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Lloyd Gruber, IPES (3-Nov-08) The Declining Quality of First-World Growth: From Good to Bad – and Getting Ugly Lloyd Gruber Development Studies Institute.

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Presentation on theme: "Lloyd Gruber, IPES (3-Nov-08) The Declining Quality of First-World Growth: From Good to Bad – and Getting Ugly Lloyd Gruber Development Studies Institute."— Presentation transcript:

1 Lloyd Gruber, IPES (3-Nov-08) The Declining Quality of First-World Growth: From Good to Bad – and Getting Ugly Lloyd Gruber Development Studies Institute The London School of Economics Comments & suggestions welcome:

2 Lloyd Gruber, IPES (3-Nov-08) Motivations  Think harder about the long-term consequences of openness  In other work I examine the “missing links” in previous research on globaliz’n & welfare  Esp the link from earnings inequality to redistribution  If relationship is positive, globalization-induced inequality begins to look less problematic  Key empirical task: Find a better way of operationalizing redistribution  Key finding: Rising earnings gaps lead--in subsequent years--to less redistribution, not more  Yes, we can! But historically...we haven’t.  And neither has anyone else (not even the Swedes).  But so what?  Even if the int’l integration impedes domestic integration & progressivity declines, the poor and middle classes could still be better off in “absolute” terms.  In theory, pro-poor growth could make up the difference.  Cf. World Bank’s view of poverty alleviation in developing context

3 Lloyd Gruber, IPES (3-Nov-08) Motivations  Think harder about the long-term consequences of openness  In other work I examine the “missing links” in previous research on globalization & welfare  Esp the link from earnings inequality to redistribution  If relationship is positive, globalization-induced inequality begins to look less problematic  Key empirical task: Find a better way of operationalizing redistribution  Key finding: Rising earnings gaps lead--in subsequent years--to less redistribution, not more  Yes, we can! But historically...we haven’t.  And neither has anyone else (not even the Swedes).

4 Lloyd Gruber, IPES (3-Nov-08) Motivations  Think harder about the long-term consequences of openness  In other work I examine the “missing links” in previous research on globalization & welfare  But so what?  Even if the international integration impedes domestic integration, the poor and middle classes could still be better off in “absolute” terms.  In theory, pro-poor growth could make up the difference.  Cf. World Bank’s view of poverty alleviation in developing context

5 Lloyd Gruber, IPES (3-Nov-08) Findings & Implications  Absolutely not.  In fact, the “quality” of growth has been diminishing (not just amount)  Growth in today’s advanced economies less Rawlsian than in the past  Within-country trends are my focus here  “Trickle down” is the wrong metaphor  Think instead of “growth elasticities”  Policy implications  Should progressives like Obama keep supporting globalization, or is it time for (another) change?  Good question!

6 Lloyd Gruber, IPES (3-Nov-08) Organization of the Paper 1. Introduction 2. Less Is More: The (Potentially) Mitigating “Absolute” Consequences of Uneven Growth 3. Do We Really Know that Growth Is Raising the Poor’s Absolute Earnings? 4. Summarizing the Pattern: Rising Tides But Meeting Some Objections 6. Looking Ahead: What Happens After the Runaway Growth of Recent Years Runs Out?

7 Lloyd Gruber, IPES (3-Nov-08) 1. Globalization & Welfare: A Theoretical Progression Figure 1 Does Globalization Help or Hurt the Poor: The Long-Term Prognosis Total Change in Living Standards (Disposable Incomes Across Different Classes, Life Expectancies of Rich vs. Poor, Etc.) Globalization ?

8 Lloyd Gruber, IPES (3-Nov-08) Figure 2 Globalization and Welfare II: The Washington Consensus Total Change in Living Standards (Disposable Incomes Across Different Classes, Life Expectancies of Rich vs. Poor, Etc.) Globalization Economic Growth 1. Globalization & Welfare: A Theoretical Progression

9 Lloyd Gruber, IPES (3-Nov-08) Total Change in Living Standards (Disposable Incomes Across Different Classes, Life Expectancies of Rich vs. Poor, Etc.) Globalization Earnings Growth 1. Globalization & Welfare: A Theoretical Progression Figure 3 Globalization and Welfare III: The Debate within Economics Earnings Inequality ? ?

10 Lloyd Gruber, IPES (3-Nov-08) Figure 4 Globalization and Welfare IV: An “Additive” Political Economy Model 1. Globalization & Welfare: A Theoretical Progression ECONOMIC WELFARE Change in Living Standards Attributable to Market Forces Total Change in LIVING STANDARDS (Disposable Incomes Across Different Classes, Life Expectancies of Rich vs. Poor, Etc.) POLITICAL WELFARE Change in Living Standards Attributable to Non-Market Forces [Economics] [Political Science] Earnings Growth Earnings Inequality GLOBALIZATION Size of WELFARE STATE (esp. social insurance) Earnings Volatility

11 Lloyd Gruber, IPES (3-Nov-08) Figure 4 Globalization and Welfare IV: An “Additive” Political Economy Model 1. Globalization & Welfare: A Theoretical Progression Earnings Volatility ECONOMIC WELFARE Change in Living Standards Attributable to Market Forces Total Change in LIVING STANDARDS (Disposable Incomes Across Different Classes, Life Expectancies of Rich vs. Poor, Etc.) POLITICAL WELFARE Change in Living Standards Attributable to Non-Market Forces [Economics] [Political Science] Earnings Growth Earnings Inequality GLOBALIZATION Size of WELFARE STATE (esp. social insurance)

12 Lloyd Gruber, IPES (3-Nov-08) Figure 5 Globalization and Welfare V: The Missing Link 1. Globalization & Welfare: A Theoretical Progression Earnings Volatility ECONOMIC WELFARE Change in Living Standards Attributable to Market Forces Total Change in LIVING STANDARDS (Disposable Incomes Across Different Classes, Life Expectancies of Rich vs. Poor, Etc.) POLITICAL WELFARE Change in Living Standards Attributable to Non-Market Forces [Economics] [Political Science] Earnings Growth Earnings Inequality GLOBALIZATION Size of WELFARE STATE (esp. social insurance) REDISTRIBUTION [Economics] [Political Science]

13 Lloyd Gruber, IPES (3-Nov-08) Figure 5 Globalization and Welfare V: The Missing Link 1. Globalization & Welfare: A Theoretical Progression Earnings Volatility ECONOMIC WELFARE Change in Living Standards Attributable to Market Forces Total Change in LIVING STANDARDS (Disposable Incomes Across Different Classes, Life Expectancies of Rich vs. Poor, Etc.) POLITICAL WELFARE Change in Living Standards Attributable to Non-Market Forces Earnings Growth Earnings Inequality GLOBALIZATION Size of WELFARE STATE (esp. social insurance) REDISTRIBUTION [Economics] [Political Science] ?

14 Lloyd Gruber, IPES (3-Nov-08) Earnings Volatility ECONOMIC WELFARE Change in Living Standards Attributable to Market Forces Total Change in LIVING STANDARDS (Disposable Incomes Across Different Classes, Life Expectancies of Rich vs. Poor, Etc.) POLITICAL WELFARE Change in Living Standards Attributable to Non-Market Forces Earnings Growth GLOBALIZATION Size of WELFARE STATE (esp. social insurance) [Economics] [Political Science] Progressive Redistribution Earnings Inequality 2. Less Is More: The (Potentially) Mitigating “Absolute” Consequences of Uneven Growth Figure 6 So What if Globalization Suppresses Redistribution?

15 Lloyd Gruber, IPES (3-Nov-08) Figure 6 So What if Globalization Suppresses Redistribution? 2. Less Is More: The (Potentially) Mitigating “Absolute” Consequences of Uneven Growth Earnings Volatility ECONOMIC WELFARE Change in Living Standards Attributable to Market Forces Total Change in LIVING STANDARDS (Disposable Incomes Across Different Classes, Life Expectancies of Rich vs. Poor, Etc.) POLITICAL WELFARE Change in Living Standards Attributable to Non-Market Forces Earnings Growth Earnings Inequality GLOBALIZATION Size of WELFARE STATE (esp. social insurance) Progressive Redistribution [Economics] [Political Science] + + +

16 Lloyd Gruber, IPES (3-Nov-08) Even or Uneven, Growth Lifts All Boats Eventually : The Case for Riding Out the Storm Low-Quality Growth in the Short Run From Bad to Worse: Redistributive Effects in the Medium Run  The poor’s initial disposable income YpYp  YpYp 1 From Worse to Better: Uneven Growth and Redistribution in the Long Run  YpYp 2 0 ? YpYp > Y p ? 0 2

17 Lloyd Gruber, IPES (3-Nov-08) Trends in GDP per Capita and Trade in the United States,

18 Lloyd Gruber, IPES (3-Nov-08) Inside the Black Box of Average Earnings : Trends in Top-Decile (90), Average, and Bottom-Quartile (25) Earnings in 12 OECD Economies

19 Lloyd Gruber, IPES (3-Nov-08) Getting Down : Median, 25th, and 10th Percentile Earnings in 12 Advanced Economies

20 Lloyd Gruber, IPES (3-Nov-08) Is Growth Pareto-Improving? A Time-Series/Cross-Sectional Analysis

21 Lloyd Gruber, IPES (3-Nov-08) Is Growth Pareto-Improving? A Time-Series/Cross-Sectional Analysis

22 Lloyd Gruber, IPES (3-Nov-08) Do Rising Tides Lift All Boats? 90% EARNINGS VS. 25% EARNINGS Predicted Value of Country’s 25th-Percentile Market Income (Deviation from Country Mean) Predicted Value of Country’s 90th-Percentile Market Income (Deviation from Country Mean)

23 Lloyd Gruber, IPES (3-Nov-08) Organization of the Paper

24 Lloyd Gruber, IPES (3-Nov-08) Organization of the Paper

25 Lloyd Gruber, IPES (3-Nov-08) Earnings Over Time in 13 Advanced Economies Earnings Growth (or Decline) Between 1985 & 2005 (estimates based on trend regressions using best-fit line or curve) Below each arrow is a short descriptor of the estimated pattern of change. “Rising steadily” suggests a linear pattern. Less clear, perhaps, is the term “U-shaped” found in the adjacent cell (among other places). Here, the use of the term implies that 10 th -percentile earnings in the U.K. were rising toward the end of the ’85- ‘05 interval, albeit not by enough to compensate for the earnings losses suffered by this group during the first part of the period; hence the downward -facing arrow. The direction of the arrows indicates whether the earnings predicted for this earnings classification were up (  ) or down (  ) over the ‘85-‘05 period. In the second case, however, the absence of any asterisks next to the arrow indicates that the estimates on which these predictions were based did not achieve the threshold for statistical significance. Is There a Pattern Here?

26 Lloyd Gruber, IPES (3-Nov-08) Wage Trends in 22 High-Income Countries Is There a Pattern Here?

27 Lloyd Gruber, IPES (3-Nov-08) Organization of the Paper

28 Lloyd Gruber, IPES (3-Nov-08) Organization of the Paper

29 Lloyd Gruber, IPES (3-Nov-08) Do the Highest-Earning OECD Economies Devote More of Their Total Resources to Healthcare or Fewer? † † Australia, Finland, France, Germany, Italy, Canada, Norway, Sweden, the United Kingdom, the United States †

30 Lloyd Gruber, IPES (3-Nov-08) Public Health Spending & the Uninsured in the United States

31 Lloyd Gruber, IPES (3-Nov-08) Organization of the Paper 1. Introduction 2. Less Is More: The (Potentially) Mitigating “Absolute” Consequences of Uneven Growth 3. Do We Really Know that Growth Is Raising the Poor’s Absolute Earnings? 4. Summarizing the Pattern: Rising Tides But Meeting Some Objections 6. Looking Ahead: What Happens After the Runaway Growth of Recent Years Runs Out?

32 Lloyd Gruber, IPES (3-Nov-08) Organization of the Paper 1. Introduction 2. Less Is More: The (Potentially) Mitigating “Absolute” Consequences of Uneven Growth 3. Do We Really Know that Growth Is Raising the Poor’s Absolute Earnings? 4. Summarizing the Pattern: Rising Tides But Meeting Some Objections 6. Looking Ahead: What Happens After the Runaway Growth of Recent Years Runs Out?  Sinking tides, but...  Time to reconsider globalization?

33 Lloyd Gruber, IPES (3-Nov-08) Sinking tides, but...  Progressives to the rescue  Organized labor is now poised to win new wage-setting powers in the marketplace  What if the new Obama Administration also jacked up redistribution -- just like Joe the Plumber said he would?  Would it work?

34 Lloyd Gruber, IPES (3-Nov-08) Yes, We Did! (And We’re Still Worse Off) Redistribution in Theory: How Much Is Enough? with Obama Ratio between After-Tax Incomes of Rich & Poor without Obama Disposable Income Inequality compensation deficit R SQ Progressivity Government Redistribution without Obama with Obama Earnings of the Rich Time Earnings of the Poor Market Incomes

35 Lloyd Gruber, IPES (3-Nov-08) Organization of the Paper 1. Introduction 2. Less Is More: The (Potentially) Mitigating “Absolute” Consequences of Uneven Growth 3. Do We Really Know that Growth Is Raising the Poor’s Absolute Earnings? 4. Summarizing the Pattern: Rising Tides But Meeting Some Objections 6. Looking Ahead: What Happens After the Runaway Growth of Recent Years Runs Out?  Sinking tides, but...  Time to reconsider globalization? Absolutely !

36 Lloyd Gruber, IPES (3-Nov-08)


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