invent because labour is cheap. Behind this equilibrium is a situation in which women have little control over their own fertility. With little in the way of financial independence, girls have no power to stand up to their parents and delay marriage. Once married, they then have little power to take charge of their baby-making capacity. The result is a life of poverty. As mortality rates fell in the course of the twentieth century, in part the result of concerted efforts to eradicate global diseases, these high-fertility rates meant that the global population ballooned. In 1920, global population growth was no more than 0.6% a year, no higher than it had been in 1760. By 1962, it had reached 2.1%. Global population growth has since slowed to around 1.2%, but all of those babies born in the peak have contributed to global labour supply right up to the present day, and the population is still growing more than twice as fast as it has done historically. Whilst in 1962 the global population was not much more than 3 billion, today it is more than 7 billion and is projected to rise to more than 11 billion by 2100.
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