Transcript of Income Inequality Matters: How to Ensure Economic Growth Benefits the Many and Not the Few
IMF News, April 13, 2019
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- Published: April 13, 2019
Event context and speakers
- Event title: Income Inequality Matters: How to Ensure that Economic Growth Benefits All and Not Just A Few.
- Date: April 13, 2019.
- Moderator and panel:
- Christine Lagarde, Managing Director, IMF (opening remarks).
- Gita Gopinath, Economic Counsellor and Director of the Research Department, IMF (moderator).
- Laurence Boone, Chief Economist, OECD.
- Pinelopi Koujianou Goldberg (Penny), Chief Economist, World Bank Group.
Key facts and statistics cited
- About one billion people being lifted out of poverty.
- Income inequality trends:
- Income inequality increased in most advanced economies since the ‘90s.
- The top one percent accounts for about 10 percent of total income in G20 countries.
- The top one percent owns about half of the world’s wealth.
- Financial inclusion:
- IMF research on Europe shows that inequality across generations has risen since 2007.
- "20 percent of adults in advanced economies, and 80 percent in emerging market and developing economies are excluded from formal access to finance."
- Digital and connectivity indicators:
- "Only four people out of 10 in rural areas have access to high speed internet."
- "Only 11 percent of the firm globally actually work on the data."
- Tax transparency outcome:
- With exchange of information to date, about "$100 billion" has been collected.
- Labor and technological change:
- "About 50 percent of the job will totally change in nature over the next 10 years."
- Broader observations:
- Global inequality has decreased dramatically (example: inequality between India and the United States has gone down dramatically).
- Gender inequality in advanced economies has declined.
Drivers of rising inequality (as discussed)
- Technology and economic integration:
- Productivity and growth gains, but structural change and job displacement in obsolete sectors and professions.
- Unequal impacts across workers; women can be more affected than men.
- Globalization and trade:
- Trade has winners and losers; longstanding two-step approach (efficiency first, redistribution later) has limitations.
- Market power and firm dynamics:
- Emergence of "superstar firms" with rent-capturing behavior; unequal wage transmission across firms.
- Institutional and social factors:
- Decline in trust in institutions, political tensions, and social unrest linked to perceptions that elites captured gains.
- Reproduction of inequality across generations via unequal access to education, health care, finance, transport, and digital connectivity.
- Reduced labor market institutions:
- Decline of cooperative bargaining and unionization; ambiguous effects of minimum wage policies on employment in some contexts.
- Information and salience:
- Increased awareness via technology and social media about inequality magnifies political salience.
Observed impacts and policy challenges
- Regional and within-country heterogeneity:
- Advanced economies: general trend towards higher inequality since 1990.
- Emerging and developing economies: mixed outcomes (e.g., Brazil improved inequality).
- Geographic concentration of costs: shocks and gains distributed unevenly across locations; limited geographic mobility matters.
- Retraining and mobility:
- Traditional retraining programs have limited success; geographic attachment reduces labor mobility.
- Fiscal and international tax challenges:
- Digitalization changes business models and complicates taxation; need to ensure multinationals pay taxes where value is created.
- Political economy constraints:
- Redistribution is often politically difficult ex-post; winners do not necessarily compensate losers.
Policy recommendations and remedies discussed
- Tackle market power and rents:
- Strengthen competition policies to reduce rent capture by superstar firms.
- Strengthen international tax cooperation:
- Address tax arbitrage and ensure multinational firms contribute fairly where they create value; use enhanced exchange of information.
- Invest in digital and physical infrastructure:
- Expand high-speed internet access (noting rural shortfalls) and data capabilities for firms and workers.
- Promote equal opportunity and early investment:
- Focus on education and skills from early ages to build adaptability and creativity as job nature changes.
- Place-based and mobility policies:
- Design policies that revive affected communities and consider geographic attachment; use local investment and connectivity (including remote work possibilities) to reduce forced migration.
- Use redistributive policies proactively:
- Combine taxation, transfers, and labor-market policies (minimum wage, collective bargaining) tailored to country-specific objectives and evidence; implement ex-ante measures when reforms are introduced.
- Strengthen multilateral cooperation and institutions:
- Coordinate across multilateral institutions to tackle global aspects of inequality (taxation, digitalization, data, and value chains).
- Empower women:
- Promote female labor force inclusion, access to finance, and leadership to improve both equity and aggregate outcomes.
- Speed and sequencing:
- Act early when disruption occurs; delaying redistribution can compound social and health costs and reduce policy effectiveness.
Research and knowledge gaps highlighted
- Need for ex-ante policy design accompanying structural reforms (trade, technology).
- Insufficient evidence on which retraining programs and place-based interventions reliably work at scale.
- Uncertainty about the employment effects of minimum wage increases in some contexts.
- Need for better understanding of local (community-level) impacts and mobility constraints.
Closing observations from panelists
- Inequality is politically salient in advanced economies and can fuel distrust and social unrest.
- While addressing inequality is urgent, the panel emphasized optimism: global inequality has declined dramatically and gender inequality in advanced economies has improved.
- Multilateral cooperation and strengthened institutions are essential to implement the cross-border and domestic policies needed to ensure growth benefits many, not just a few.
Transcript of Income Inequality Matters: How to Ensure Economic Growth Benefits the Many and Not the Few — April 13, 2019, IMF Communications Department