Welfare states, real income and poverty

Welfare state supporters typically contend that social-welfare programs boost the incomes of low-earning households. Critics argue that, over time, such programs reduce the growth of economic output and/or employment. As a result, redistribution may produce stagnant or even declining real incomes for those at the bottom. A number of recent cross-country empirical studies have found that welfare state generosity is strongly associated with low relative poverty, but there has been virtually no cross-national analysis of welfare state effects on absolute poverty, which is at the heart of the critics' argument. I use Luxembourg Income Study (LIS) data to examine the relationship between welfare state generosity and absolute poverty for working-age households in Sweden, Germany, the United Kingdom, Canada, and the United States from the mid-1970s to 2000. Consistent with the critics' charge, the countries with the most generous welfare states experienced rising pretax-pretransfer absolute poverty. Yet the actual causal significance of welfare state generosity in this development is questionable. On the whole, the comparative evidence seems more consistent with the view of welfare state supporters. Germany, with its relatively generous social-welfare programs, had the lowest levels of both pretax-pretransfer and posttax-posttransfer absolute poverty throughout the period. And the sharpest decline in posttax-posttransfer absolute poverty, as well as the second lowest level as of 2000, were found in Sweden, the country with by far the most generous welfare state

Do Social-Welfare Policies Reduce Poverty? A Cross-National Assessment

Most social scientists, policy makers, and citizens who support the welfare state do so in part because they believe social-welfare programs help to reduce the incidence of poverty. Yet a growing number of critics assert that such programs in fact fail to do so, because too small a share of transfers actually reaches the poor, or because such programs create a welfare/poverty trap, or because they weaken the economy. This study assesses the effects of social-welfare policy extensiveness on poverty across 15 affluent industrialized nations over the period 1960-91, using both absolute and relative measures of poverty. The results strongly support the conventional view that social-welfare programs reduce poverty

The high-employment route to low inequality

This paper surveys the rise of income inequality in affluent nations. Social programs are critical to keeping inequality in check, but their sustainability is increasingly threatened. A possible solution is high levels of employment

An equality-growth tradeoff

For a long time conventional wisdom held that income inequality enhances investment and work incentives and thereby is good for economic growth. In the 1990s this view was turned on its head, as a number of empirical analyses found an association between inequality and slower growth across large samples of mainly less developed nations. Researchers also identified various causal paths through which inequality might reduce growth. Recently, several studies focusing on rich countries have discovered an apparent growth-enhancing effect of inequality, consistent with the older view. My examination of 15 affluent countries over the 1980s and 1990s suggests no general tendency for inequality to influence economic growth in either direction. The same is true for the U.S. states in these two decades. Post-World War II longitudinal trends in the United States also offer no indication that inequality has had an effect on growth

Government benefits, inequality, and employment

Redistribution is one of the principal mechanisms through which countries secure low income inequality. Maintaining moderately high wage levels at the low end of the distribution may be increasingly difficult and perhaps even counterproductive from an egalitarian perspective. If so, redistribution is likely to become even more critical. Redistribution can be achieved through the tax system, via government transfers, or both. In practice, however, very little redistribution is accomplished via taxation, and a shift toward greater use of taxes to achieve redistributive ends is unlikely. Benefits, therefore, may be the key to successful pursuit of low inequality for affluent countries. But generous benefits can create employment disincentives. This produces a bind for policy makers. Generous benefits secure the redistribution countries need to get low inequality. Because of aging and capital mobility, a high employment rate is needed to finance those benefits. But if benefits are generous, they may reduce the employment rate. Is there a way out of this dilemma

Do affluent countries face an incomes-jobs tradeoff?

"Eine weit verbreitete Ansicht ist, dass in Industrienationen ein Zielkonflikt zwischen Einkommen und Beschäftigung besteht. Demzufolge sind die Löhne in den USA am unteren Ende der Einkommensverteilung im Vergleich zu den mittleren Einkommen sehr niedrig und gesetzliche Arbeitslosenbezüge ausgesprochen gering bemessen. Dies aber stimuliert sowohl die Schaffung neuer Arbeitsplätze als auch die Bereitschaft der Erwerbstätigen, sich mit niedrigen Einkommen zufrieden zu geben. Das Resultat ist eine hohe Beschäftigungs- und eine niedrige Arbeitslosenquote. In vielen westeuropäischen Ländern ist das Niveau der Niedrigeinkommen höher und sind Arbeitslosenbezüge großzügiger. Dies aber hemmt, nach Ansicht vieler, die Entstehung neuer Arbeitsplätze und die Bereitschaft von Arbeitslosen, niedrig bezahlte Arbeit anzunehmen. Das vorliegende Discussion Paper ist eine vergleichende Untersuchung dieser Zielkonflikt-Ansicht auf der Basis von kombinierten Querschnitts- / Zeitreihenanalysen in 14 OECD-Ländern in den 1980er- und 1990er-Jahren. Die Ergebnisse lassen den Schluss zu, dass eine gerechtere Einkommensverteilung und eine höhere Arbeitslosenvergütung ein geringes Beschäftigungswachstum zur Folge haben, sowohl in Bereichen der Wirtschaft mit geringem Produktivitätsausstoß (Dienstleistungssektor) als auch gesamtwirtschaftlich. Gleichwohl sind die Auswirkungen relativ geringfügig. Die Ergebnisse deuten überdies darauf hin, dass es eine Vielzahl von Lösungsmöglichkeiten zur Herstellung beziehungsweise Erhaltung eines ausgewogenen Verhältnisses von Beschäftigung und gerechter Einkommensverteilung gibt." [Autorenreferat]"A commonly-held view suggests that affluent nations face a tradeoff between incomes and jobs. According to this view, in the United States pay for workers at the bottom of the earnings distribution (relative to those in the middle) is very low and government unemployment-related benefits (the “replacement rate”) are stingy, but this facilitates the creation of lots of new jobs and encourages such individuals to take those jobs. The result is a high rate of employment and low unemployment. In much of Western Europe relative pay levels are higher for those at the bottom and benefits are more generous, but this is said to discourage job creation and to reduce the willingness of the unemployed to accept low-wage jobs. The consequence is low employment and high unemployment. I undertake a comparative assessment of this tradeoff view, based on pooled cross-section time-series analyses of 14 OECD countries in the 1980s and 1990s. The findings suggest that greater pay equality and a higher replacement rate do reduce employment growth in low-productivity private-sector service industries and in the economy as a whole. However, these effects are relatively weak. The results point to a variety of viable options for countries wishing to maintain or move toward a desirable combination of jobs and equality." [author's abstract

Quantitative indicators of corporatism: a survey and assessment

"Wenige Modelle der vergleichenden politischen Ökonomie sind über die vergangenen 20 Jahre so eingehend untersucht worden wie das des Korporatismus. In der einschlägigen Literatur spielen dabei quantitative Indikatoren eine zentrale Rolle. Für das vorliegende Discussion Paper sind 42 Indikatoren erhoben und untersucht worden. Ziel war es, sie auf ihre Brauchbarkeit und Verläßlichkeit hin zu überprüfen sowie herauszufinden, wie standfest empirische Untersuchungen über die Auswirkungen des Korporatismus auf makro-ökonomische Leistungsfähigkeit, Einkommensverteilung und -umverteilung sind. Zu den besonders erwähnenswerten Schlußfolgerungen dieses Discussion Papers gehören: (1) Trotz immer noch bestehender Mängel haben sich quantitative Koporatismusmaße in den letzten Jahren als stichhaltig erwiesen. (2) Die Anwendung konstanter Variablen ist nicht mehr sinnvoll. (3) Summarische Korporatismusindikatoren werden zwar oft verwendet, doch ihre Erfinder und Anwender bleiben eine einleuchtende Erklärung schuldig, warum korporatistische Effekte besser durch aggregierte Gesamtmaße als durch sachlich genauere Einzelindikatoren erklärt werden sollten. (4) Alles weist darauf hin, daß einige Aspekte oder Formen des Korporatismus mit Lohnzurückhaltung, niedriger Inflation, höherer Beschäftigung und weitgehender Einkommensgleichheit in den 70er und 80er Jahren korrelieren. Die Ergebnisse variieren jedoch stark, je nachdem, welcher Indikator zugrunde gelegt wurde, und wenig stützt die allgemeine Vermutung, daß der Korporatismus vor allem durch Lohnzurückhaltung die Arbeitslosigkeit mindert." [Autorenreferat]"Corporatism has been one of the most heavily studied concepts in comparative political economy over the past two decades, and quantitative indicators of corporatism have played a central role in the corporatist literature. This paper offers a survey and assessment of 42 such indicators. The principal aims are to provide an inventory of existing indicators, to examine their relative trustworthiness and utility, and to assess the robustness of empirical findings on the effects of corporatism on macroeconomic performance and income distribution and redistribution. Among the more noteworthy conclusions I reach are the following: (1) While quantitative corporatism measures have improved substantially in recent years, substantial gaps remain. (2) There is little justification for continued use of time-invariant measures. (3) Composite corporatism measures are commonplace, yet their creators and users have yet to offer a compelling explication of how corporatist effects are generated in such a way that they are more accurately captured by aggregated indicators than by narrowly-targeted ones. (4) There is fairly strong indication that one or more aspects/types of corporatism were associated with nominal wage restraint, low inflation, low unemployment, and low income inequality during the 1970s and 1980s. However, the results vary markedly depending upon the particular indicator used, and there is little evidence to support the common presumption that corporatism's unemployment-reducing effect occurs via real wage restraint." [author's abstract

Inequality, public opinion, and redistribution

According to the 'median-voter' hypothesis, greater inequality in the market distribution of earnings or income tends to produce greater generosity in redistributive policy. We outline the steps in the causal chain specified by the hypothesis and attempt to assess these steps empirically. Prior studies focusing on cross-country variation have found little support for the median-voter model. We examine over-time trends in eight nations during the 1980s and 1990s. Here too the median-voter hypothesis appears to have little utility