Inequality: causes, consequences for wellbeing, lessons for policy Mario Pianta University of Urbino, Centro Linceo Interdisciplinare, Accademia dei Lincei OECD conference on Measuring Wellbeing, Paris, June 2012

Understanding inequality Important topic of research and policy OECD studies, Atkinson-Picketty, INEQ project (Rome), GINI project (Amsterdam), etc. Complex picture of changes in economic activities, labour markets and public policies. Need for an interpretation of causes and consequences Relevance for wellbeing

Key causes Functional distribution matters Profit share 2010: Italy 45%, France, UK 33%, Sweden 30% are reflected in levels of inequality Power of finance greater in high inequality countries Avg wage per worker (manuf & serv): Germany: +1.1% before 2000, +0.1% after Italy: -0.1% two decades

Labour market institut. matter Inequality rises when wages increase slowly or fall and when trade union protection is weaker Inequality among employees rises with atypical workers. Young people worse off Quality of work matters Polarisation, not skill bias among employees Labour activation may increase inequality as new jobs are low wage

National policies for distribution matter Personal incomes, OECD Mid-1980s to 2010, real disposable income working-age population, different patterns: France, Belgium, Ireland, Spain, Portugal, Greece, incomes poorest 10% rose faster than the richest 10% Italy: Top 10% +1.1% €11,000 each Bottom 10% +0.2% €200 per capita

The case of Italy Real income in 2012 back to a decade ago to 2009 labour productivity -0.5%, now back to the levels of the early 1990s. Nine out of ten worse off than 10 years ago Income of one of the richest 0,1% = income of 100 poors (lowest decile) Wealth of one of the ten richest Italians = wealth of 300,000 poors (Bank of Italy) M. Pianta, Nove su dieci. Perché stiamo (quasi) tutti peggio di dieci anni fa (Laterza, 2012)

Inequality and wellbeing: econ. Link between high inequality and low overall wellbeing due to: Considerations of justice, equity and fairness (also intergenerational) No link between inequality and growth, No trickle down effects Inequality increased by lower taxes on the rich, reduces resources for public support of activities creating wellbeing

Inequality and wellbeing: social Inequality lowers social integration and cohesion Increasing social problems associated to high inequality Importance on non market aspect of wellbeing – shorter working time, access to public goods, social relations - that worsen when there is high inequality.

Lessons for policy Redistribution works Tax policy works Markets do fail, public goods (can) work

Redistribution works OECD: Germany, France, Austria, Belgium, Italy: market income Gini working age above 0.4 Redistribution (taxation system and welfare) brings it below for all except Italy Counting value of public services, Sweden, from 0.24 to 0.18 the UK is less unequal than Italy

Redistribution, advice from Warren Buffet Progressive taxation is needed (Warren Buffet pays less taxes than his secretary) Shift taxes from labour to wealth and non renewable resources Large public sector and welfare (in most of Europe) works in reducing inequalities, assuring wellbeing, protecting from the effects of the crisis (EU study)

Wealth, advice from Bill Gates Growing divergence between wealth and incomes makes social mobility impossible, gives wrong incentives, reduces returns to talents and growth, worsens wellbeing Net wealth Italy: 1985, equal to GDP 2009, 5.7 times GDP (4.5 net of public debt). Wealthiest 10% of households 45% of wealth, 27% of income. Wealth is mainly inherited, increasingly so Need for restoring high inheritance tax

Markets do fail Extending markets to all activities with privatisations and deregulation has brought some market failures, inefficiencies, monopoly rents, inequalities, lower wellbeing, risks. Cases of public goods, commons, local public services, water, transport, CO2, environmental issues, IPRs, cultural production, etc. Efficiency, growth, wellbeing require more complex systems of ownership, governance

Lessons Inequality of outcomes, more than opportunit. Wages and workers’ rights matter Within employees, complexity Not just poverty, but inequality matters Wellbeing under threat from inequalities Wellbeing supported by non-market activities Policy (can) work Conflicting policy agendas