Economy Lab

Will inequality become a permanent feature of our society?

The Globe and Mail

(SCANPIX SWEDEN/REUTERS)

Miles Corak is a professor of economics with the Graduate School of Public and International Affairs at the University of Ottawa. The full version of this post is available at milescorak.com



“Are we headed toward a permanently divided society?”

This is the question Isabel Sawhill of the Brookings Institution asks in a tightly written discussion of the factors relating inequality with opportunity.

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Ms. Sawhill's answer: "at current levels of inequality in the U.S. it likely does. However, this answer is qualified in several ways."

The most important qualification is that while inequality in parental incomes determines the opportunities and prospects of children, at the same time it is also a signal of other behaviours that are equally important: education, motivation, and a strong family.

Children who are advantaged at birth -- by not only living in a family with income above the poverty line, but also having married parents, a mother with at least high school education, and being born at a normal birth weight -- are more likely to succeed in the early years, but also in adolescence and ultimately adulthood.

It is not just poverty of money that matters, but also poverty of experience and expectation.

The major implication of Ms. Sawhill's policy brief is that public policy directed simply to redistributing incomes will not be effective. To put it in her own words:

"Any response to rising inequality that did no more than redistribute income would not by itself do much to promote mobility. Instead, a combination of government policies and changes in behavior that will improve education, reward work, and strengthen families while also maintaining a basic safety net for those at the bottom is needed. Without such changes the U.S. may well become a permanently divided society."

Or in other words, taxes and transfers cannot simply move a society up and down "The Great Gatsby Curve," the term Alan Krueger, the chairman of the Council of Economic Advisors, used to describe the relationship between more inequality at a point in time and less opportunity over time.

Ms. Sawhill pays some attention to the effectiveness of public policy in promoting the types of behaviours important for promoting the upward mobility of those who are relatively disadvantaged. And while she also stresses the need for active interventions on the behalf of government, her policy brief is silent on the relationship between labour market inequality and the politics of public policy.

In a more unequal society is it also less likely that public policy can be designed to be of relatively more advantage to the relatively disadvantaged?

That inequality in incomes may imply more inequality in political voice is a concern expressed and documented by Jacob Hacker and Paul Pierson in their book Winner Take all Politics , and more recently by Daron Acemoglu and James Robinson in Why Nations Fail . If this is the case, then it is important to be concerned not only with the barriers to upward mobility faced by the less advantaged, but also that the rules of the game are not skewed by a political process that is less in tune to their needs.

Inequality shapes opportunities because it also has the potential to shape public policy.



Follow on Twitter: @milescorak

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