Pathways toward Inclusive Income Growth: A Comparative Decomposition of National Growth Profiles

Despite rising interest in income inequality, scholars remain divided over the mechanisms underlying inclusive income growth and how these mechanisms vary across countries. This study introduces the concept of national growth profiles, that is, the additive contribution of changes in taxes, transfers, composition, and other factors including market institutions to changes across a country’s income distribution. We present a decomposition framework to measure national growth profiles for eight high-income countries from the 1980s to 2010s. Our findings adjudicate competing sociological and economic perspectives on rising inequality. First, we find that policy-driven changes in taxes and transfers are the dominant drivers of inclusive growth at the tails of the income distributions. Second, rising educational attainment contributes most to income growth across the distribution, but consistently contributes to less-inclusive growth. When changes in education are considered, changes in assortative mating and single parenthood have little consequence for changes in inequality. Third, changes to other factors including market institutions increased inequality in countries such as the United States, but less so in France and Germany. Had the United States matched the changes to Dutch tax policy, Danish transfer policy, or other factors of most other countries, it could have achieved more inclusive income growth than observed.

The English-Speaking Countries

This chapter considers the extent to which it is possible to speak of a commonality in the welfare state experience of English-speaking welfare states (Australia, Canada, Ireland, New Zealand, the United Kingdom and the United States). At one level, the expectation that these tend to be comparatively small, low-spending, market-focused (‘liberal’) welfare states proves to be true. But, upon closer inspection, that commonality tends to break down. Some have been more redistributive than others and the Antipodean cases (Australia and New Zealand) with distinctive labour market institutions suggest the possibility of a different way of managing distributional outcomes. The widely canvassed US ‘exceptionalism’ proves to be true to some extent, though less so after Obama’s health-care reforms. In the wake of the Great Financial Crisis of 2008, both commonalities and differences remained.

Labour Regulations, Growth and Employment: A South Asian Perspective

Drawing on the experience of four South Asian economies (Bangladesh, India, Pakistan, Sri Lanka), this article argues that properly designed labour market institutions and regulations play a pivotal role in engendering desirable economic and social dividends. The alternative is a Hobbesian world of an unregulated labour market, which is likely to produce poor wages and working conditions. Policymakers in the region should acknowledge common challenges pertaining to low utilisation of the skills and talents of young people, entrenched gender disparities, high, and in many cases rising, informality, significant incidence of working poverty and vulnerability. They should focus on designing complementary interventions to tackle such shared challenges rather than being fixated on the narrowly conceived notion of deregulating labour markets.

Pathways toward Inclusive Income Growth: A Comparative Decomposition of National Growth Profiles

Despite rising interest in income inequality, scholars remain divided over the mechanisms underlying inclusive income growth and how these mechanisms vary across countries. This study introduces the concept of national growth profiles, the additive contribution of changes in taxes, transfers, composition, and other factors including market institutions to changes across a country’s income distribution. We present a decomposition framework to measure national growth profiles for eight high-income countries from the 1980–2010s. Our findings adjudicate competing sociological and economic perspectives on rising inequality. First, we find that policy-driven changes in taxes and transfers are the dominant drivers of inclusive growth at the tails of the income distributions. Second, rising educational attainment contributes most to income growth across the distribution, but consistently contributes to less-inclusive growth. When changes in education are considered, changes in assortative mating and single parenthood have little consequence for changes in inequality. Third, changes to other factors including market institutions increased inequality in countries such as the U.S., but less so in France and Germany. Had the U.S. matched the changes to Dutch tax policy, Danish transfer policy, or other factors of most other countries, it could have achieved more inclusive income growth than observed. (Stone Center on Socio-Economic Inequality Working Paper)