Crisis and Inequality. Mattias Vermeiren
Figure 1.1 The Lorenz curve and the Gini index
The Gini index used by the OECD, which is depicted in figure 1.2, measures the distribution of disposable income after all taxes have been paid and government transfers have been received. It includes income from labour (wages and salaries, profit-sharing bonuses and other forms of profit-related pay, income from self-employment) and capital (income from non-financial assets like real estate and financial assets like banking accounts, bonds and stocks). Several conclusions can be drawn from this figure. First of all, Anglo-Saxon countries tend to have higher levels of income inequality than most continental European countries and Japan. Inequality also rose faster in the former countries between 1985 and 2017 than in the latter. Although Finland and Sweden are an exception to this trend, their Gini indices were the lowest in the 1980s and they remain among the most equal countries according to this measure. France and Belgium are the only two countries whose Gini index remained more or less the same during this period. So while the rise in income inequality was an almost universal phenomenon in the advanced capitalist world, there are substantial cross-national differences between OECD countries in terms of both the level of inequality and the pace at which it has increased since the 1980s.
Figure 1.2 Gini indices of selected OECD countries, 1985 and 2017
Source: OECD
One problem with statistical indices like the Gini index is that they summarize the entire income distribution in one single number, making it a relatively abstract measure of inequality. For this reason, it is more illuminating to rely on distribution tables, which present data on the shares of different income groups in the total income that is earned every year in a particular country and how these shares have evolved over time. French economists Thomas Piketty and Emmanuel Saez collected such data, using tax records that enabled them to track changes in the levels of inequality over very long periods of time – even going back for more than two centuries for some countries. These authors are best known for their historical data on the evolution of the share of the ‘top 1 per cent’ in total income, which are shown in figures 1.3 and 1.4.
Figure 1.3 Share of the top percentile in total income in Anglo-Saxon countries, 1920–2014
Source: World Inequality Database, https://wid.world
Figure 1.4 Share of the top percentile in total income in continental Europe and Japan, 1920–2014
Source: World Inequality Database, https://wid.world
There is a considerable difference between the Anglo-Saxon countries and other rich OECD countries in terms of the income share of the top 1 per cent. The Anglo-Saxon countries – Australia, Canada, Ireland, the United Kingdom and the United States – all show a U-shape. Over the period 1980 to 2012, the top 1 per cent income share more or less doubled in these five countries (and rose by more than 50 per cent in New Zealand, not shown). According to this measure, income inequality is highest in the United States, where the top 1 per cent’s income share rose from 10.6 per cent in the 1970s to 20.8 per cent in 2012. The experience is again markedly different in continental Europe and Japan, where the long pattern is closer to an L-shaped curve. The income shares of the top 1 per cent have also risen in these countries in recent years, but they are not extremely far today from their levels in the late 1940s.
In his best-selling book Capital in the 21st Century, Piketty rightly notes that ‘the share of income (or wealth) going to the top decile or centile is a useful index for judging how unequal a society is, because it reflects not just the existence of extremely high incomes or extremely large fortunes but also the number of individuals who enjoy such rewards’.1 The group is, by definition, a very small minority of the population, but is nevertheless far larger than the dozens or hundreds of ‘super elites’ who are tracked by Forbes’ or Bloomberg’s billionaires lists. In a country like the United Kingdom with more than 60 million citizens (of whom about 45 million are adults), the top centile contains about 450,000 people. In a country like the United States with about 250 million adults, the top centile consists of 2.5 million individuals. These are numerically large groups of people who inevitably have the most social and political influence in their country, which is why Piketty labels this group as the ‘dominant class’.2
Similar cross-regional differences emerge if we look at the evolution of the income shares of people in the bottom 50 per cent – who can be called the ‘lower classes’ – and the middle 40 per cent – the ‘middle classes’, who stand between the fifth and ninth decile of the income distribution. Table 1.1 presents accumulated income growth rates in Europe and North America from 1980 to 2016 for these income groups. Real national income growth per adult – that is, income growth adjusted for inflation – during this period reached 40 per cent in Europe and 63 per cent in North America (the United States and Canada). In both regions income growth is systematically higher for upper income groups. But in Europe the growth gap between the bottom 50 per cent and the full population is much lower, as is the gap between the bottom 50 per cent and top income groups. To better understand the significance of these unequal rates of growth, it is useful to focus on the share of total growth captured by each group over the entire period. The top 1 per cent captured 35 per cent of total growth in the United States and Canada, whereas it ‘merely’ seized 18 per cent of total growth in Europe. In Europe, the fruits of income growth have also been shared more equally with the bottom 50 per cent: 14 per cent against a meagre 2 per cent in North America. While the middle 40 per cent also reaped a higher share in total accumulated income growth in Europe than in the United States and Canada (38 per cent against 32 per cent), it is especially the experience of the bottom 50 per cent that has been strikingly different.
Table 1.1 Total income growth and inequality, 1980–2016
| Total cumulative income growth per adult | Share of total accumulated income growth captured by income groups | |||
|---|---|---|---|---|
| Europe | United States and Canada | Europe | United States and Canada | |
| Full population | 40% | 63% | 100% | 100% |
| Bottom 50% | 26% | 5% | 14% | 2% |
|
Middle 40%
|