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Changing Inequalities in Rich CountriesAnalytical and Comparative Perspectives$

Wiemer Salverda, Brian Nolan, Daniele Checchi, Ive Marx, Abigail McKnight, István György Tóth, and Herman van de Werfhorst

Print publication date: 2014

Print ISBN-13: 9780199687435

Published to Oxford Scholarship Online: April 2014

DOI: 10.1093/acprof:oso/9780199687435.001.0001

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Introduction

Introduction

Chapter:
(p.1) 1 Introduction
Source:
Changing Inequalities in Rich Countries
Author(s):

Wiemer Salverda

Brian Nolan

Daniele Checchi

Ive Marx

Abigail McKnight

István GyörgyTóth

Herman van de Werfhorst

Publisher:
Oxford University Press
DOI:10.1093/acprof:oso/9780199687435.003.0001

Abstract and Keywords

This chapter provides the introduction to a collection of 11 comparative chapters and a concluding chapter which, based on 30 country studies (25 European, USA, Canada, Australia, Japan, Korea; reported in the companion volume Nolan et al. 2013), look at the evolution of inequalities, their social and political impacts, and national policies regarding inequality. Four chapters consider the evolution of inequalities of income and their drivers, the role of earnings and employment, the inequalities of wealth, and those of education. Four subsequent chapters address the social and political impacts in a wide range of fields, such as poverty and social exclusion, health and housing, attitudes towards inequality, trust, and political legitimacy. Next, policies of redistribution, job provision and public services are discussed in two chapters, followed by a chapter on educational policies and inequality. The chapter explains the approach and its challenges and ends with a summary overview of inequalities.

Keywords:   Income inequality, drivers of inequality, education, wealth, developed countries, social impacts, health, poverty, political participation, political influence, redistribution

Inequality and its impacts now loom large in public debate and policy discussion in the richer countries of the world, and are the focus of research from a variety of disciplinary perspectives and of intense debate among those carrying it out. This is reflected in the titles of two recent influential OECD studies, Growing Unequal: Income Distribution and Poverty in OECD Countries (2008) and Divided We Stand: Why Inequality Keeps Rising (2011). There has been a particularly striking rise in income inequality over the past thirty years or so in countries such as the USA and the UK, and the economic crisis from 2007/08 has strongly reinforced the widespread sense that increasing inequality represents a fundamental challenge to the cohesion of advanced societies and the wellbeing of their citizens, as well as to the smooth functioning of their economies. Against that background, even the resumption of broad-based economic growth, however welcome, might not be adequate if an increasing proportion of the income and wealth generated goes towards the top, potentially exacerbating social problems, fuelling alienation, and undermining political processes and social cohesion.

This book is the product of a major international research project aimed at discovering what has been happening to economic inequality in the richer countries, understanding why, and teasing out its impact on social, political, and cultural behaviours and outcomes. The project, entitled Growing Inequalities’ Impacts or GINI for short, was funded by the European Union’s Framework Programme for internationally cooperative scientific research. It covers twenty-five of the twenty-seven countries of the European Union (the exceptions being Cyprus and Malta), together with Australia, Canada, Japan, Korea,1 and the (p.2) United States.2 The project combined comparative analysis and in-depth country studies of inequality trends, the drivers of those trends, their social and political/cultural impacts, and the policies that affect them. The findings of the country case studies, where their individual experiences are examined through a common analytical framework, are discussed country by country in a companion volume, also published by Oxford University Press, entitled Changing Inequalities and Societal Impacts in Rich Countries: Thirty Countries’ Experiences (Nolan et al., 2014). The present volume, by contrast, concentrates on the key findings from the research as a whole, much of it comparative in nature, while incorporating lessons from specific country experiences. It builds on those country foundations by drawing on the contributions of GINI discussion papers on a wide range of topics and the wider literature, and presenting results of further comparative research.

In this introductory chapter we discuss the point of departure and context for the book, the key challenges it faces in seeking to address complex questions about inequality and its impacts, and the approach and analytical framework adopted. We then highlight some key patterns in the evolution of income inequality over time revealed by data from the country case studies, which serve as a central point of reference throughout the rest of the book. Finally, the structure of the book and the thread of the argument running through it are set out.

1.1 Point of Departure, Context, and Key Challenges

The resurgence in academic interest in economic inequality in recent years is a product of inequality trends themselves, the changing policy environment in which research is carried out, and improved data and methods for research. The dramatic widening in earnings dispersion and in overall income inequality in the UK and the USA in the 1980s prompted a sustained stream of research by economists and sociologists on the returns to different levels of education and skill, occupational earnings differentials, and the implications for broader inequalities in income across households (see, for example, Gottschalk and Smeeding, 1997; Blau and Kahn, 2009). While this research is largely based on data from household surveys and earnings surveys, analysis of data collected by tax authorities has more recently revealed a substantial increase in the share of household income going to the very top of the distribution in many rich countries (e.g. Atkinson and (p.3) Piketty, 2007), underpinning widespread comment and debate about the ‘1%’ versus the ’99%’. A complex set of potential ‘drivers’ of these trends in inequality, including technological change and globalization, has been put forward, examined, and debated in the academic literature (see, for example, Atkinson et al., 2011). At the same time, educational attainment continues to play a central role in influencing the socioeconomic fortunes of individuals over their lifetimes, but faith in the transformative power of education as an equalizing force, within and across generations, has been waning.

As inequality and the forces driving it have been investigated, research and public debate more broadly have also focused on the potential consequences of growing inequality for major social and political outcomes. Wilkinson and Pickett’s (2009a) The Spirit Level has been particularly effective in generating a wide-ranging debate about the potentially harmful impact of inequality. It argues that income inequality is harmful to society by virtue of its relationship to many different undesirable outcomes, that societies with higher income inequality have lower levels of social cohesion, exemplified in outcomes such as more social problems, higher crime rates, higher mortality rates, worse health, higher dropout rates from schools, lower social trust, and lower political involvement. Such potentially negative social outcomes have long been a subject of study, with the interaction between health and socioeconomic inequalities in particular being a core focus for public health specialists and other social scientists for many years. What is new in this debate is the extent to which income inequality per se, rather than the myriad of factors associated with or underpinning it in the literature in terms of social stratification more generally, is put forward as driving worse social outcomes—as we shall see, a claim that is hotly contested. In the political sphere, the notion that concentration of income and wealth impacts on democratic processes and outcomes has a long lineage, but recent concerns about waning trust in politicians and declining voter turnout, exacerbated by the economic crisis, have been combined with a renewed focus on the linkages between the economic power of the elite—the ‘1%’—and their political influence.

Inequalities in income, wealth, and education reflect the broad nature of the economic system but are not simply determined by it: the particular institutions and policies in place in an individual country at a particular point in time have a profound impact on the extent and nature of those inequalities and their societal significance. The development of modern welfare states has brought with it the capacity to influence distributional outcomes in a fundamental way, even if that capacity varies noticeably between countries and is constrained by market forces. The dynamics of the evolution of those welfare states over time and the policy choices they have made over the last (p.4) thirty years are central to understanding changing patterns of inequality and their impacts, however important the role of global economic forces may be. Nation-states remain the key site for political decision-making, and it is national or indeed local concerns, about the welfare of families and communities, that fuel the broad debates about inequality and its impacts towards which this book is directed.

In addressing these questions many thorny analytical challenges must be faced, and it is important to be clear about these, and their implications, from the outset. In seeking to capture what has actually been happening to inequality in the first place, one has to deal with intricate issues of definition, measurement, data, and interpretation. The scholarly literature has intensively investigated how best to think about and measure income inequality for forty years or more, and enormous strides have been made in the availability of data to which these methods can be applied. Nonetheless, the general picture of income inequality underpinning current debates is often based on generalization from the experience of particular countries or sets of countries—notably the USA and UK—or on comparative data that is not truly comparable or relates only to specific years or periods, which may pose problems of comparability. Comparison of levels and trends in wealth inequality is even more difficult as data are much more limited, as their sensitivity hampers provision by respondents and their complexity (wealth can take many forms, relates to debt, and crosses boundaries more easily) encumbers collection by surveys, though there have been some recent improvements. The analysis of educational systems, attainment, and access has a long history, including in a comparative context, but linking concepts and measures with appropriate, internationally comparable data remains difficult, particularly when looking across generations.

Having done one’s best to capture levels and trends in such inequalities, the even more complex but essential task is to try to identify the causal forces at work and assess their relative importance. While the availability of suitable data and measures is key, this enterprise cannot be divorced from the theoretical frameworks of analysis which are brought to bear from a variety of disciplinary perspectives. To take income inequality as an example, much of the relevant research has been based in an economic framework that sees the labour-market returns to education and skills as central, supplemented by analysis of the ownership of and returns to capital. This framework has generated valuable hypotheses about the impact of factors such as technological change and globalization—the opening up of labour and capital markets—towards which much valuable research has been directed. However, it has proved difficult to establish robust conclusions about the factors driving the dispersion in earnings across individuals, and the picture becomes significantly more complicated when one shifts the focus to households rather (p.5) than individuals. The income of the household generally plays the major role in the living standards attained by its members, so the way earners and non-earners are grouped together in households, and how that varies across countries and changes over time, has to be incorporated into the analysis and understood. Income coming into the household from sources other than earnings also has to be included in the analysis, not only income from capital but also private pensions and cash transfers from the state, as do the direct taxes which also impact on household disposable income. Encompassing all these drivers within a unified analytical framework is enormously challenging, even if one did not seek to go beyond the economic perspective to incorporate social and political factors that may play a key role—for example, in attitudes to and treatment of welfare recipients or, at the other end of the income scale, top executives and the super-rich.

Turning to the potential impacts of increasing inequalities on social and political behaviours and outcomes, the first challenge to be faced is that these cover a very broad range of social and political behaviours and outcomes, so the investigation has to be equally broad-ranging. Seeking to encompass in a single study such very different dimensions of life as the family, crime, health, social attitudes, and political behaviour, each of which has very specific characteristics and is the subject of quite distinct scholarly literatures, is clearly extremely ambitious in itself. The more fundamental analytical challenge, though, arises because of the tremendously complex nature of the potential channels of influence running from inequalities to social and political outcomes—and indeed in the opposite direction—and the methodological difficulties in establishing with any degree of certainty the causal relationships involved. For example, a common starting point has been to line up indicators of various social outcomes for different countries against a summary measure of income inequality, such as the Gini coefficient, and see whether they appear to be related. Wilkinson and Pickett (2009a), for example, have plotted a variety of such bivariate relationships across countries, and a good deal of (at times acrimonious) debate among researchers and more broadly has focused on whether the particular countries or specific social and political indicators selected make a major difference to the observed degree of correlation or association (Saunders, 2010; Snowdon, 2010; Wilkinson and Pickett, 2010).

However, even when such a relationship is observed consistently and robustly, its causal interpretation presents formidable difficulties. Observing, for example, that average life expectancy is longer in societies where income inequality is relatively low would not mean the two are necessarily connected; they could in fact be entirely independent, or could both be reflections of some more fundamental feature(s) of the societies in question. Sophisticated statistical techniques, including for example multi-level models, can assist (p.6) in controlling for a range of societal characteristics that may be correlated with income inequality. Fundamentally, though, as Van de Werfhorst and Salverda (2012) emphasize, arriving at a causal interpretation of the consequences of inequality also requires deductive theory-building and hypothesis formulation and testing. This is an example of what Goldthorpe (2001) labels ‘causation as a generative process’, aiming to explain empirical regularities by specifying hypotheses that are derived from a ‘causal narrative’ at the level of individual actions, which can then be put to empirical test. For an association between inequality and outcomes to be pursued scientifically, there need to be clearly articulated theoretical arguments about why inequality could be related to such outcomes, and the hypotheses this produces have to be tested with empirical evidence.

The difficulties in doing so may be illustrated by the example of a specific much-debated hypothesis advanced by Wilkinson and Pickett. They place considerable emphasis on the ‘psychosocial’ implications of status differences in more unequal societies, arguing that low social status and perceptions of inferiority produce negative emotions such as shame that directly damage individual health through stress reactions,3 as well as undermining supportive community and social relations. Other researchers into health inequalities adopt what has been termed the neo-materialist perspective, emphasizing the role of different levels and distribution of resources available within societies related to differential levels of investment in social and institutional infrastructure (Davey Smith and Egger, 1996; Lynch et al., 1998, 2000). It has proved very difficult to conclusively distinguish between these hypotheses empirically, and indeed their perspectives are increasingly being seen as complementary rather than competing (Elgar and Aitken, 2011; Layte, 2012).

Another key point to be emphasized in this context is that income inequality is only one manifestation of broader socioeconomic inequalities, and that the causal ‘stories’ advanced in relation to social and political impacts may often relate more to inequalities in terms of social status or social class, for example, than to income inequality per se. In that context Goldthorpe (2010) makes the important point that social stratification cannot be seen as one-dimensional. One cannot, for example, treat ‘class’ and ‘status’ as essentially synonymous (see also Chan and Goldthorpe, 2007), and the relationships between economic inequality and other forms of stratification are contingent rather than fixed. The ways in which objective social inequalities come to be subjectively experienced are also highly complex and contingent. This means that in trying to tease out the impact of income inequality (p.7) or educational inequalities, one has to take into account the complexities of their relationships with social status and social class, since these may be implicated in the processes and mechanisms through which negative social or political outcomes are thought to arise. Adding to the complexity, distinct dimensions of stratification relating to income, education, social class, and status may operate rather differently in different countries, and indeed for different groups within countries (Erikson and Torsander, 2008; Torsander and Erikson, 2009; Ultee, 1986). On top of this, the state of the (inter)national economy, cross-country or cross-time, adds further complexity to objective as well as subjective effects. The sudden broad awareness of the 1% versus the 99% under the influence of the current crisis is a case in point.

All these complexities mean that establishing strict causality in a scientific sense is too ambitious an aim, but that should not be taken as a counsel of despair. A variety of methodological approaches can usefully be applied to a range of countries, data, and time-periods, drawing on various disciplinary perspectives, and these can indeed enhance our understanding of inequality and its impacts and of the influence of policy. We go on in the next section to describe the approach adopted in this book and where it seeks to make its contribution to this task.

1.2 Approach and Framework

Against this backdrop, this book addresses the complex and multifaceted questions outlined above about inequality and its impacts using a variety of analytical approaches and methods, drawn primarily from the disciplinary perspectives of economics, sociology, political science, and (social) policy analysis. Crucially, the core of the research design has been to apply these methods to as broad a set of data as possible by incorporating most of the advanced countries into the analysis, and by covering a period of up to thirty years where possible. Including such a wide range of countries both increases the number of observations on which analysis can rest and provides a way of avoiding the risk that patterns and relationships observed in a given country or small set of countries arise for idiosyncratic reasons specific to those countries. Combining the cross-country with an over-time perspective also increases the number of observations available very substantially, but also, crucially, allows a dynamic perspective to be adopted in looking at the impacts of inequalities. Rather than asking only whether specific social problems are more severe in countries where inequality is high than where it is low, this allows us to assess whether those social problems are seen to become more severe when inequality increases. Those are different questions, since observing a robust cross-sectional association (p.8) would not necessarily lead to the expectation of a similarly strong relationship over time, for a variety of reasons—something that is not always reflected in debates about inequality and its impacts. Arriving at even preliminary, tentative answers to both questions would significantly advance our understanding and inform policy.

As well as combining the comparative and dynamic perspectives, the research project on which this book is based was designed from the outset as comprising parallel streams of analysis by topic and by country that complement one another. The topic-focused stream produced over ninety discussion papers, which adopted a variety of analytical methods, depending on the nature of the question being addressed and the evidence available. Some papers focus in an over-time single-country perspective on unearthing specific mechanisms at work. Many other papers draw on large datasets to explore patterns of association, either in a purely cross-sectional context or pooling multiple observations for a set of countries over time, and applying more or less sophisticated statistical methods. One of the significant challenges for such comparative analyses is not to lose sight of the contextual factors and specific experiences of individual countries, which may be crucial in understanding the patterns observed and teasing out their implications. In order to address this the project also incorporated a parallel analytical stream whereby the experiences of each country were examined by expert teams familiar with the local context, institutions, data, and research, but applying a common framework and approach to addressing the same set of topics and questions from one country to the next. The individual country ‘stories’ that these reveal are of very significant interest in themselves, and are summarized in the companion volume mentioned earlier. Bringing these streams together—the ambitious goal of the present volume—then provides a unique set of insights into what has actually been happening to economic inequality across most of the richer countries and also provides evidence about whether the negative social, political, and cultural impacts that have been debated are to be seen at this stage.

The approach adopted throughout views the bringing together of appropriate data—in as harmonized a fashion as possible—as requiring significant attention in itself, in relation to both trends in inequality and the areas in which impacts might be seen. As far as inequality trends are concerned, it is also taken to be important to go beyond what a single measure such as the Gini coefficient can offer, distinguishing where possible what has been happening towards the bottom, middle, top, and very top of the distribution. In tracing potential impacts on social and political outcomes/indicators, it has also been seen as important to go beyond averages to look also at gradients across individuals and households in terms of income, social class, and also education.

(p.9) We have emphasized from the outset the difficulties faced in trying to understand the complex phenomena being studied here, and in particular in seeking to establish causal relationships in a rigorous manner. Nonetheless, capturing and analysing patterns across countries and over time in inequality and in a wide range of social and political indicators, with due consideration for national specificities and the role of policies and institutions, and applying sophisticated statistical techniques where feasible, but not relying solely on them, offers the best hope of advancing knowledge. We now turn to an overview of the trends in inequality revealed by the country studies brought together and described in detail in the companion volume from the project, to provide an important part of the context for the rest of this volume.

1.3 An Overview of Income Inequality

Drivers and impacts of growing inequalities are at the heart of this book and the research on which it draws, and differences between and within countries in inequality levels and trends, as well as being of central interest in themselves, provide crucial analytical leverage in seeking to identify those drivers and impacts and tease out the implications for policy. The country reports completed for the thirty countries in the project presented and examined data on key variables following a pre-agreed template, over as much of the thirty-year time span from 1980 to 2010 as possible. When brought together into a common database, the summary income inequality and income poverty measures included provide a valuable window onto levels and trends, with about 600 observations of Gini coefficients for equivalized disposable income and over 550 of relative poverty levels, as described and analysed by Tóth (2013) in the companion volume. Despite all efforts of the GINI team to achieve a fully comparable poverty and inequality dataset, there remain some differences across countries in the precise measure of income employed (including the exact adjustments for household size), and there are also some breaks in series for particular countries over time. Nonetheless, the GINI database has the significant advantage for present purposes of offering a more complete picture of inequality from year to year than comparative datasets such as the Luxembourg Income Study and the OECD, which to date have data only at approximately five-year intervals. While an in-depth discussion of income inequality trends and drivers will be the subject of Chapter 2, it is useful to flag up at this introductory stage some key findings from these country data in relation to trends in income inequality, to set the context for what follows.

(p.10) Studies based on the data collected by the OECD and the Luxembourg Study point to a general though not uniform increase in income inequality over the past three decades, as captured in a chapter sub-heading in OECD (2011): The Big Picture: Inequality on the Rise in Most OECD Countries (see also OECD, 2008; Brandolini and Smeeding, 2009). Inequality is noted to have followed different patterns across the OECD countries over time, with the increase in income inequality starting in the late 1970s and early 1980s in the UK and USA, but becoming more widespread from the late 1980s. Against this background, examination of the (mostly) year-by-year data from the GINI project country studies brings out the degree of heterogeneity across countries in the evolution of income inequality, highlights that inequality increases have often occurred in discrete spells rather than steadily and consistently over a longer period of time, and also reveals some interesting spells of inequality decline. Importantly, the findings challenge the common view that changes in inequality over time do not disturb long-standing rankings of high-, medium-, or low-inequality countries.

The evolution of inequality in the thirty countries can usefully be seen in terms of six groupings, albeit with significant mutual differences:

  • five Continental European welfare states (Austria, Belgium, France, Germany, and Luxembourg)

  • four Nordic countries and the Netherlands (Denmark, Finland, Sweden, and the Netherlands)

  • five English-speaking liberal countries (Australia, Canada, Ireland, UK, and USA)

  • four Mediterranean countries (Greece, Italy, Portugal, and Spain)

  • two Asian countries (Japan and Korea), and

  • ten Central and Eastern European countries (Baltic states, Bulgaria, Czech Republic, Hungary, Poland, Romania, Slovakia, Slovenia).

The data show, first and foremost, that inequality has indeed increased on average across the countries included in the analysis, with the range of Gini coefficients at a higher level at the end of the period (from 0.228 to 0.373) than it was at the beginning (from 0.201 to 0.331). Secondly, the growth in inequality was far from uniform. In certain countries (such as Austria, Belgium, France, Italy, Ireland, and Slovenia) the level of inequality remained largely unchanged or fluctuated around the same level, while in others it increased substantially. The most dramatic increase in inequality was experienced by some transition countries (Bulgaria, Estonia, Lithuania, Latvia, Romania, and Hungary) and, to a lesser but still significant extent, some Nordic countries, notably Sweden and Finland. In some of these countries (p.11) the increase was sudden and large (as in the Baltics, Bulgaria, and Romania); in others it accumulated more gradually but not necessarily fully evenly over time (the Nordic group, Netherlands).

Third, the pattern of change in inequality does not always point upwards. There are countries where inequality declined for shorter or for longer periods. Such spells of decline were also observed in Estonia, Bulgaria, and Hungary, for example, sometimes after sharp increases. Fourth, over time countries can in fact shift between inequality regimes, belonging to a different segment of the international league at the end versus the beginning of the period. The Nordic countries have long been seen as having the lowest levels of inequality in Europe, but now no longer belong to the lowest division of the inequality ‘league table’. Some of the transition countries such as the Baltics, Romania, and Bulgaria also witnessed very large changes that have put their inequality levels in a different range.

The picture these figures provide of inequality levels and trends is summarized in Table 1.1, which groups countries in terms of their inequality levels during three different parts of the thirty-year period scrutinized here: 1980–1984, 1996–2000, and 2006–2010. To smooth out measurement uncertainties and cyclical trends, values for the Gini coefficient are averaged

Table 1.1. Change in inequality levels (Gini coefficient values) during three periods

Gini coefficients

1980–1984

1996–2000

2006–2010

above 0.350

Estonia, Portugal, Romania, United States

Latvia, Lithuania, Portugal, Romania, United Kingdom, United States

0.301 to 0.350

Greece, Spain, United States

Australia, Bulgaria, Canada, Greece, Hungary, Ireland, Italy, Korea, Latvia, Lithuania, Romania, Spain, UK

Australia, Bulgaria, Canada, Estonia, Greece, Ireland, Italy, Korea, Poland, Spain

0.251 to 0.300

Australia, Canada, Denmark, France, Germany (West), Italy, Japan, United Kingdom

Austria, Belgium, Denmark, France, Germany and Germany (West), Japan, Luxembourg, Poland, Netherlands, Sweden

Austria, Belgium, Denmark, Finland, France, Germany and Germany (West), Hungary, Korea, Luxembourg, Netherlands, Sweden

up to 0.250

Austria, Bulgaria, Czech Republic, Estonia, Finland, Hungary, Latvia, Netherlands, Lithuania, Slovakia, Sweden

Czech Republic, Finland, Germany (East), Slovakia, Slovenia

Czech Republic, Germany (East), Slovakia, Slovenia

no data

Belgium, Germany (East), Ireland, Korea, Luxembourg, Portugal, Romania, Slovenia

Japan

Source: See Tóth (2013).

(p.12) for these periods. The table shows a clear upward trend in general. No country had a Gini above 0.35 in the first period, whereas six countries had reached this level of inequality in the latest period, three of them belonging to the post-communist bloc. There were eleven countries in the first half of the 1980s with a Gini value below 0.25, but the number of countries with this low level of inequality then declined considerably, so only the Czech Republic, Slovakia, and Slovenia (and Eastern Germany) were at that level in the latest period. The Nordic countries by that point cluster together with the Continental European welfare states in the 0.251–0.300 range of Gini coefficients.

Understanding the causal factors underpinning this variation in income inequality across countries and over time is a major challenge, as discussed in some detail in the next chapter. What is worth flagging at this point is the diverging paths seen in various countries, including ones with similar starting points and/or histories, which suggest that inequality is not simply driven in a more or less uniform fashion by exogenous forces: political processes, societal institutions, and policies matter, as will be brought out in what follows. This is most obvious from the fact that one sees cases where the transition from dictatorship to democracy was associated with or followed by large or small, positive or negative changes in inequality. As well as seeking to understand common underlying forces at work, incorporating this variety of country experiences is key to a rounded analysis of inequality and its impacts.

1.4 Structure of the Book

Having described the focus and aim of the volume and how the task at hand is to be approached, it is now helpful to set out the way in which the content of the book is structured. Chapters 2 to 5 focus on the evolution of inequality and its understanding, Chapters 6 to 9 elaborate on the impacts of inequalities, Chapters 10 to 12 address the role of policies, and Chapter 13 concludes.

First, Chapters 2 to 5 range from dissections of the trends in income inequality just described, serving as points of departure and looking at the drivers behind them, to detailed examinations of the contribution made to income inequality by employee earnings, the role of the distribution of wealth, and the evolution of inequalities in the rapidly changing field of education.

The drivers of income inequality are assessed, discussing the role played by various sources of income, demographic factors, and state intervention, with a particular emphasis on the interaction between economic and political change. The possible role of increasing inequality in the recent financial crisis, and the broader relationship between inequality, macroeconomic (p.13) performance, and instability, are also discussed. Chapter 3 then concentrates on labour earnings—by far the most important component of income in the richer countries—and their role in household income inequality, highlighting the effects of household joint labour supply and the concomitant distribution of jobs and working hours, and examining the diverging patterns of household formation across twenty-five European countries. Income is a key element in household resources and a key influence on living standards, but next to this wealth and debt are an essential dimension of household resources, and these are the topic of Chapter 4. The distribution of wealth and its relationship with income inequality are examined in a comparative perspective, bringing together as much information as the available data allow and accounting for the complex nature of wealth. Factors contributing to cross-country differences and trends are discussed, notably demographic structures, institutional factors, the labour market, debt holdings, asset prices and composition, and tax policies. Educational inequalities are the focus of Chapter 5, documenting the spectacular trends in the general level of educational attainment, in the evolution of equality of opportunities (measured by the gradient of parental education on children’s schooling), and in measures of educational inequality. The role of institutional design factors (such as the age at which compulsory education begins and ends, tracking, cost) and of cohort effects on patterns of educational attainments are also examined. Special attention is paid to the international variation in access to and attainment in tertiary education.

Turning from different aspects of inequality to its potential impacts, Chapters 6 and 7 deal with social impacts while Chapters 8 and 9 focus on political and cultural impacts. First, poverty and disadvantage, the family, social order, and social inclusion are examined in Chapter 6 and related to levels and trends in inequality, drawing on both comparative analyses and the country case studies. Chapter 7 deals with the potential impacts of inequality in the areas of health, wealth, housing, and intergenerational mobility, discussing social gradients and other measures of inequality and the channels through which inequality may have an impact.

Chapter 8 then deals with inequality perceptions, redistributive claims, and political participation, presenting in-depth comparisons across countries and over time and analysing the determinants of attitudes towards redistribution and the role of inequality perceptions in shaping redistributive claims and political participation (including voting). The complementary topic of Chapter 9 is inequality, legitimacy, and the political system, studying the relationship between income inequality and the functioning of democracy in terms of legitimacy, public opinion, and the orientations of political parties.

(p.14) The role of policy is the subject of Chapters 10, 11, and 12. Chapter 10 deals with policies relating to income redistribution, especially the impact of taxes and transfers, how that has evolved over recent decades, and how one might think about reframing it for the future. Chapter 11 directs its attention towards employment policies and in-kind provisions, impacting on redistribution and inequality indirectly but still of fundamental importance. The links between individual employment outcomes, household work intensity, and poverty are examined, and the redistributive impact of education, health, childcare, and other social services assessed. Chapter 12 deals with education policies, its analysis suggesting that inclusive policies such as the expansion of pre-primary and compulsory education are more effective in achieving an overall increase in educational attainment in the population than simply expanding tertiary education, though structures within secondary education with respect to, for example, ‘tracking’ may also be significant.

Finally, the concluding Chapter 13 brings together and summarizes the evidence presented about how inequalities in income and education have been changing across the rich countries and the robustness (or otherwise) of conclusions, theoretical and empirical, as to their social, political, and cultural effects on these societies. It also highlights the central implications of the patterns, trends, and causal processes discussed for policies and for the future of the societies being studied. Inequality and its impacts are a core concern for these societies, and the principal aim of the book, and the research underpinning it, is to contribute to an informed and wide-ranging debate.

Notes:

(1) FP7 Contract No 244592 (2010–2013). The Korean team joined the international project with the support of National Research Foundation of Korea Grant NFR-2011-330-B00052.

(2) Of the thirty countries covered, all are members of the OECD except Bulgaria, Latvia, Lithuania, and Romania, so that twenty-six of the thirty-four OECD members are included.

(3) On this, see also Marmot (2004), Marmot and Wilkinson (2006, 2009).