Inequality on the Rise

Market Inequality, Predistribution and Redistribution

For the empirical analysis of inequality, we begin by examining measures of inequality between countries and across time. To demonstrate the extent of overall redistribution through the welfare state, we depict the Gini coefficient both before and after taxes and transfers, where the distribution before taxes and transfers is often called ‘market inequality’. This term is somewhat misleading, as it suggests that product, capital, and labour markets are independent from the institutional settings they operate in and that the welfare state only affects inequalities through direct cash transfers. However, we argue that this gross distribution is also shaped by welfare state interventions and other institutional configurations, a concept that has recently been coined ‘predistribution’ (Hacker 2011; Chwalisz and Diamond 2015). In its intentional political variant, predistribution comprises strategies of social investment and ‘market reforms that encourage a more equal distribution of economic power, assets and rewards even before government collects taxes or pays out benefits’ (Chwalisz and Diamond 2015, 3). While predistribution is a new political label, institutions that equalize gross incomes have traditionally been at the heart of especially coordinated economies (see Hall and Soskice 2001). The coordinated European, but also Antipodean, democracies have built their welfare states on institutions that balance wages through collective wage-bargaining agreements. The decline oftrade-union power and collective bargaining coverage in the past decades (Hall and Thelen 2009; Schnabel 2013) is yet another reason for diverging gross incomes, a divergence which needs to be counterbalanced with new predistributive policy tools or increased redistributive transfers in order to keep net inequality in check. Despite this disclaimer about the term ‘market inequality’, an examination of inequality before and after taxes and transfers reveals interesting patterns of distribution and redistribution across both time and countries.

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