Giving Compass’ Take:
• Ana Revenga and Meagan Dooley share eight types of policies that counties across the wealth spectrum can implement to help reduce inequalities.
• How can this information help to guide the efforts of philanthropists in countries where you work?
• Learn about the global cost of gender inequality.
1. Policies to develop the human and physical assets of the bottom 40 percent, starting with policies that equalize opportunities and build human capital. One example: Early Childhood Development policies to promote physical, socioemotional, language and cognitive development in the early years.
2. Policies and regulatory frameworks that ensure that markets are working fairly for everyone. This means reducing market power concentration and rent seeking behavior among firms. A recent World Bank report highlighted the need to establish a level playing field or equality of opportunity between firms.
3. Support for some basic regulation of labor markets and basic labor market institutions. Workers need better conditions from which to negotiate with employers. In more developed labor markets, there is a role for minimum wages, for a core level of employment protection legislation and for mechanisms to protect workers from the impoverishing effects of job loss, increasingly brought on by technological change.
4. Policies to build a strong and resilient middle class. There is a need for more effective social protection mechanisms to protect workers and the existing or emerging middle class from shocks in both high income and developing countries. In high income economies, where extensive welfare systems already exist, protecting the middle class will require adapting existing social protection programs to the changing nature of employment relationships—in effect, de-linking access to welfare systems from employment contracts, both in terms of eligibility and of financing. In middle income countries with incomplete social protection systems, delinking welfare systems and worker protection from the employment contract is especially important in light of large informal sector employment and frequent worker transitions between the formal and informal sectors.
5. Development of more effective short- and long-term training policies for individuals who have left the schooling system. The demand for skills is changing at an accelerated rate. Workers who have long since left the schooling system need mechanisms to facilitate skills upgrading and retraining. Yet existing training systems are ill-equipped to address the challenge of reskilling adult and older workers.
6. Mobility policies (to help people move from poor areas) and policies to support lagging regions. Spatial disparities in labor market and income earning opportunities are large in many countries. The process of economic development may, over time, work to close these gaps as people and resources move to areas with better opportunities, but the adjustment is slow and bumpy. Moreover, the patterns we see in high income economies suggest that technology and the nature of economic agglomeration can, at times, work to increase these gaps rather than reduce them.
7. Expansion of progressive transfers. In more formalized settings, in-work or earned- income tax credits or some form of graduated social assistance can be combined with activation measures to support re-employment. In developing countries, these transfers need to fit the local context: worker tax credits may be feasible in some middle-income settings, while targeted social assistance (unconditional or conditional cash transfers) with a graduated cut off may be better in others.
8. More effective use of tax policy. To finance a more progressive social safety net system, governments will need to raise additional revenue. Various solutions have been proposed, including increased taxes on the wealthy, higher property taxes, and carbon taxes. Developing and emerging economies have largely failed to effectively utilize taxes as a means of redistribution due to small tax bases, large informal economies, and the low capacity of national tax administrations.
On the one hand, strong economic growth in the developing world was the main driver of the decline in global poverty over the past 25 years. Its impact on inequality, on the other, was largely neutral.