20150616-NATIXIS-An_increase_in_inequalities_is_more_difficult_to_fight_if_it_is_a_result_of_changes_in_the_structure_of_the_economy_12页_741kb

Summary of FLASH ECONOMICS ECONOMIC RESEARCH - No. 471

Core Content

This research paper explores the causes and implications of increasing income inequalities in the United States, the United Kingdom, and France, focusing on four main factors:

1. High return on capital (Piketty-style inequalities)
2. Competition from emerging countries
3. Technological progress and new technologies
4. Distortion in the sectoral structure of the economy

It concludes that while some types of inequalities can be addressed through policy interventions, those stemming from structural changes in the economy are more difficult to correct.

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Main Causes of Income Inequality

• Abnormally high return on capital: This leads to an increase in unearned income relative to earned income, especially in the United States. It can be mitigated through taxation on unearned income.
• Competition from emerging countries: This reduces the income of unskilled workers in sectors competing with these countries. As labor costs rise in emerging economies, this effect is expected to weaken.
• Technological progress: New technologies tend to increase the income of skilled workers and raise the return on education. This trend is more pronounced in the United States.
• Sectoral structure distortion: This favors high-skill and skilled jobs over intermediate jobs, leading to labor market polarisation. It is a structural issue with deep-rooted causes.

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Key Observations

Income Inequality Metrics

• Gini Coefficient (scale 0 to 1):

  • United States: Increased from 0.40 in 1990 to 0.45 in 2013
  • United Kingdom: Increased from 0.35 in 1990 to 0.34 in 2013
  • France: Increased from 0.29 in 1990 to 0.31 in 2013

• D9/D2 Ratio (ratio of top 10% to bottom 40% income):

  • United States: Increased from 5.93 in 1990 to 7.18 in 2013
  • United Kingdom: Increased from 3.29 in 1995 to 3.32 in 2013
  • France: Increased from 2.87 in 1995 to 2.74 in 2013

• Interquartile Income Ratio (Q5/Q1):

  • United States: Increased from 4.42 in 1990 to 5.07 in 2013
  • United Kingdom: Increased from 5.20 in 1995 to 5.90 in 2005
  • France: Increased from 4.50 in 1995 to 4.60 in 2013

Income by Education Level

• United States:

  • The income of highly educated individuals has grown significantly relative to less educated ones.
  • Unskilled wages have stagnated or declined, contributing to income inequality.

• United Kingdom:

  • There is a smaller gap in income between education levels, with less pronounced inequality compared to the U.S.

• France:

  • Similar to the U.K., the income gap by education level is smaller than in the U.S.

Unemployment by Education Level

• In all three countries, unskilled workers face higher unemployment rates, indicating that rigid wages for low-skilled workers can exacerbate inequality.

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Technological Progress and Sectoral Changes

• United States:

  • Real income growth for the lowest quintile is lower than for other groups, suggesting a stronger impact of technological progress on income distribution.
  • High investment in ICT (Information and Communication Technology) is linked to this trend.

• United Kingdom and France:

  • The effect of technological progress is less pronounced, and income inequality is not as strongly tied to education levels.

• Sectoral Structure:

  • A shift away from industries (which provide intermediate jobs) and towards business/financial services (skilled jobs) and unsophisticated services (unskilled jobs) contributes to polarisation of the labor market.
  • This distortion is a structural cause of inequality and is harder to address.

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Conclusion

• Easiest to correct: Inequalities due to high return on capital, as they can be addressed through taxation.
• Moderately challenging: Inequalities from competition with emerging countries, as they may weaken with rising labor costs.
• Most difficult to correct: Structural inequalities linked to technological progress and sectoral changes, as they are deeply embedded in the economy and labor market.

These structural inequalities are particularly evident in the United States, where income gaps have widened significantly over the period studied.