World of Work Report 2008 - Income inequalities in the age of financial globalization

Income inequalities in the age of financial globalization

In the majority of countries, the incomes of rich people have grown faster than those of their poorer counterparts. To what extent is this a problem for society and the economy? What are the factors behind observed trends and what can policy-makers do to address excessive income inequality?

This report looks at these issues comprehensively and provides answers to some of the key questions in today's international debate, such as:

·To what extent has financial globalization exacerbated economic instability and income inequality? Is there evidence that financial crises hit the middle-class and low-income groups disproportionately, while financial booms of mainly benefit high-income investors?

What are the trends in executive pay and how do they compare with the performance of the firms that they manage?

Are traditional institutions, such as trade union–employer negotiations, still able to distribute the economic gains and losses in a balanced manner?

How should taxes and welfare benefits be designed so as to limit excessive inequalities while still supporting economic growth?

Is higher income inequality inevitable if countries want to grow fast and create enough jobs?

About the International Institute for Labour Studies

The International Institute for Labour Studies (IILS) was established by the International Labour Organization (ILO) in 1960 as a centre for advanced studies in the social and labour field to further a better understanding of labour issues through education and research.

Table of contents

Preface (Juan Somavia, Director-General, ILO)

Editorial (Raymond Torres, Director, IILS)

Chapter 1. Trends in employment and inequality (Steven Tobin, Matthieu Charpe, Ekkehard Ernst and Raymond Torres)

Main findings

Introduction

A. Overview of recent developments and employment

B. Trends in income

C. Why is income inequality a matter of policy concern

D. Bottom line and rationale for the next

Appendix A. Regional country

Appendix B. Calculation methods for wage dispersion, wage shares,

productivity and real wage growth

References

Chapter 2. The role of financial globalization (Ekkehard Ernst and Verónica Escudero)

Main findings

Introduction

A. Development of financial globalization and wealth inequality

B. Financial markets and pro-poor

C. Financial globalization, union bargaining power and the wage

D. Financial globalization and the convergence of

E. Corporate governance and executive pay

F. Policy considerations

Appendix A. The impact of financial market crises on growth and inequality:

An empirical assessment

Appendix B. Empirical studies regarding pay for

References

Chapter 3. Labour institutions and inequality (Lucio Baccaro)

Main findings

Introduction

A. Review of earlier studies

B. Cross-country patterns of labour institutions and income

C. Policy considerations

Appendix A. Measures of labour

Appendix B. Do labour institutions reduce inequality? An econometric analysis

Appendix C. Is the inequality-reduction effect of industrial relations

institutions withering away in advanced countries?

References

Chapter 4. Changing employment patterns (Uma Rani)

Main findings

Introduction

A. No clear link between income inequality and employment growth

B. Rising non-standard employment as a factor of income inequality

C. Policy considerations

References

Chapter 5. Redistribution through taxes and social transfers (Naren Prasad)

Main findings

Introduction

A. Social transfers, taxation and income inequality: what are the trends?

B. To what extent do taxes and social transfers shape income distribution?

C. Policy considerations

References

Chapter 6. Decent Work as a coherent policy package(Steven Tobin and Matthieu Charpe)

Introduction

A. Links between Decent Work and income inequality

B. Policy coherence

C. Areas for further analysis

References

Recent publications

List of tables, figures and boxes by chapter

Figures

Chapter 1

Figure 1.1. World employment trends

Figure 1.2. Employment growth and dispersion

Figure 1.3. Trends in female employment growth

Figure 1.4. Development of wage shares, by region, 1985-2006

Figure 1.5. Average annual wage and productivity growth, per cent, 1990-2006

Figure 1.6. Gini index by region for 1990 and

Figure 1.7. Changes in Gini index between 1990 and 2005

Figure 1.8. Ratio of earnings of top 10 per cent earners vis-à-vis bottom 10 per cent earners, 1990-2006

Figure 1.9. Evolution of executive pay versus average employee wages in the United States, 2003-2007

Figure 1.10. Evolution of executive pay versus average employee wages in the Netherlands, 2003-2007

Figure 1.11. Estimated decline in purchasing power of Indian urban households resulting from rising food prices, 2007

Figure 1.12. Estimated decline in purchasing power of households in the United States resulting from rising fuel prices, 2007

Figure 1.13. Income inequality and inter-generational mobility

Figure 1.14. Income inequality and corruption

Figure 1.15. Income inequality and spending on tertiary education

Figure 1.16. Income inequality and trend per capita GDP growth

Figure 1.17. Income inequality and instability of economic growth

Chapter 2

Figure 2.1. De jure measures of capital account opening

Figure 2.2. Financial globalization in seven world regions (% of GDP)

Figure 2.3. Foreign direct investment in seven world regions (% of GDP)

Figure 2.4. Frequency of banking crises, systemic or otherwise, in OECD countries and the rest of the world (%)

Figure 2.5. Development of current accounts and wage share during financial crises in four countries

Figure 2.6. Impact of financial development and crises on inequality and growth

Figure 2.7. Financial globalization and the evolution of the wage share

Figure 2.8. Misery index

Chapter 3

Figure 3.1. Bivariate correlation between average Gini coefficient and average union density, 1989-2005

Figure 3.2. Bivariate correlation between average Gini coefficient and average collective bargaining structure index, 1989-2005

Figure 3.3. Bivariate correlation between average Gini coefficient and average severity score for Convention No. 87, 1990-2000

Figure 3.4. Bivariate correlation between average Gini coefficient and average severity score for Convention No. 98, 1990-2000

Figure 3.5. Relationship between labour power and welfare state size in the periods 1978-1989 and 1990-2002

Figure 3.6. Relationship between welfare state size and inequality in the periods 1978-1989 and 1990-2002

Figure 3.7. Partial correlation between inequality and labour power, controlling for welfare state size, 1978-1989

Figure 3.8. Partial correlation between inequality and labour power controlling for welfare state size, 1990-2002

Figure 3.A1. Average severity score over time, Convention No. 87

Figure 3.A2. Average severity score over time, Convention No. 98

Chapter 4

Figure 4.1. Average annual changes in income inequality and employment

Figure 4.2. Part-time and temporary work are on the rise in advanced countries

Figure 4.3. Trends in non-standard employment in Central and Eastern European countries are mixed

Figure 4.4. Informal employment in Latin American countries

Figure 4.5. Informal employment in selected Asian countries

Figure 4.6. Informal employment in selected African countries

Figure 4.7. Fixed-term contracts pay less than permanent contracts

Figure 4.8. Informal sector jobs pay less than formal sector jobs

Figure 4.9. Decomposition of income inequality by household characteristics, urban China and India

Figure 4.10. Income gap between formal sector and informal sector households in Latin America

Chapter 5

Figure 5.1. Social transfers and income inequality

Figure 5.2. Trends in spending on social transfers (% GDP)

Figure 5.3. Education spending and inequality

Figure 5.4. Trends in education and health spending (% GDP)

Figure 5.5. Global corporate tax rates, 1997-2007 (%)

Figure 5.6. Top marginal individual income taxes, worldwide (%)

Figure 5.7. VAT Trends in OECD countries, 1990-2007

Figure 5.8. Inequality and redistribution in OECD countries, 1980s and 1990s

Figure 5.9. Share of taxes and transfers in redistribution in OECD countries (%)

Figure 5.10. Redistribution and poverty in OECD countries

Figure 5.11. Sectoral contribution to reduced income inequality, latest available data in OECD countries

Figure 5.12. Change in inequality, EPR and growth in countries with economies in transition, 1990-2004 (%)

Figure 5.13. Redistributive impact (average) of transfers and taxes on inequality in six Latin American countries

Figure 5.14. Absolute incidence of social security provision in eight countries in Latin America (%)

Figure 5.15. Social protection expenditure, by category, in Asia and the Pacific (%)

Figure 5.16. Brazil: Change in inequality, employment and growth, 1990-2006 (%)

Figure 5.17. Malaysia: Change in inequality, employment and growth, 1990-2007 (%)

Chapter 6

Figure 6.1. Principal component analysis for high per-capita GDP

Figure 6.2. Principal component analysis for medium and low per-capita GDP countries

Tables

Chapter 1

Table 1.1. Executive pay, 2007

Table 1.2. Increase in executive pay components, United States, 2003-2007, per cent

Table 1.3. Increase in executive pay components, Netherlands, 2003-2007, per cent

Chapter 2

Table 2.1. Wealth inequality in selected countries

Table 2.2. Redistribution: inequality before and after

Table 2.A1. Definitions and sources of variables used in the regression analysis

Table 2.A2. Regression results

Chapter 3

Table 3.1. Cross-country time-series studies of the relationship between industrial relations institutions and inequality

Table 3.2. Change in union density rates, 2005-

Table 3.3. Average collective bargaining structure and change, on a scale of 1 to 5, 1989-2005

Table 3.A1. Sources of trade union density data

Table 3.B1. List of predictors and expected impact on inequality

Table 3.B2. Determinants of Gini: fixed-effects models, with AR(1) errors, intercept and time dummies not reported

Table 3.B3. Impact of globalization on union density rates: fixed-effects models with AR(1) errors, intercept and time dummies not reported

Table 3.B4. Determinants of Gini coefficients: between effects (constant not reported)

Table 3.C1. Determinants of the Gini coefficient in 16 advanced countries (fixed effects with AR(1) errors, time dummies and constant not reported)

Table 3.C2. Principal component analysis of labour power: one component retained, 366 observations

Table 3.C3. Principal component analysis of welfare state size: one component retained, 352 observations

Table 3.C4. Principal component analysis of inequality

Table 3.C5. Determinants of inequality in 16 advanced countries (1978-1989), between regressions (constants not reported)

Table 3.C6. Determinants of inequality in 16 advanced countries (1990-2002), between regressions (constant not reported)

Chapter 5

Table 5.1. Inequality and redistribution in countries with economies in transition

Table 5.2. Average growth rates, Mauritius

Table 5.3. Income inequality and poverty in Mauritius, by household

Chapter 6

Table 6.1. Successful employment performers: two illustrative models