From Chapter 2 – Income Inequality and Structural Change
This chapter examines the causes, patterns and dynamics of inequality, with a particular focus on inequalities of income and wealth, often referred to as vertical inequalities. Inequalities among groups (horizontal inequalities) or based on factors that determine identity, such as ethnicity and gender, will be dealt with in chapters 3 and 4. In this and subsequent chapters, emphasis is placed on both the intrinsic and instrumental value of redistributive policies and processes that lead to equitable outcomes.
Based on extensive analysis of country case studies, the chapter demonstrates that increases in inequality are linked to a range of economic policies that have dominated the development agenda in recent decades. These include financial liberalization, regressive taxation, privatization in the context of weak regulation, public expenditure policies that fail to protect the poor during crisis or adjustment periods, and labour market policies that lead to precarious forms of flexibility, informalization and an erosion of minimum wages and union bargaining power. Other causes of rising inequality include disparities in educational attainment, technological change and employment policies that widen wage gaps between skilled and unskilled workers; rural-urban wage differentials in the process of structural change; inequality in asset ownership (including land); and unequal access to credit and basic production inputs, particularly in the agricultural sector.
The chapter is organized as follows
- Section 1 discusses why inequality matters in the fight against poverty.
- Section 2 reviews the evidence for trends in inequality globally.
- Section 3 examines the links between structural change and global intersectoral terms of trade in contributing to inequality. It also discusses how both domestic structural change and external forces affect inequality in a number of countries representing different patterns and stages of development.
- Section 4 concludes with a discussion of redistributive policies that governments can adopt to create wealthier, more equitable societies.
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