Academic Council Debate Series on Global Trends in Inequalities

Mon, 03/11/2013
Speakers (from left to right): Miguel A. Malo, Peter Utting, Ana Llena-Nozal

The Challenges of Job Recovery in Times of Economic and Financial Crisis
WWZ - Faculty of Economics - University of Basel


The gap between rich and poor has widened in most countries, both in advanced economies and emerging countries. The labour markets are deeply affected by the recent economic crisis with no immediate prospect of growth and recovery. Why does inequality keep rising? What are the policies that can positively affect employment and income possibilities while guaranteeing social equity?

The SNIS held the last debate of the series on the subject of global trends in inequalities at the University of Basel, Department of Economics (WWZ) under the chair of Professor George Sheldon, dean of the faculty.  The debate gathered speakers of OECD, International Labour Organization (ILO) and the United Nations Research Institute on Social Development (UNRISD) who addressed the topic from diverse perspectives.


Increasing Inequalities due to Widening Gap in Income

Anna Llena-Nozal from OECD (Economist, Director for Employment, Labour and Social Affairs) exposed the facts of inequalities in OECD countries and how to beat the trend. Income inequality has increased in both high- and low-inequality countries alike over the past 2-3 decades, both during recessions and boom periods. There is a convergence of higher income inequality, especially at the top ten percent earners with a trend to a widening gap between the middle and bottom income groups.

The OECD study entitled "Divided we stand - Why Inequality Keeps Rising" looked at the typical drivers that account for these growing inequalities. The wage dispersion relate to the typical drivers that are globalization, skill-biased technological changes on the one hand and institutional and regulatory reforms on the other hand. The study also looked closer at changing household and family structures (more single headed households and marriage within the same income levels). These growing income inequalities were also accentuated since redistribution through taxes and benefits became weaker in the more recent decade in most OECD countries.

Ms Llena-Nozal concluded with policy recommendations as formulated by the OECD based on the finding of this study: "We have seen a decline in the effectiveness of redistribution, so it is important for countries to address this through tax and benefit reform. Considering the big increase in income inequality that is driven by the labour market and earnings dispersions, it is important to tackle not only employment but also the inclusiveness of employment."


Need for Job-friendly Policies

 The topic of job-friendly policies was addressed from a policy angle by Miquel A. Malo, ILO. There is an intense debate about persisting in austerity policy and whether austerity has gone too far. The debate is now shifting onward on how we can move to different policies at lower costs at least on the short term from the "black and white" positions. Stimulus policies set up at the beginning of the financial crisis lead to high debt, which are in turn followed by austerity policies with negative effects on employment.

The debate is divided in debt countries with control of their exchange rate, such as the US and the UK, in opposition to countries that do not control their exchange rates, as Spain and other South European countries which is relevant in tackling national debts. Mr Malo also mentioned the unbalanced timing of costs and benefits of austerity packages. "Why do politicians persist in austerity policies even though costs on the population are very high in the short term and benefits may come in the next political term only? Why do we not see more countries that adopt job friendly policies now?" Even if job-friendly strategies appear politically more strategic in terms of re-election, politicians are affected by "core supporters" such as international investors, international institutional agreements and have relevant incentives to balance the national budgets also in view of obtaining additional funding. For these reasons, they tend to adopt strong severe austerity policies. Consequently, there is a need to adopt a different policy-making scope.

The fact of including employment objectives at the same level as other macroeconomic objectives could be a solution. International organizations, such as ILO, OECD, and IMF, should have a key role in supporting and encouraging politicians in their move to job friendly policies, in certifying their actions in favor of employment. Likewise, corporative solutions are needed. ILO has been active and successful in the realm of social dialogue where international coordination allowed to lead to corporative solutions. "Social dialogue could be a very important arena to obtain new agreements on the implementations of credible changes for job friendly policies", he concluded.


Social Equity, Structural Change and Crisis

Peter Utting, Deputy Director, UNRISD, put the subject of inequality on the broader context of social equity, structural change and crisis focusing on the context of developing countries. His talk referred to recent reports and studies released by UNRISD namely its flagship report "Combating Poverty and Inequality". The key question is: Why have some countries been more successful at reducing poverty and enhancing equality in relatively short periods of time? Some key factors emerged from the analyses of poverty reduction in the past. The contrast with today might be called orthodoxy - social, political and financial orthodoxy.

There are central messages that emerge from the study: the importance of employment-centered structural change, comprehensive social policies, including universal social protection and social services and infrastructure, importance of state capacity, effective participation and broad-based coalitions and social pacts. Finally, the report looks at different pathways to overcome the current crises - not only financial, but also food crisis and climate change.

What came out very clearly from the report is also the fact that significant reductions in poverty generally result not from policies aimed at poverty or the poor per se, but from a mix of policies that have wider economic, social and political objectives. Poverty is reduced and equity enhanced when economic and social policies, institutions and political arrangements are mutually supportive.

A good starting point when facing the current crises - financial, food and climate change -  is to question the nature of the crises. "Is it a crisis in the system or is it a crisis of the system?" The crisis of the system requires deeper transformation of economic and social structures and power relations. A discursive struggle is taking place between different pathways to find the way to growth, equity and sustainability.

Finally, Mr. Utting talked about the three different pathways that crystallize today's approaches: market liberal approach, embedded liberalism, and alter globalization that offers a very different perspective: a more people's centered economy, financial and corporate regulations, stronger redistributive policies, food sovereignty, local production and trade, economical and political empowerment of small producers, control on agri-business, respecting the needs of mother earth and living in harmony with diverse cultures.

The politics of pathways are crucial. Crisis in the past have been overcome by applying different pathways of politics: liberal market approaches (Mexico crisis in 1982 and 94) or embedded liberalism (great depression post war Europe). While the embedded liberalism is showing some signs of a come-back, namely in the BRICS and the post 2015 development agenda, the dominant political approaches should give more attention to alter globalization perspectives within mainstream knowledge and policy circles. UNRISD will approach during an up-coming conference the potential and limits of social and solidarity economy.

The presentations were followed by a question / answer session and general debate with the audience.

useful links:

Combating Poverty and Inequality: Structural Change, Social Policy and Politics,UNRISD, Flagship Report 2010: download www.unrisd.org/publications/cpi

Up-coming UNRISD Conference "The Potential and Limits of Social & Solidarity Economy",
6 - 8 May 2013: www.unrisd.org/sseconf

Publication: Divided we stand - Why Inequality Keeps Rising, OECD, 2011