Back | Programme Area: Special Events (2000 - 2009)
Functional Distribution of Income, Inequality, and the Incidence of Poverty: Stylized Facts and the Role of Macroeconomic Policy (Draft)
Using two high-quality and homogeneous datasets the authors found evidence of a strong, persistent and international link between functional and personal income distribution. Both the wage share and inequality in the manufacturing sector exhibit a turning point around the early 1980s (or 1990s for some countries); in a panel of 25 countries, the labour share fell or remained constant in 23 cases and inequality rose or remained constant in 18 countries. Both patterns are observed simultaneously in 17 (possibly 19) countries. In addition the authors found the pattern of poverty to be closely related to that of inequality: countries with larger redistributive systems tend to be more equal and tend to have lower poverty rates. What could cause such an international pattern in poverty, personal and functional distributions of income? They also found evidence of an important role for economic considerations, as expected. But the simultaneous timing and the strong, downwards convergence of European labour shares during the early stages of the European construction both imply that other factors are at play. The authors suggest that the structural changes in institutions and economic policies since the start of the 1980s explain most of the international pattern observed. The findings confirm those of a major OECD research programme on inequality and poverty, while extending it on the impact of functional distribution and stressing the importance of macroeconomic policies.