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Symposium 2015

Solution for Income Inequality and Mobility

The Challenge

For a generation after World War II, growth rates in much of the developed capitalist world were high and income inequality was by historical standards relatively reduced. More recently, however, ineq ...

For a generation after World War II, growth rates in much of the developed capitalist world were high and income inequality was by historical standards relatively reduced. More recently, however, inequality appears to have risen sharply, with especially marked increases near the top of the income distribution. Wealth has been less studied, but appears even more concentrated in many countries.

To Fight Inequality Invest in Women

In our view, the current crisis provides an opportunity to implement radical changes, including the ability to make significant progress on the issue of equality between women and men, but at the same time it also poses a challenge where gender equality is regarded as a matter to be relegated to the rosy moments.

National Governments and national Parliaments should fully acknowledge the scope for fiscal policies to enhance female labour force participation (FLFP). Taxation of labour income and government spending on social welfare benefits and pensions both affect labour markets similarly. They weaken the link between labour supply and income, thereby influencing the decision to participate in the labour market. Thus, the appropriate design of benefits is important to avoid disincentives to work. Elborgh-Woytek et al. (2013) outlines a wide range of fiscal policies to enhance the labour force participation of both women and men.

  • Replacing family income taxation with individual income taxation. Empirical studies indicate that the female labour supply is more responsive to taxes than the male labour supply. Hence, reducing the tax burden for (predominantly female) secondary earners by replacing family taxation with individual taxation could potentially generate large efficiency gains and improve aggregate labour market outcomes.
  • Tax credits or benefits for low-wage earners could be used to stimulate labour force participation, including among women. These so called “in-work” tax credits reduce the net tax liability - or even make it negative for low-wage earners - thereby increasing the net income gain from accepting a job, and are usually phased out as income rises. In countries that emphasise the income support objective, credits are generally phased out with family income and are often conditional on the presence of children in the household. However, the phasing out of credit with family income results in high marginal tax rates for both the primary and the secondary earner in a family, creating strong adverse labour supply effects among secondary earners. By contrast, in countries that emphasise labour force participation, credits are usually phased out with individual income - the preferable policy to increase FLFP - as the marginal tax rate applied to the secondary earner will generally remain lower.

 

The European Parliament should cooperate with and hold accountable the Council and the Commission for removing labour market distortions and creating a level playing field for measures that would help boost the demand for women’s labour. Besides, it has to be taken into account that the norms that apply to women’s participation in the labour market have a tangible impact on labour demand, FLFP, and thereby on macroeconomic outcomes. The persistence of gender gaps in pay (and pensions) shows that, despite significant progress over time, gender-based discrimination persists. Indeed, changes in legislation and social norms in recent decades have supported an increasing demand for female labour and have made it possible for women to seek paid employment outside their homes and to contribute to family income. However, while anti-discrimination provisions have been adopted legally within all EU countries, some measures have proven difficult to enforce.

In this sense, the European Commission should propose policies to improve anti-discrimination enforcement, including:

  • Increasing the awareness of legal rights to equal treatment by conducting information campaigns.
  • Providing the right incentives: a robust burden-of-proof framework can encourage discrimination claims before courts while minimising the risk for unjustified claims.
  • Empowering national equality bodies to conduct formal investigations on their own initiative (without an individual complaint) can increase employers’ awareness of equality issues and help potential victims of discrimination.

 

Last but not least, the European Commission should reconsider the formulation of indicators of gender equality to monitor the social impact of the crisis. The apparent improvement of many gender inequalities despite the deterioration of jobs, wages, working conditions, and income for men and women raises questions about the ability of these “gender gap” indicators to capture the trends of gender equality adequately during a recession. In this direction, and in line with the recommendations made by the Council of the European Union (2014), the European Commission should:

  • Cooperate with the European Institute of Gender Equality (EIGE) to improve the quantity and quality of sex-disaggregated data and support further research on gender-relevant issues, including on women and men’s perceptions of their role in the labour market and of the sharing of activities within the household, as well as their perceptions of working conditions and factors that limit opportunities in the labour market in EU-28 Member States.
  • Review regularly the progress achieved on those critical areas of concern identified in the Beijing Platform for Action for which indicators have already been developed by EIGE, taking the outcomes of these reviews into account in the Commission’s annual Report on Progress on Equality between Women and Men.

 

References
Elborgh-Woytek K., Newiak M., Kochhar K., Fabrizio S., Kpodar K., Wingender P., Clements B., and G. Schwartz (2013), “Women, Work, and the Economy: Macroeconomic Gains From Gender Equity”, IMF Staff Discussion Note, No. 13/10.