1. REDISTRIBUTIVE POLICIES

If we consider the impact of a redistributive policy, the method of analysis becomes important as different approaches can provide different conclusions about the distributive effect of the tax and transfer system. The factor decomposition method provides the overall distributive impact, as it treats all the different components or variables simultaneously, while the accounting framework provides the direct impact of each of the components. The authors refer to Fuest et al. (Reference Fuest, Niehues and Peichl2010) to argue that tax and social contributions have a strong redistributive impact and that social benefits are less redistributive (108–9) using the factor decomposition method. However, Fuest et al. (Reference Fuest, Niehues and Peichl2010) actually uses both methods and shows that social benefits are found to be strongly redistributive using the accounting method.

A policy recommendation in the chapter is to provide Conditional Cash Transfers, which are largely linked to enrolment in education or healthcare coverage as they have contributed towards reducing inequality and fostering gender equality (122). However, the evidence cited in the chapter seems to contradict the policy prescription as it shows that ‘their redistributive impact varies widely across countries, reflecting differences in both the size and the progressivity of these transfers’ (115).

Indeed, in my view, social assistance alone is unlikely to achieve adequate redistribution, as improvements usually occur only at the margin and therefore do not necessarily uplift these households. What is also needed are labour market institutions and social insurance schemes to achieve the objective of social justice and to leave no one behind (ILO, 2017). There is, moreover, limited understanding of the potential effects of Conditional Cash Transfers. We do not yet know under what conditions and in combination with which other complementary programmes they are effective and to what extent infrastructure and the institutional capacity for delivery influence the outcomes of the transfers. There are also questions about the sustainability of these programmes and the political commitment towards them.

In addition, redistributive policies are not effective in reducing inequality unless they are accompanied by measures to address the functional income distribution – the share of total income going to land, labour, capital and entrepreneurs. In this context, we are mainly concerned with the labour income share and profit share, the former of which has been declining over the past few decades across the globe, rising only marginally in a few economies since the global economic crisis (ILO, 2016). If the functional income distribution is fair, then it is more likely that this will also be the case with personal income distribution. In fact, the failure to address the decline in the labour income share would increase the costs of redistribution, because it is more unequally distributed and could in some cases lead to an economically or politically unsustainable level of inequality, which will have severe implications on the functioning of society.

Finally, if policies need to be geared to improving the conditions of those at the lower end of the distribution, then understanding the household dynamics among the socially excluded and the poor becomes even more important, as they face severe time and income poverty. Including household production (unpaid household work and care services) into the analysis of inequality leads to different policy implications than focusing on monetary income alone, such as public investments in social care infrastructure, enforcing hours of employment legislation to prevent overwork, moving towards living wages, and extending social insurance and protection to all workers (Zacharias, Reference Zacharias2017).

2. STRUCTURAL CHANGE

Structural change, including inter-sectoral transitions, can have an important influence on the income distribution. However, while Chapter 3 refers to ‘Kuznets's well-known curve or inverse U hypothesis of rising and then falling inequality in the development process’ (84) within the developing country context, it does not engage in this debate or provide policy recommendations. This is disappointing, as in developing countries inter-sectoral transitions are especially important for poor households, as their rates of unemployment, underemployment and informal employment are high. However, often the policy prescriptions are all geared towards social transfers (old age pension, child support grants, etc.). An example is South Africa, a country with high unemployment and high inequalities that focuses on transfer policy (ILO, 2015). But addressing unemployment requires structural change, along with social and labour market policies.

As the chapter mentions, skill-biased technical change is one of the drivers of inequality. However, the nature of technical change is affected by economic policies. Given this, if technological change needs to be brought about in a society where unemployment is high, then the choice of technology becomes important to ensure that it brings about equity and fairness. Technologies do not bring about the changes in society on their own. Rather, it is the decision-making of economic and social agents that link technologies with emerging economic and societal needs. Thus, it is important to look at the interaction between technologies, business strategies and societal needs. The issue then is whether firms should innovate to automate, which leads to further unemployment when the levels are already high, or whether they should innovate to address issues related to climate change (both mitigation and adaptation) or taking care of environmental resources or hazardous work, which would also have multiplier effects in the economy and generate more employment.

Markets alone do not induce structural transformation, but government policies could do so. If government policies are directed towards mitigating climate change, investing in renewable energy and low-carbon innovation, then private-sector resources and investments would move towards developing technologies for these activities. Structural transformation would also require governments, along with the private sector, to identify sectors that have growth potential and to develop a range of institutions including informal institutions so as to accumulate technological knowledge and support scientific and technological learning, with a focus on knowledge spill-overs (Cimoli et al., Reference Cimoli, Dosi and Stiglitz2009; Salazar-Xirinachs et al., Reference Salazar-Xirinachs, Nübler and Kozul-Wright2014). The diffusion of new technologies in the informal economy could boost job creation, productivity, and transform the nature of work and improve well-being for all. Thus, inequality can be shaped by policies and politics of national governments.

3. LABOUR MARKET INSTITUTIONS

The chapter highlights that labour incomes are an important driver for income inequality. The authors also recognize that trade unionism and collective bargaining have declined, which has contributed to rising inequality in different parts of the world. The chapter recommends ‘setting the minimum wage at levels corresponding to a living wage as an important instrument in establishing a lower bound for the division of the surplus’ (123). The chapter rightly mentions ‘markets do not and will not generate sufficient employment at a living wage for all’ (123).

There is sufficient evidence from a range of countries that show that the rise in non-standard, precarious or informal employment has vast implications for inequality in the labour market (OECD, 2015; Rani and Furrer, Reference Rani and Furrer2016). A well-regulated labour market, which ensures protection through employment contracts, working time regulations, freedom of association and collective bargaining can provide equity and fairness for societies with large middle classes (Berg, Reference Berg2015) and market forces alone cannot achieve it. The chapter notes the equalizing effects of these labour market institutions and regulations (Förster and Tóth, Reference Förster, Tóth, Bourguignon and Atkinson2015). Despite this, it puts forward the argument that fewer regulations lead to lower unemployment, such as in the UK. Though this may be true, from a societal well-being or fairness perspective, the question is how equitable these outcomes are and whether unemployment is a better indicator than employment quality. The latter could lead to a completely different assessment and conclusion.

If one discusses social progress and well-being among the poor, then the focus on informal employment is inevitable. This is because the majority of poor workers globally are informally employed. Chapter 3 does not really engage with this issue in its analysis, but it does make recommendations which include: ‘lowering restrictions on the informal sector’ (123). However, it is not clear what restrictions the authors would like to remove. In any case, I submit that rather than lowering restrictions, this sector requires supporting labour market and social institutions that can provide a path towards formality. Evidence from Latin America and elsewhere shows that formalizing the informal sector has led to a reduction in inequality (e.g. Berg, Reference Berg2015; Rani and Furrer, Reference Rani and Furrer2016). This has been achieved through ensuring payment of minimum wages, innovative mechanisms of social protection, provision of work contracts to workers in informal employment, simplification of administrative procedures, provision of incentives such as access to markets and cheap loans to informal entrepreneurs, and strengthening labour inspections. In sum, extending labour laws, social protection and regulations to all forms of employment, would improve the average quality of employment and manage risk in a way that safeguards well-being.

Finally, the chapter recognizes that those at the top have reaped the benefits of globalization disproportionately and contends that there is a need for drastic corrections in the distribution of these gains. The mechanisms to attain this are not spelt out, however. Much of the globalization over the past decades relates to tradable goods and there is an increasing trend towards tradable services. This has contributed to low wages, health and safety concerns and violations of freedom of association rights. It is also increasingly becoming a concern for emerging forms of work, such as the digital economy, which are unregulated and raise profits while creating low-end, unprotected jobs. Global governance and the enforcement of existing international labour standards in these contexts is of paramount importance, as they also shape national labour laws and policies and ensure a move towards more equitable societies.

Overall, Chapter 3 examines the causes, patterns and dynamics of inequality, with a particular focus on inequalities of income and wealth. It looks at both vertical and horizontal inequalities, and also places emphasis on the intrinsic and instrumental value of redistributive policies and processes that lead to more equitable outcomes. The chapter demonstrates that increases in inequality are linked to financial liberalization, regressive taxation, erosion of minimum wages and union bargaining power, weakening of labour market institutions, and technological change, among others. However, as I have argued, the policy prescriptions are very modest and constrained to redistributive policies which bring about changes only at the margin. The empirical analysis also ignores work that relates to the impact of regulations, as well as issues related to unpaid labour and the care economy. Finally, despite the importance of structural change in addressing inequality, the chapter does not engage with this issue explicitly.