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 AWAY POINTS
-40
-20
0
20
40
60
80
100
120
140
1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007
Pe
rce
nta
ge C
han
ge
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 did inequality grow so
dramatically?
• 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
What impact has the Great
Recession had on inequality?
US UNEMPLOYMENT RATE
Percent Civilian Adult (over age 16) Population Unemployed,
January 2005-2012
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
Percent Civilian Adult (over age 16) Population
Unemployed or Discouraged, January 2005-2012
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 of discrimination
US UNEMPLOYMENT RATE
Percent Civilian Adult (over age 16) Population Unemployed or
Underemployed, January 2005-2012
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.
What impact?
• 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 policies REDUCE market
inequality through taxes & transfers
“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?
Market income by quintile
Mid 2000s, all US households
0
20,000
40,000
60,000
80,000
AllHouseholds
BottomQuintile
2ndQuintile
3rdQuintile
4thQuintile
Topquintile
Ho
use
ho
ld m
arke
t in
com
e $
Source: Meyers et al. 2011
-20,000
0
20,000
40,000
60,000
80,000
100,000
AllHouseholds
BottomQuintile
2ndQuintile
3rdQuintile
4thQuintile
Topquintile
Market income Social Insurance Transfers
Safety Net Transfers State Income Taxes
Ho
use
ho
ld In
com
e P
acka
ge $
Household income package by quintile
Adjusted for taxes, social insurance & transfers Mid 2000’s, all households
Source: Meyers et al. 2011
Equalization has become less
effective in recent years
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 0.2 0.4 0.6 0.8 1
Gini Index
Net inequality
Social InsuranceTransfers
Safety Net Transfers
State Taxes
Federal TaxesReduction 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 0.2 0.4 0.6 0.8 1
Elderly-headedHouseholds
Working Aged Hhsw/o Children
Working Aged Hhsw/ Children
Net inequality
Social InsuranceTransfers Safety Net Transfers
State Taxes
Federal Taxes
Source: Meyers et al. 2011
Gini Index for families with children,
1994 and 2004
0 0.1 0.2 0.3 0.4 0.5
1994
2004
Net inequality
Social InsuranceTransfers 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?
