The document discusses the trends of income inequality and its determinants across post-industrial democracies from the late 1920s to contemporary times, noting a decline after WWII followed by a significant rise since the 1970s. It examines the impact of welfare state regimes, labor market dynamics, and the effects of deindustrialization and household changes, highlighting variations in income distribution based on education and technological advancements. Additionally, it addresses redistribution policies influenced by political structures and societal needs.

1. Income Inequality and Redistribution: Demographic, Economic, and Political Determinants
Evelyne Huber and John D. Stephens
University of North Carolina at Chapel Hill

2. The problem
•For roughly half a century beginning in the late 1920s, income inequality declined in most of the industrial countries (Western Europe, North America, Australia, New Zealand, and Japan).
•In the thirty years after WWII, the Golden Age of high economic growth, this trend was reinforced by the rapid expansion of the welfare state which redistributed income to low income groups, to different degrees in different countries.
•Since the mid seventies, inequality has grown in all of these countries to different degrees.
•In the extreme case of the US, the incomes of families in the lower half of the income distribution have stagnated. All of the benefits of economic growth have been reaped by high income households, especially the very rich.

3. LIS data
•Gold standard for data on income inequality, harmonized
•Micro data available, making it possible to isolate groups, multi-level analysis, etc.
•Most post industrial democracies, adding countries in Latin America and Asia
•18 Post industrial democracies
•Unbalanced, varying number of time observations per case (3- 11)
•Many gaps  Random effects rather than Prais Winsten regressions.

4. Welfare State Regimes
•Nordic/ Social democratic
–Generous; redistributive; universal; service-heavy
•Continental/ Christian democratic
–Generous/ less redistributive; few services
•Anglo-Saxon/ Liberal
–Residual/ targeted; few services/ but NHS
•Mediterranean/ Conservative and late
–Corporatist/ catch-up with universal elements

5. Table 1: Trends in inequality by regimeEstimatedAverage changePre tax and transfer inequality1985 Levelper decadeNNordic30.92.224Continental Europe33.91.333Southern Europe35.42.018Anglo-American countries37.63.441RedistributionNordic33%2.424Continental Europe24%1.034Southern Europe13%2.218Anglo-American countries21%1.941Post tax and transfer inequalityNordic20.5.724Continental Europe25.6.633Southern Europe31.2.718Anglo-American countries29.62.041

6. Determinants of pre tax and transfer houshold income inequality
•Wage dispersion
–Union density
–Bargaining centralization
–Left government
–Nickell – skill dispersion
•Household change, single mother households
•De-industrialization
•Employment levels
•Race between education and technology – education spending

7. Household Change
•Increasing rates of divorce  of single-mother households
•Low participation in labor market  high risk of poverty
•Significant differences between countries because of differences in availability of child care  labor market participation of single mothers, and generosity of transfers  poverty levels

8. Deindustrialization
•In all advanced industrial societies and even the more advanced developing countries, the proportion of the labor force in industry has declined (technological progress and globalization).
•Result: disappearance of relatively well-paid jobs for low-skilled workers, as low-skilled jobs in the service sector tend to have lower productivity and pay less

9. Race between Technology and Education
•Transition to the knowledge society requires an ever more skilled labor force
•To have an ample supply, you would need growing investment in high quality education
•In some countries (specifically the US), investment in public education has not kept pace with need, and the imbalance between supply and demand for skilled labor drives up pay for skilled labor

10. Determinants of Market Income Distributions (before taxes and transfers)

11. -5
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-2
-1
0
1
2
3
4
5
6
Unemployment
Union density
% of children living in single mother households
Industrial employment
Education Spending
Employment as a % of the working age population
Determinants of Market Income Distribution

12. Inequality=42.5 -.103 test score, R2=.64

14. Causes of increases in market income inequality
Nordic countries
•Deindustrialization
•Slightly declining employment from very high level
•Unemployment increase highest (from lowest initial level)
•Increase in children in single mother households
•Countervailing factor: education spending, starts at the highest level and strongest increase at 0.3% per decade
Continental Europe
•Deindustrialization
•Increase in children in single mother households
•Increases in unemployment
•Countervailing factor: increase in employment
Anglo-American countries
•Deindustrialization
•Largest increase in children in single mother households from highest initial level
•Decreasing education spending, losing “race between education and technology”

15. Hypotheses on Causes of Redistribution
•Size of transfers: it IS true that you can solve some problems by throwing money at them; e.g. generous unemployment benefits and child allowances or minimum income schemes
•Structure of transfers determined by left/ right and Christian democratic politics
•Problem pressure: at any given level of entitlements, larger problems will result in larger redistribution

17. -4
-3
-2
-1
0
1
2
3
4
5
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Left cabinet
Unemployment replacement rates
Unemployment
% of children living in single mother households
Employment as a % of the working age population
Redistribution

18. Table 6: Trends in "policy" redistribution by regimeEstimatedAverage change1985 Levelper decadeNAll countries15%-.2117Nordic24%.224Continental Europe16%-.534Southern Europe1%3.618Anglo-American countries10%.441

19. Thanks for your attention!

20. -1.5
-1
-0.5
0
0.5
1
1.5
2
Nonaged spending
Nonaged spending
Social spending
Social spending
ALMP spending
Daycare spending
Health care spending
Health care spending
Education spending
Parental leave replacement rate
Unemployment replacement rate
Unemployment replacement rate
Sickpay replacement rate
Sickpay replacement rate
Minimum pension replacement rates
Standard pension replacement rates
Government service employment
Government service employment
Redistribution
Poverty
Poverty
Child poverty
Single mother poverty
Single mother poverty
a. Pre 1986

21. -1.5
-1
-0.5
0
0.5
1
1.5
2
Social spending
Daycare spending
Health care spending
Education spending
Parental leave replacement rate
Standard pension replacement rates
Government service employment
Government service employment
Poverty
Single mother poverty
b. Post 1985
Social democratic government Christian democratic government