Income Inequality and Poverty What Difference Does Policy Make? - - PowerPoint PPT Presentation

Income Inequality and Poverty What Difference Does Policy Make?

Marcia K. Meyers University of Washington West Coast Poverty Center For presentation to National Association of Deans and Directors of Social Work

• Ft. Lauderdale, FLA

April 2, 2012

• Income inequality in US has increased steadily since

the early 1980s and sharply since 2002.

• Great Recession and recovery are increasing

inequality

• Economy matters: Market-based US system requires

all adults to work to avoid hardship but returns from work are declining for lower 40-60% of household

• Policy matters: Government tax and transfer policies

reduce inequalities in market incomes but have been declining in effectiveness

TAKE AKE AWA WAY POINT Y POINTS S

• 40
• 20

20 40 60 80 100 120 140 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007

Percentage Change

Change in Household Income Shares by Quintile Comprehensive Income Measure, 1979-2007

Lowest Quintile Middle Quintile Highest Quintile Top 1%

Income Inequality has grown

Source: CBO 2010

Why hy did did ineq inequa uali lity ty grow so w so dr dram amatic ticall ally? y?

• Factors putting downward pressure on wages for

less skilled/educated workers

• Factors limiting employment opportunities and

hours for adults in low income households

• Factors increasing returns to education in higher

wages and total market earnings in the most highly compensated jobs

• Factors increasing returns to capital investments

and ownership among most affluent households

Wha hat t impac impact t ha has s th the e Gr Grea eat t Rec eces ession sion ha had d on

• n i

ine nequ quality? ality?

US UNEMPLOYMENT RATE

Per ercent cent Civ Civilian Adult ilian Adult (o (over a er age 16) ge 16) P Popula

• pulation

tion Unemplo Unemployed, ed, Januar anuary y 2005 2005-2012 2012

Source: US Bureau of Labor Statistics

OFFICIAL MEASURE

PERCENT reporting that they do not have a job, have actively looked for work in prior 4 weeks & are available for work.

Source: US Bureau of Labor Statistics

US UNEMPLOYMENT RATE

Per ercent cent Civ Civilian Adult ilian Adult (o (over a er age 16) ge 16) P Popula

• pulation

tion Une Unemplo mployed ed or

• r Discour

Discouraged ged, , Janu anuar ary 2005 y 2005-2012 2012 PLUS DISCOURAGED WORKERS

PERCENT reporting they want a job, have looked for work in last 12 months, are available for work but are not currently looking for work because they believe no job is available, have been unable to find work, lack necessary skills or training, or face some form

• f discrimination

US UNEMPLOYMENT RATE

Per ercent cent Civ Civilian Adult ilian Adult (o (over a er age 16) ge 16) P Popula

• pulation

tion Unemplo Unemployed ed or

• r

Und Under eremplo employed, ed, Janu anuar ary y 200 2005-2012 2012

Source: US Bureau of Labor Statistics

PLUS UNDEREMPLOYED

PERCENT employed part time for economic reasons; reporting that they want and are available for full- time work but have had to settle for part-time schedules.

Wha hat impac t impact? t?

• Increasing downward pressure on wages for less

skilled/educated workers

• Increasing employers’ use of nonstandard

employment contracts, part-time schedules

• Increasing opportunities and pressure to lower

labor costs, lower price of consumer goods and services and increase returns to capital investments and ownership among most affluent households

What to Do?

Source: lanekenworthy.net Luxembourg Income Study

“The chief contribution of taxes to inequality reduction is indirect. Taxes provide the money to fund the transfers that reduce

• inequality. ... Not

surprisingly, countries that significantly reduce inequality via transfers tend to tax more heavily.” Lane Kenworthy, U of AZ

Public p Public policies

• licies REDUCE

REDUCE mar market et inequality inequality thr through tax

• ugh taxes & tr

es & transf ansfer ers s

“Household income packages” :

Market income + Centralized, national, social insurance + Decentralized, safety net programs

• - Federal payroll & income taxes with credits
• - State income taxes and credits

Question: How do much do components reduce inequalities in market income?

Mar

arket income et income by quintile by quintile

Mid 2000s, all US households

20,000 40,000 60,000 80,000

All Households Bottom Quintile 2nd Quintile 3rd Quintile 4th Quintile Top quintile

Household market income $

Source: Meyers et al. 2011

• 20,000

20,000 40,000 60,000 80,000 100,000

All Households Bottom Quintile 2nd Quintile 3rd Quintile 4th Quintile Top quintile

Market income Social Insurance Transfers Safety Net Transfers State Income Taxes

Household Income Package $

House Household hold income income pac packa kage ge by by quintile quintile

Adjusted for taxes, social insurance & transfers

Mid 2000’s, all households

Source: Meyers et al. 2011

Equaliza Equalization has tion has become less become less ef effectiv ective e in r in recen ecent y t year ears

Measuring changes in income inequality: Gini Index Measure of the distribution of income within population Perfect equality = 0 Perfect inequality =1 * Reduction in Gini coefficient reflects decrease in inequality

0.2 0.4 0.6 0.8 1

Gini Index

Net inequality Social Insurance Transfers Safety Net Transfers State Taxes Federal Taxes

Reduction in inequality Net inequality Inequality in market income

Gini Index Mid 2000s, all US households

Source: Meyers et al. 2011

Gini Index mid 2000s by household type

0.2 0.4 0.6 0.8 1 Elderly-headed Households Working Aged Hhs w/o Children Working Aged Hhs w/ Children

Net inequality Social Insurance Transfers Safety Net Transfers State Taxes Federal Taxes

Source: Meyers et al. 2011

Gini Index for families with children, 1994 and 2004

0.1 0.2 0.3 0.4 0.5 1994 2004

Net inequality Social Insurance Transfers Safety Net Transfers State Taxes Federal Taxes

Declining reduction in inequality

Source: Meyers et al. 2011

Increasing inequality in market income

Why Should Social Work Care About Inequality? What Should Social Work Do About Inequality?