Globalization and Inequality: Paul Krugman, Janet Gornick, and Branko Milanovic


– Good evening. My name is Chase Robinson,
and as President, I have the privilege of welcoming you to the Graduate Center of The
City University of New York. What is the relationship
between globalization and income inequality? That’s the question that Branko Milanovic poses in his newest
book Global Inequality, a New Approach for the
Age of Globalization. In it Branko highlights
an intriguing paradox, even as inequality has
soared within many countries, it’s fallen dramatically
at the global level. Specifically he writes
about who has been helped the most by globalization,
who’s been held back, and what policies might tilt the balance towards economic justice. His is a departure from
the traditional approach of examining inequality
exclusively within countries. And, based on the reviews
the book has received over the last few weeks, it
is something of a sensation. The Financial Times calls it
informative, wide ranging, scholarly, and imaginative
adding significantly to important recent
works by Thomas Piketty, Anthony Atkinson, and
Francois Bourguignon. The Economist, another
example, said that Milanovic’s theorizing chips away at
tired economic orthodoxies. How fortunate then are
we not just to feature one of the most prominent
thinkers on the topic of inequality, our author, but three, all of whom are based here
at The Graduate Center. Now this intellectual
capital speaks volumes not just about The Graduate Center but about also The City
University of New York which is itself an extraordinary project in reducing inequality and
increasing opportunity. Of the University’s about
260,000 undergraduates, 42% are the first in their
families to attend college. A full 40% of CUNY’s
undergraduates come from households with annual incomes below $20,000. The Graduate Center which
focuses on doctoral education and advanced teaching and
research is a crucial part of that project. Every year our 3,800
doctoral students reach about 200,000 CUNY undergraduates
in classrooms and labs. Our student are remarkable
not just for the contribution they make to undergraduate education but also for their own research. Last year one of our
students won a Guggenheim, and one of our students
won a Pulitzer Prize. This institution I’m very proud to say is becoming the leading
center for empirical research on socioeconomic inequalities. We can boast top researchers and experts, the satellite office of the
world’s most important income database and resource, The
Luxembourg Income Study Center, or LIS, a rapidly growing
cohort of PHD students using the data, and a
multitude of collaborations. For that reason and many
others, we could not be more delighted then to
host tonight’s conversation and to showcase our three scholars. First, Branco Milanovic is
visiting Presidential Professor at The Graduate Center
as well as Senior Scholar at the LIS Center. Previously he served as Lead Economist in the World Bank’s
Development Research Group. During his long career, Branco
has focused his research on income distribution, a
dynamic field to say the least. He likes to say that four
years after he defended his dissertation on income inequality in the former socialist Yugoslavia,
the country disappeared. (laughing) He’s also the author of
the Haves and Have Nots, a Brief and Idiosyncratic
History of Global Inequality and numerous articles. Branco is joined on the
stage by Paul Krugman, the Nobel laureate, the New
York Times columnist and author, distinguished scholar here
again at the LIS Center, and distinguished professor in
our Department of Economics. He’s been called the most
important political economist in America by Washington
Monthly, and the most celebrated economist of his generation
by the Economist. He’s also as you will know the author of numerous best-selling books. Janet Gornick is professor
of political science and sociology and director
of the LIS Center. For over 30 years, Janet has
been a leading researcher and educator in the field
of American social welfare policy especially as it
affects the economic status of women and families. Her book Families that
Work has been widely used in teaching for over a decade
in the U.S. and in Europe. Her most recent book
co-edited with Markus Jantti is Income Inequality,
Economic Disparities, and the Middle Class
in Affluent Countries. And, I can’t resist noting in closing that while Paul, Janet, and
Branco work very, very closely in our LIS Center,
tonight is the first time they actually share the same stage. Please do join me in welcoming
our distinguished speakers. (clapping) – Thank you, Chase. Am I on here? Does that sound good? Thank you, Chase. Let me step in and just
tell you a little bit about the logistics for the evening. First of all, I’m wearing multiple hats. We’re efficient here
at The Graduate Center in the face of budget
cuts, so I’m moderating, I’m asking question, and
I’m answering questions. (laughing) So that’s what we’re gonna
do, and I’m gonna keep time. So this is what we’re
gonna do just to give you a little bit of a preview. We’re gonna have this conversation in three interlocking chapters. It’s a complicated and very rich book that is our starting point. So first Branco is gonna
layout his findings on global inequality starting
with one very lively slide that he’ll walk us through. I’m gonna pose a few
questions to him and to Paul then about the implications
of Branco’s findings and also about the
underlying causal mechanisms embodied in this story
that he’s gonna tell you. And, then second we’re
gonna move to the question of income differences between
countries or across countries which is a big part of the
story of global inequality. And, again Branco is gonna show
you some of his key findings via a single slide. And, I’ll pose a few questions to them. And, then for the third
chapter, we’re gonna turn to the question of
within country inequality with a focus on the U.S. And, there’s where I’m
gonna jump in and provide an overview of income
inequality in the U.S. both today and also over time. And, then we’ll turn to the question of policy implications with
a focus on the United States. So our question is
gonna be how we’re going to make America great again. (laughing) So that’s the plan. Why not, right? So then that’ll take us
to about eight o’clock, and then we’re gonna open up for Q and A. We’re gonna welcome
questions from the audience. There are mics in the aisle. I’ll keep my eye on the time there. And, at 8:20 we’re gonna break,
and Branco’s gonna step out and sign books, and Paul will
come down to the audience. I will as well, and
we’ll chat a little bit. So that’s the plan for the evening. So let me invite you, Branco, to go ahead and put up your first slide and walk the audience through it. – Well okay, thank you very much, Janet. After the somewhat ominous
introduction that Chase had about the country
disappearing after four years, and given that my topic is the world, I hope it’s not going to,
you know, happen twice. (laughing) So let me start as Janet said with a slide that many of you might have
seen actually on the internet. It was tweeted and
retweeted quite a few times. Actually not least thanks to Paul also sort of using it one of his columns. Now the slide I think is interesting. I have to explain it a
little bit, and you will see when I explain it why I
think actually it attracted quite a lot of attention. Now what you have on the horizontal axis is that you have actually,
technically all individuals in the world lined up from the poorest, which would be like
number one on this slide, to the richest people
who would be number 100. So basically that number,
100, is actually the global top 1%, the richest people in the world. Now in order to do that
ranking, you have to have household surveys from lots of countries actually 120 countries in the world, and of course you do it at
different time intervals because as you will see
there is a comparison between two points in time. So you have that lineup,
everybody in the world. I said technically seven billion people. Of course, they are not there. You actually have household
surveys which are representative of the countries. And, then on the vertical
axis what the graph shows is what was the increase
in income in real terms between 1988 and 2008. So that was the idea of the slide. It does seem simple, as
I said, but it’s actually takes lots of numbers
because you have to have all these household
surveys, and thanks to LIS of course we cover
about half or maybe more of the world now. But, the slide covers
practically everybody. So now what you notice there
is that actually somewhere around the middle or actually
the median of the world, you have very large
increases in real income. So on the vertical axis
if you can read it, it’s actually about 80%
increase in real income. Now when you ask and look
at these people there, first you ask yourself
who are these people? And second, you should
also notice, and that’s why I put his number, you notice
that actually they’re not rich people. They’re actually by U.S.
standards, by rich countries’ standards relatively poor
people because the median income in the world is only
about five or $6 per day, so it’s actually not very
much again by the rich counties’ standards. But, there what you might call,
and I put it under quotes, you know you can call
it China’s middle class. Although it’s not only
Chinese middle class, it’s really most of the countries in Asia like China, India, Indonesia,
Vietnam, and so on. But, for simplicity we can
just call it that point A with large increases in real income. We can call it Chinese middle class. Then you go further, this slide, and then you reach people
who’re actually significantly better off than what we call
the Chinese middle class. But, that’s where the income distribution of the rich world really begins. Because the rich world really doesn’t have too many people who are below that point, which as you notice, it’s a
point of the 80th percentile in the world. So practically anybody
in the U.S. practically, not actually everybody
but like 95% of the people are about that point. So there what you notice
that peculiarity is that actually there you
see almost no growth. So that’s my point B, and
that’s actually a very striking point because there is this big contrast between the point A where you have people who are globally in the middle class but relatively poor compared to the people in the U.S. and they have
actually grown a lot. And, then you have
people who are quite poor by U.S. standards, and
they have not grown at all. And, it’s not only the U.S. I called it, you know for simplicity here, U.S. lower middle class, but
it’s really the lower part of the distributions
of many rich countries. Actually 72% of people in that group are from OECD countries. And, to give you an
example, it’s also U.S. Germany that many people
don’t know, Germany actually also had relatively bad period lower part of the income distribution
at least, and then Japan. Okay, and then finally the third point in this slide which is also
quite dramatic, oh sorry, not surprising is that of
course at the very top, this global top 1%, you
have people who have actually gained quite substantially. You have also an increase of 80%. Just two points before I finish this. We have of course looked,
and we’re going to look only here practically
at relatives which means how many percentages have
you gained over that period. But, in reality of course what one needs to understand and to
realize is that the gains at the top are multiple in
terms of absolute numbers. Because if you have somebody who has, as we can see here, $180 per
day then even if he gains, you know, a couple of
percentage points, that would be $3 let’s suppose. But, for people who are
actually at $4 that would mean two-thirds of their
income or three-quarters of their income. So in other words, the relatives
that we’re focusing here are very important, but
we should not forget that behind them are also absolute gains which are of course much,
much stronger on the top. And, a final point which
of course we will talk, I think, a lot today, is
that contrast between points A and B, the contrast between the rising, let’s call it global middle class that is relatively poor,
and the stagnating lower or maybe sort of lower
middle or middle class in the rich countries. And, that of course is one of the reasons that actually many people were attracted to the graph because it illustrates it in an empirical and quite intuitive way. – Thank you. So let me ask a conceptual question. Paul, I’m gonna ask you to chime in first. So just to underscore something, I think most of you know
this, and Chase said it as well. The great majority of
research on income inequality uses the country as the unit of analysis. That’s true of about 90% of the papers using the data from LIS. It’s true of the work by
Piketty, and Atkinson, and Saez on the World Top Income Database. So this idea of merging
all of these datasets and thinking about a global distribution is quite unusual. Branco is really one of the
few who’s worked this way. So the question is why do we care about the global distribution? I would say on the one hand, you know, it makes us think about
the human community and not just our national communities. We’re also gonna talk about interactions across countries in a moment. But, on the other hand, there
are so few policy levers at the global level, so
I guess the question is is tracking global inequality
an intellectual exercise with little application? – Okay. Am I on? Yeah I’m on. I would say first off, we
certainly want that picture. You want a story about the world. People always want to ask. It’s kind of common
knowledge that there’s been some convergence of national incomes, that countries like China are on the rise relative to the advanced countries. And, on the other hand, that
there’s rising inequality. And, how do I think about that? Is global inequality
rising, is it falling? And, to which Branco has
given us the answer is yes. It is both rising and falling depending on how you look at it. And, this is a really compact, simple way to understand very
clearly what’s going on. And, if you do have some notion of caring about human welfare,
well there’s your story. It’s not a completely unambiguous story, but it’s a story you want to tell. But, I think if we think that
there’s some kind of process that’s going on, that this
in fact just one story which is not entirely clear,
I think we’ll come back to that, but if we think
that there is one story going on here, that is
something that presumably can be affected by policies. If we think that globalization
is what’s driving everything we see here,
then globalization, if there’s one thing that
I think everyone who does international trade and
has any sense of history is aware of is that globalization is not an irreversible, unstoppable process. There have been ups and downs. The world was much more
globally integrated in 1913 then it was in 1953,
that if you have protectionism, if you have barriers, you
can ramp globalization down. You may think that making
America great again by putting immense tariffs on everything from outside America is
a good idea or bad idea, but it’s not an infeasible idea. You can certainly make it happen. So then the question is how do I think about the effects to the
extent that that’s what’s driving this? It matters a lot. I would actually just
add one specific thing. The era that Branco is covering here which by the way was not at all the same. The previous 20 years don’t
look like this at all. This corresponds roughly to the period of something that in my neck of the woods is typically referred to
as hyper globalization. Up until about 1990, the
rise in international trade could be viewed largely
as recovery to the kind of global integration we
had before World War I. It wasn’t dramatically a
different kind of thing. But, after 1990 or so,
something different happened. We have much more intese
international trade, and probably that didn’t have to happen. Probably it was stoppable. So the question is well what does that do? And, here we have this picture to tell us what perhaps it does. And, it’s very important to understand what’s going on. – Janet, one thing that actually
I would like to point out is that this kind of picture
where actually you have an increase in gains around the median where first they go up, when you’re poor, they actually relatively
low, and then they increase all the way to the median, and then suddenly, precipitously decline for people who are around the
80th percentile in the world, and then go back again is very unusual. Actually you don’t have
individual countries that often have almost
ever that particular shape. Because think what it means if this were translated to an individual country. It would mean that you
had really the top growth that did extremely well,
but then they enacted some policies, let’s suppose tax hikes or something, which really screwed people who are just below them,
and then the middle class did extremely well. So it’s very unusual. Because what you typically
find, in the U.S. for example, an example
we’ll talk about that a little bit later, you’ll
find that this graph would go upward. In other words, the gains
would almost monotonically increase as you become richer. So that’s a typical pattern
for increasing inequality. When you have a decline in inequality, a typical patter is
also that you would have a downward sloping curve. So the unusual part, of
course because it’s the world, we have growth rates that
are widely different between. It is really that which is
driving mostly that graph. And, one point about what
Paul mentioned before. Actually, you know, Paul was
the one who actually asked me. He said, “Do you think
you could actually do “similar graph for the
period before 1988?” Now, that’s very difficult
because we really didn’t have surveys really from most of
the countries in the world. Now however, thanks to
actually Francois Bourguignon and Christian Morrisson,
you can do some things which is not as good as
this because the data are not as good. However, what you get,
you get really a flat line more or less. So you really don’t get
this very unusual jump which is not only driven by the way that I organized the graph. You know the origin of
the graph, it’s at zero. So it’s really a very
unusual sort of pattern that we have here. – [Janet] So Paul will
you talk a little more about the causality? You started to allude to this, but I think the question would be
essentially is there a tradeoff? Is this growth in the
middle causing the dip further up? Is the growth of the global middle class harming the lower middle
class in the rich countries including in the U.S? That’s a story we hear a lot. It has a lot of domestic power to that. There’s a lot of political
power in that story. – First let’s tell that
story, then I’ll give you a little skepticism. But, there’s a story which
says that what’s happened is some combination of factors, containerization which
made shipping more easier, better communications,
and also policy changes. A lot of the developing
countries which it had very inward looking policies
turned outward looking instead causes this surge in global trade. A lot of it labor intensive products being exported from developing countries to advanced countries. And, what a fairly standard
trade analysis would say that’s gonna actually
cause increasing inequality in the rich countries. It’s going to drive down wages of workers who don’t have exceptional
skills or don’t own a lot of capital, but
it’s also going to lead to a big rise, or it’s
going to lead to a rise in the wages of workers in
the developing countries. And, if that’s the story,
then there is a tradeoff. Unless you are in a position to really do a lot of redistribution
in the advanced country, then we are saying,
well, we’re getting gains for the workers of
Bangladesh, but they’re coming at the expense of the workers of Michigan. And, that’s a very difficult story. It’s actually a morally difficult story because you can say, “Well
gee why are vulnerable “people in the United States suffering? “We should stop this.” But, then you say, but,
you know, you’ve got Bangladesh which more
or less literally keeps it’s head above water only by being able to sell these low, labor
intensive, as somebody said, “They’re not a banana republic,
they’re a pajama republic.” Exports of apparel are
pretty much all that keeps them going. Do you really want to stand in the way of that process? Now there are some questions. It’s a story, at first
sight, it’s perfect. Cause by the way, it’s a myth
about international trade that standard international trade analysis says trade is good for everybody. It’s not what it says. It actually says that
it can very easily have very large effects on income distribution. So it’s by no means true, and this picture seems to fit that story rather well. Couple of problems with it. One is that the numbers when you try to go through the causation they
just don’t look big enough even now, even with all
this increase in trade. It’s hard to tell a story
where, and that’s the hardest thing to explain, but
the numbers don’t look big enough to cause all of the increase in inequality we’ve seen
in the advanced world, and they also don’t look
big enough to explain the incredible growth of
these developing countries. You know trade is good
according to our analysis, but it’s not 80% gain in income good. And, so we have a really
hard time with that. Another thing is this says
that really inequality should be rising in the advanced world, but by that story, it should be declining in the developing world
which is not by and large what we see by and large. So we’re seeing the Chinese middle class is rising, but there’s
also a substantial number of Chinese billionaires popping up. And, so that doesn’t seem to be the story. So it looks like, at most, globalization is only part of the story. There are reasons to be skeptical about the just mono-causal globalization
is causing all of this. But, I think the dilemma is real. The dilemma that says if you
care about the advanced country working class, you probably
want to be a protectionist, or you might want to be a
protectionist, but then what about the workers of the third world? – [Janet] Branco, let me
push you onto the next slide because I think it
follows from this point. – It does, but if I may while I’m not sure if I’m going to repeat
everything that I said because apparently my mic was off. So should I really restart? (laughing) I will not. I just want to say one more thing. Actually in my book, I
call it, to simplify, of course what Paul and
you were mentioning, it’s a story of globalization
behind that graph. Now there could be also
technological changes and there could be also policy. So I kind of simplify
it, as I called it, TOP, because it’s technology,
openness, and policy. When I was last week in
Paris, actually present the same slide and
Piketty was a discussant, he actually said well you’re
really underplaying the role of policy. So we agreed that actually
it should be called POT because it’s policy,
openness, and technology depending what you want
really to put as the first emphasis whether it should
be TOP, or POT, or OPT. But, I think three of them are very often their like going together as a package. Okay let me then, should I
go for the next slide now? The next slide is again using
global income distribution, but it now, like, shows things
a little bit differently. So now if you would focus
on the horizontal axis, it is the position in
the country percentile. Let me just show what it means. Basically you ask
yourself I am in the U.S. In what percentile do
I sort of think I am. It’s not really here about your opinions, it’s actually about your incomes, but just to give you an idea
what the horizontal axis is. Then you look at the vertical
axis, and then you have your position in the
global income distribution. As I was saying before,
what I was actually saying that there are relatively
few poor, very few Americans who are poor by global standards. Or, if I were to draw
here instead of the U.S. I could draw for example Denmark. And, that line for Denmark
would start at 85th percentile in the world as you can see
for the U.S. it starts there at the lowest percentile in
the U.S. is at 55th percentile in the world. So essentially what it shows you is actually every additional
point on the horizontal axis is going to push you higher
on the global as well. And, essentially the U.S.
is a country where everybody is above the world median. Well it’s also interesting when you look at the very top. So this would be like the
lowest American, I mean obviously there are people
with zero income also because you might have
actually sudden, you know, you can draw on your savings and survive, but basically it is
kind of a lowest income in a statistical sense
like significant sense that exists in the U.S. And, then of course you
have here people who are at the very top and 12% of
Americans are in the global top 1%. So we talked like a couple of minutes ago about this global top 1%,
and for 12% of all Americans, many of us are actually
obviously in that global top 1%, but 12% of
Americans are in that global top 1%. And, actually half of the
population in that global top percent is American. So rich countries dominate
in that global top 1%. And, then of course at the other extreme, although this is a little
bit of an exaggeration because the Indian data are,
this is consumption data, and they’re actually
underestimated the income at the very top, but take
this with a grain of salt. But, nevertheless you will
not have 12,000,000 Indians because we’re talking
about each percentile. And, one percentile in
India is 12,000,000 people. 12,000,000 people on average
will not have an income which would put them in the top 1%. So you have really this kind of striking sort of gap between rich
countries and poor countries. Now we always knew that, but
what is actually interesting I think here is that you can see that gap not only like mean in the
U.S. versus mean in India, you can actually see that
gap across the entire distribution. And, then you can bring other countries. I’ve actually taken several
large countries here. This one is China. Of course, that was done in 2008. Already I have like 2011. China is already higher. So basically that Chinese line
would essentially increase throughout, so it would actually
even come to the top 1%. And, you notice already
sort of a middle class, global middle class. You notice another thing actually. The Chinese median is about the same as the global median which
is sort of interesting. Then I have here the
next country is Russia with obviously significant middle class, and if I were to break China
into two, rural and urban, Chinese urban would be slightly ahead of the Russian average. So that’s where Chinese
urban is, and of course Chinese rural is much below Chinese mean. And, finally this is a country
that I would let you guess at first. If it doesn’t show, oh it showed too fast. This was Brazil, and I could’ve taken Brazil or South Africa
because that country really spans the world. So as you can see, it has really people who are among the poorest in the world like bottom 1%. It has significant middle class. It has people who are
the 80th, 90th percentile in the world, and it has
people who are in the top. So in other words it
almost mimics the world, and South Africa comes fairly close to mimicking the world in
terms of income distribution or Brazil for that matter. – So let’s talk about the
implications of this picture. I think one thing that is clear so far is that there are enormous
differences in income levels across countries obviously. And, that’s a big component
of global inequality. That suggests in a very
stylized way two possible ways to decrease global inequality. One is to spur economic growth
in the poorer countries, a catch up model, and another
would be widespread migration of people from poorer
countries to richer countries. Paul, how do you react to that? Is that realistic? Is that reasonable? What’s the approach given these kinds of income differentials
to thinking about reducing global inequality. – Okay. Three solutions that you’ve offered. One is faster growth in poor countries which in fact the interesting thing is we’ve been achieving that. That’s the great success. So whatever else you may
say about this period since hyper globalization began and whatever the causes,
the fact of the matter is from that point of view,
it’s been a golden age. Actually when I went to grad school which was in the mid 70s, I tried to think what should I focus on? And, I thought well development economics that’s really important,
and decided not to because it was too depressing
because in the 1970s, there wasn’t, development economics was basically non-development economics. Nobody succeeded in catching up at all, and that totally changed. And, so that’s a very good thing. So on point one, we’re
actually doing pretty well. Point two, well, that’s
a lot of our politics. We’re trying to reduce
inequality within countries which politically we haven’t
gotten our act together to do that at all here, but
some developing countries actually have. So one of the interesting
stories although kind of falling apart right now
is Latin American efforts to reduce inequality. And, we’ll be talking about
what we might be doing there. Now migration is really
interesting, right? I guess in some cosmic
sense I have to be for ’cause otherwise I wouldn’t be here, you wouldn’t be here. All of us CUNY babies whose fathers went to some part of the CUNY system did so because somewhere down
line because ancestors came to America. Migration is an enormous
force for upward mobility and narrowing of income
gaps as poor people come from poor countries and make their way. It’s also deeply problematic
especially in democratic societies. So the old line, this is
from a much earlier form of migration about
intra European migration when lots of guest workers
were coming to Switzerland, the author Max Frisch
said, “We wanted workers “but people came.” If you’re going to take a lot of people into your country, there
is going to be a problem. If they’re people, shouldn’t they be part of the political system? But, if they are, isn’t
that going to be problematic for the workers who are already there? If you bring labor and it isn’t given political representation,
then you’re generating even if it’s for good
motives, you’re generating a kind of apartheid. And, there’s got to be with
sufficiently large migration, there’s got to be a
problem of exacerbating income inequality. For what it’s worth, there’s
a fair bit of argument that the immigration
that we’ve actually seen in the United States in recent decades probably isn’t doing much of that. Turns out that the immigrant workers are not competing very much
with native born workers probably. But, certainly the issue is there. My view on migration in general is if you’re not conflicted about this, there’s something wrong with you. It’s very hard morally. Economically it’s great for world GDP, but politically, morally it’s tough. – Let me ask you both then
to comment on something. Branco, you raised a very
interesting question. I know it really was someone
else’s question in your book, and that was essentially
what is the analogy, or is there an analogy between migration and the trading of goods? And, as it’s often said, it’s
a common economic argument that fewer barriers to trade are good, but we need to think about
compensating the losers as Paul’s noted nobody would
deny that there are losers typically. The question is can we tell the same story which would be to argue for open barriers, movement of migrants
freely across the globe, but then to think about ways to compensate the so called losers? Does that analogy hold? – Well this was the analogy
actually I think proposed by Land Bridgett actually
this was exactly as you said. We believe that trade
is good, but there are of course losers from trade, and we try to actually have trade
and compensate those who are losing. Likewise for global reduction of poverty or global inequality even if we don’t care about inequality globally,
we do in principle care about poverty,
and of course migration would be a great force for the good. So Land was saying, so
we should then apply to migration the same rules
that we apply to trade. So be in favor of migration,
and if there are losers, then we should compensate the losers. Now it is clear that technically
whether you really become rich in your own country
because your own country grow fast, or you become
rich because you move to a different country that is richer, from the point of view of the world, it’s really equivalent
because we really look in this graph and the other
graph at global numbers. So for us really, whether
the person is in China or the U.S. or you know
Bolivia, is equivalent. The problem of course is
the world is not organized as a single unit, as a single world. It is organized in political
units which are states or countries rather. Then as Paul quoted Max
Frisch, you basically have people, I mean you want
workers but people come and politically that is very
difficult to accommodate. So that’s where the problem comes. And, I think basically
you end up, I believe, with a sort of a tradeoff. Do you really want to
have this big instrument, big tool for the reduction
of global poverty and inequality work, and
then you have to adjust somehow to make native population, domestic population
willing to accept them, or do you say we will
just shutoff this big tool of global income reduction
and just forget it and keep local population as they are? So I think that’s the big
sort of dilemma that we have. – And, just to say, even
on trade, while it’s true that the textbook
theoretical case for trade, you accept that it’s going to have large effects on the income distribution, but that’s okay because the winners can compensate the
losers, except that never actually happens even
less so when it comes to immigration. – Right okay. So before we move on to
within country inequality, let me pose one other question. Paul, I’d like you to comment
on this first if you would. We’ve talked about economic
growth in poorer countries as one of the strategies for
reducing global inequality. What’s the relationship between
within country inequality and economic growth? This is a big discussion
in the rich countries, in the poor countries. I know you’ve spoken about this a lot. It’s often said that
inequality is a drag on growth. It’s an argument that a lot of people have picked up on because it has a lot of political currency. I know Joe Stiglitz is a
big proponent of this claim. Paul, you’ve disagreed with him somewhat. How would you tell the story? Is there a tradeoff inequality and growth? – So let’s start with
the traditional story which is that anything you do to limit within country inequality is going to hurt economic growth. So there is a tradeoff. It’s the leaky bucket. You try and take money from the well-off and give it to the less
well-off, and that’s gonna help. But, it’s gonna reduce incentives. It’s gonna hurt economic growth. That surely is true at
a very extreme level. 100% marginal tax rates, even I will agree that those will have
some incentive effect. (laughing) However, in the evidence that we can see, there is no evidence at all. There’s no sign that
redistributionist policies within the range that we actually see in the world including the whole range of the modern, advanced
world that they actually do any damage to economic growth. So there is really no
evidence of a tradeoff. Possibly we can think that
maybe incentive effects are overrated, that other
effects, resource effects, that having people be able
to educate their children and provide adequate
nutrition offset that. Now where we’ve gone, where
the not exactly a dispute, but sort of degrees of
difference and degrees of caution between myself and Joe
Stiglitz is to what extent do we think that reducing
inequality is actually pro-growth? And, there are various
arguments that you could make for why that might be true
which are very difficult to validate in any direct sense, and some of them are problematic. And, then there are cross
country comparisons. And, the trouble with
those, all of these things, is that when you go cross
country comparisons, there’s lots of stuff going on. And, it might be true
that reducing inequality actually increases growth,
it might not be true. There’s certainly no evidence
that it hurts growth. My line has been in arguing this with Joe. He’s got some pretty good arguments. Mine is basically don’t be greedy. We’ve shown that you can
actually reduce inequality, that you can do a lot to reduce inequality without any discernible
negative effect on growth. You don’t want to nail yourself to claims that it’s actually pro-growth
when we’re really not sure about that. But, it’s well within
the range of uncertainty. The important thing is that the tradeoff, the adverse tradeoff between
equalization and growth is just nowhere to be
found in the evidence. It’s purely an act of
faith when people claim that raising the tax rate on top incomes or expanding the earned
income tax credit or something is suddenly gonna hurt growth. There’s no evidence at all for that. – Maybe just very briefly if I may, just something from my book essentially. One very important episode,
I’m not going to talk about theoretical relationship. And, of course the empirical evidence is all over the place, and
I think actually we would have better evidence now
with much better data that we have. Like in the publication
standard 15 years ago, basically we compare cross sectionally, cross country, and we basically
have only two variables, the GDP per capita index growth rate and the Gini coefficient and the change. So it’s really very rough. But, now we have much
more interest of data. But, historically one thing
that I actually point out in my book if anybody
cares to look at it later is this is something that
we know, but we forget that for the rich countries,
for the advanced countries, the period after World
War II was characterized and actually all the
way to 1980s by dramatic reductions in inequality
and very high growth rates and a large increase in GDP per capita. And, of course with some countries, we get into what I call
the Kuznet’s cycles. But, for some countries
like Italy for example, you have one third of
inequality being reduced, and you have GDP per capita
increasing by a factor of four or five. And, of course the U.S. as
well, actually if you look at each decade, on average
U.S. reduced its inequality by three Gini points which is a lot, and then growth rate
was on average about 30% for each 10 years. So basically we had a period
where empirically that tradeoff did not exist in the long run. – Right, which casts doubt on that. I’m gonna shift gears now to chapter three of this discussion. As Branco has argued, of course the story of global inequality has many components. One of them are big
differences in mean income across countries, and
another one of course is the question of what’s happening to inequality within
countries which takes us back to somewhat more familiar territory. I’m just gonna walk you
through three pictures rather quickly. These are from the data from
the Luxembourg Income Study. This is a very simple snapshot
of a single point in time of income inequality across
23 affluent countries. So let me just explain quickly. Some of you may have seen this. It’s kind of a classic by now. Again, it’s a simple snapshot. It presents household income, inequality in household income that
household income is adjusted for household size which
is fairly standard, and this uses the Gini which is a measure that most of you know I think fairly well which is scaled sometimes zero to 100, sometimes zero to one. A larger number of course
is more inequality. This particular income
definition is what we call disposable income. So it’s income from the
labor market, from capital, and from transfers public and private so all the pensions and things like this. Although this is the
non-elderly population, and then subtracting direct
taxes that are paid out by the household. Okay so it’s disposable household income. So it takes no account though of the value of public services, and it
takes no account of wealth, nor does it take account of
expenditures other than taxes. But, it’s a very standard measure. So what do we see here? We see that among these 23 rich countries, the U.S. is in the
position there of having the highest level of inequality. The Gini is 37 in the U.S. This is from 2010 give
or take a year in one or two countries. So just to take a quick note. One thing you can see here
there’s a certain amount of country clustering. Inequality tends to be higher
in the English speaking countries. So that would be U.S.
U.K. Canada, Australia, also in the Souther European countries, Italy, Spain, and Greece. It tends to be lowest,
so the usual suspects, the Nordic countries,
Denmark, Finland, Iceland, and so on. The continental Eastern European countries are spread out somewhere in between. What you do see here is
this is a lot of difference. In other words, a difference
between .24 which we see in Denmark and .37 which
we see in the United States is very large. Typically a one point
difference in samples this big is statistically significant. A three point difference is substantive. So what does this tell us? I think among other things it tells us that national institutions matter. We’re gonna come back
to that, and they matter quite a lot. So income inequality in the U.S. is high. This is just of course in
2010 sort of in the middle of the transition from
recession to recovery. What has happened in the United
States in the last 30 years? Also a story that’s fairly well known. It’s been a story of rising
and quite sharply rising inequality. It’s risen from .31 in
1979 up to as you saw about .37. This takes us up to 2013. This is a very typical story. A recession there’s a dip in inequality mostly at the top, capital income falls. During the recovery, often
times inequality rises which is what we saw here. The bottom is sticky,
but the top recovered. So the U.S. is definitely a
story of really rather sharply rising inequality. Where has the rise been? It’s been above the median. So what we’ve seen is a sharp rise especially in the ratio of
about the 90th percentile to the median, and a very
sharp rise in the top 1%. That’s the story. You can’t really get
that from survey data, but that’s what we know
of course from the work from Thomas Piketty and others. So the U.S. is across the rich countries, it stands out as both high inequality and also the most sharply
rising during this three decade period. So let me show you one more slide which is a sort of diagnostic slide. This is from some work that
Branco and I did together, and this is gonna help you understand why when we come back to this picture, why the U.S. is here
with so much inequality. There’s really two parts to this story. What you have here on
the horizontal axis is, these are the same 23 countries,
on the horizontal axis you have inequality in market income. So that’s before the taxes and transfers. That’s inequality in income
mostly from the labor market from wages and self employment
and also from capital. On the vertical axis,
you have the difference between the post tax and
transfer, the disposable income, and the pretax and transfer. So in an accounting sense, it’s a measure of redistribution. It’s a rather crude
measure, but it’s a simple difference there. So what do you see? There’s the U.S. with its little red dot. You can see now what’s
driving the high inequality in the prior slide is that
the market income inequality is really quite high in
cross national terms, and the level of
redistribution is mediocre. So those two stories together add up to essentially this here. So let me just walk you
through a couple of pairs just to put a little bit
of life to this story. So take a look at Ireland. I’m not sure if we have, there we go, so there’s Ireland compared to the U.S. if you look at this pair of countries. So Ireland on market inequality here on the horizontal axis, Ireland in 2010, very high market income
inequality, .53 on the Gini scale. And, the U.S. was .48. But, the redistribution by this measure, Ireland 23 Gini points removed by taxes and transfers, in contrast
the U.S. 10 Gini points. So the end result when we
come back to this slide is that income inequality
at the end of the day is substantially lower
in Ireland than it is in the U.S. So it’s .30 versus .37. They’ve basically redistributed. They’ve removed quite a lot
of that income inequality. Just a similar, to put a little more life to this again, is the
case of Denmark and Italy. For those of you who
study wealthy countries, this won’t surprise you. Market income inequality
actually quite high in the Nordic countries. That surprises people, a
little higher in Denmark, .38, than in Italy, .36. But, a similar contrast,
redistribution 14 points of inequality removed
by taxes and transfers in Denmark, three points in Italy. And, then that’s the end
result is the Danish case, the least income inequality
after taxes and transfers. So it’s a combination
that’s what’s going on here that’s driving the story in the U.S. So somewhat in simple terms then. How can we think about interventions? We’re gonna assume for a moment that we think this would be a good idea to reduce this here,
this disposable income inequality in the United States. We can think of then,
of course strengthening institutions that would
narrow the dispersion of market income, that
would have the U.S. move to the left. Or, we could think of
institutions that would strengthen redistribution which would be of course to have it move up. So let me turn that over to my colleagues. What should we do? What do we do now, Paul? How do we make America great again? (laughing) – Yeah. And, the best answer we have
is that you do lots of stuff. I don’t know who’s responsible
for pre-distribution and redistribution. – [Janet] Jacob Hacker. – Okay. I’ve reduced my assessment. Can you change the
distribution of market income? Is it just supply and demand,
and the invisible hand will punish you if you intervene? And, the answer there
is a really clear no. There’s now lots and lots of work. We know that at least moderate increases in the minimum wage have
no discernible effect on employment. The U.S. stands out now
as having a very low minimum wage by international standards, very low relative to its
own historical standards relative to average wages. So you can raise minimum wages. The fact that the United States has such a weak labor movement, you tend to think if you only know the United States, you’d
say well it had to happen because of globalization, and
you just can’t be unionized. Except that nobody else has
as weak a labor movement as we do. Denmark faces the same
global economy we do, but two-thirds of its
workforce is unionized. Even Canda has unionization rates that are well over twice ours. And, it was the legal
and political environment that led to the collapse of
the U.S. labor movements. So politics, your POT, the POT. I guess we start out in Colorado anyway. So you can work on that. And, then redistribution,
again everything we know says there’s a lot you can
do with tax and transfer. Do we know, can I list you things and prove quantitatively that I could turn the U.S. into Denmark by doing them? The answer is no. But, there’s every reason to think we can do quite a lot if we had the political system that would permit it. – Let me add a little
bit of detail to that, and now I’m worried that we’re becoming an echo chamber here because
I was gonna sort of put the same list of items out. But, just a couple of
things to say though, the minimum wage, so I think
indeed we could do a lot to shift the market distribution. This term that Paul
raised, pre-distribution, our colleague Leslie McCall
who’s not here tonight thinks it should actually
be called pre-redistribution which makes a little bit more sense. The term pre-distribution is out there now referring to essentially policy mechanisms that would shift the market distribution in other worlds earlier in the chain than taxes and transfers. A recent book by Tony
Atkinson that a lot of us have read, and I think
admire, Inequality What Can Be Done? He’s really stressed this. That we’ve been talking much too much about taxes and transfers,
and we should be thinking much more about the market distribution. Two really important
stories about the U.S. I would just echo what Paul said. One is the minimum wage. I’m holding a picture in
my hand from the OECD, something I just took a look at today. Of 36 of the richest
countries in the world, we have the third lowest minimum wage. If you look at the minimum
wage relative to the median, we’re down there with Mexico
and the Czech Republic. So we’re way, way below. The minimum wage has eroded overtime. It’s famously known that
the U.S. has a large low wage labor market. About 25% of American
workers are in low wages. OECD defines that as less than two-thirds of the median. There’s a very strong correlation
between this minimum wage and this share of low wage workers. And, another picture that I grabbed. Today I was looking at
some OECD studies on this. Indeed very low rates of
unionization and union coverage in the U.S. Of course a decline, very low. And, a study done by the OECD showed just a simple correlation, the correlation between the share of the labor force that’s covered by collective agreements and the share that earn low pay, it’s .83, negative .83. They’re very strong relationships. So unions and minimum wages matter. And, just to pick up on
two other instruments that I think you mentioned. I’m doing my homework
today which I love to do. Just looking at the latest numbers, none of this has changed overtime, just taking a look again. Looking at sending on
non-elderly households, another just standard OECD data, the U.S. is third from the bottom
looking at spending at every different measure
with spending on households especially again non-elderly households. The OECD average about 2.55% of GDP essentially in cash transfers
to families in the U.S. Third from the bottom, only
lower is Korea and Mexico. We’re spending about 1% of GDP. And, on and on I go. I was looking at taxes as well. Despite, I know Paul you
blogged about this last week, despite one of our republican candidates claiming we have the
highest taxes in the world, we actually have nearly the lowest taxes among the industrialized countries. So the point is, I think,
I would agree with Paul that we could do lots of stuff. Atkinson lays out 15
different policy levers. They’re not all equally
politically feasible. I think we’ll end on a
little bit of politics, but we know how we could
reduce income inequality. We don’t know that we could
make the U.S. Denmark, but we certainly know how we
could move this graph around. It’s really not a question
of intellectual technology. It’s a question of political will. – The way I like to think about it, let me just give you one story. First of all, on market
incomes, we used to have well paid union workers in
the manufacturing sector. Turns out that that
unionization really fell off a cliff in the 1980s. And, it’s true that the
manufacturing sector was under a lot of pressure. And, General Motors was declining and was no longer the largest employer in America. What was emerging at that
point as the largest employer in America was Walmart. Why couldn’t big box
sores have been unionized? They don’t face global competition. So the question is why wasn’t there an effective organizing effort? Well who was president in the 1980s? What was the political environment? It really was a political choice not to have that kind of market power on the part of workers. That’s why we have such low unionization. Imagine if we in fact had
had 1,000,000 organized Walmart workers, that would’ve been a substantial slug of middle class incomes that are in fact missing from the U.S. income distribution. That’s not the only story,
but I think that’s the way you want to think about the market side. And, then, yeah, spending
we are way at the bottom in terms of support for families. These are all choices. I guess the good news,
as you say, in a way we know how to do this. We just don’t know how to
persuade a sufficient number of voters to support it. – [Janet] Branco, you want to add to this? – It seems we should have
actually called this part let’s make America Denmark again. (laughing) It looks like that. So under that heading,
as Janet said actually that red dot, the improvements
come either because you would move that red
dot left, or you would have to move this red dot up. If you move it left, you reduce
market income inequality, if you move it up you redistribute more. Now I sort of am becoming skeptical, I mean definitely there are measures like the minimum wage,
trade unions, others that actually can move this red dot, well, they would actually move red dot left, then there’s a redistribution
that would actually move it up. But, I’m skeptical about moving
it up very much in the U.S. And, I think one of the
indirect messages, I think actually of Piketty’s book
and the focus on capital was, I think, we should look much more on the inequality in endowments. Now this is kind of economese
for essentially people having very concentrated capital assets, or actually people having human capital which is also unequal. But, let me just say one
thing about capital assets. Actually I have not paid much
attention to that before, but when you look at
all the rich countries, and America is actually sort of an extreme of that case, you have
extremely high concentration of income from assets from
ownership from capital. When we talk about the
Gini coefficiencies, these Gini coefficients are 85, 90. This is a number that we never kind of see in any other sort of
conditions except when you look at the distribution of
income from capital. And, then moreover the
problem is that that share of capital income in
total net product or GDP is increasing. So the problem is two-fold. First, you have that
capital share going up and if it was not
concentrated, if for example, everybody had the same share of capital, then it would not be a problem. But, it’s extremely concentrated. So that actually really
makes the problem much worse. And, I think one should really
work there on that point. – Actually I just want to
say one thing I fall into also is we tend to approach these things. Obviously everyone on this stage wants to see inequality reduced. And, it can easily turn into
sort of a sense of despair. It’s probably worth pointing
out if we actually look at the agenda of the current,
you know, the administration finishing up its last year right now, the average effective federal tax rate on the top 1% has gone up to just about what is was in 1979. We’ve essentially at the top seen taxation fully retrace the step that is
took during the Regan years. And, we’ve just seen the
enactment of a really major transfer program that
mostly benefits people at lower incomes otherwise
known as Obamacare. So it’s not as if you can never do things. Even in the United States,
even with this deeply partisan gridlock, you can actually
make quite a lot of difference. And, I think the effect
on welfare, the effect on the safety net that
ordinary people experience has been huge. So don’t want to look
at this and say, “Oh God “we can’t become Denmark,
therefore nothing can be done.” If we move even just a little
ways in that direction, it can have huge human impacts. – I remember, Paul, when we
were discussing Atkinson’s book, he begins the book, Tony
Atkinson, a great inequality scholar, begins that book by
noting that there’s no single level of inequality that
we would sort of consider to be ideal. That’s a difficult question to answer. And, I remember I asked you, Paul, what’s the right level of inequality, or what country would
you think did it best, and you said the United
States in the 1950s. So I think the point
being that there’s nothing absolutely in the DNA of the United States going back centuries. People tell this story
that there’s something about the really fundamental
structure in the U.S. That’s driven inequality to
the level that it is now, but it’s actually a fairly recent story. It’s a political story, and
it’s a fairly recent one. – And, things change. To think that the political environment that led to the United States busting out in the direction of greater inequality is our future forever, well,
I think we’ve just seen we’re not sure what the hell is happening to our political landscape,
but it’s certainly changing. (laughing) – I actually agree with
Janet, and I think many people who believe that nothing
can be done always have a recourse to this
American exceptionalism. So the U.S. is very unequal
because it has always been unequal. People value opportunity. You know there are immigrants
who come and so on. And, I think that story
does have some semblance of possibility, but if
you look at the data for example historically,
and now we have the data from the new book by Peter
Lindert and Chad Williams about U.S. inequality
from ’74 until today. In the beginning when you look, U.S. of course was much
more equal than U.K. They actually used this comparison between U.K. actually England and the U.S. And, then of course U.S.
inequality in particular at the very top of
course, U.K. topped the 1% to the extent we can judge was
much, much richer than here. And, then of course after
that, there was sort of a catch up, but U.K.
inequality was still much higher. And, then afterwards of
course, we have this period of great leveling in both
the U.K. and the U.S. that went from, in the case of the U.S. From the Great Depression
either ’29 or ’33 all the way to 1980. So it’s not actually true the the U.S. Was always sort of remarkably unequal, and there were no periods,
first, it was more equal than European countries. And, secondly it experienced long periods of decline in inequality. – You know it just occurred
to me that one of the things finishing with just this
discussion of U.S. inequality, we can lose sight if we go
back to Branco’s original, the famous picture which
some people for some reason think looks like an elephant,
and Janet and I think looked like a camel. This is not a story of everything
going badly in the world. It’s not a story of plutocrats
running away with everything. Plutocrats have run
away with a lot of stuff in the advanced countries,
but we actually think that quite a lot could be done about that. And, meanwhile this is a
story of enormous progress for a lot of people. We’re talking about
billions of people here. This has not been a bad 25 years. It’s been a complex 25 years,
but not all bad by any means. – Let me end also, I’m
gonna make just one more I suppose optimistic
observation, then turn it open to the audience for questions. It almost goes without saying by now, there’s been an incredible
explosion of interest in inequality starting
somewhere around five or six years ago, we’ve been reflecting on it. There are many markers of it. For us at LIS, I have
to say I realize this is a very sort of insular observation, but our phone used to
ring three or four times a year with media queries. Starting after Occupy Wallstreet,
Piketty book came out, lots of other things, it was
more like 20 times a week. The explosion of interest in inequality, we have felt it so strongly. We’ve been working on this for 30 years, for 25 of them no one cared. (laughing) I do think though that we’ve
all been reflecting on this. And, Branco writes about
it, and so does Atkinson. I think, Paul, you’ve spoken about it. This new found interest
in inequality is sticky. You know three or four
years ago, we were sitting around saying this is gonna have to burst, this bubble is not gonna last. But, it is lasting, and it’s
becoming institutionalized. Lots of new data are being created, new resources are being but into the types of ingredients that we
need to do the type of work that Branco does, and we do. Lots of new academic
programs, lots of new books, but also the fundamentals
of economics are shifting. I think we’re trying
to play a role in that. I less than these economists here. But, the economics
field itself is shifting to begin to understand heterogeneity and other kinds of things. So I think this is new,
and I think this is, you know, from within the perspective of research and academia and
the policy world as well. Something has happened, and I think we all thing that to some
extent it’s irreversible. I would hope so. On that note, we’re gonna take
questions from the audience. Let me ask you to go to the mics. We have about 15 minutes,
and the normal rules apply. Say who you are, please,
please don’t give a speech. If you do, I will cut you off. And, direct your question
to someone in particular if you’d like. – [Audience Member] Okay,
as far as I can see, there seems to be a lack
of diversity in discussion of inequality in media. Media talks only about bad inequality, but there might be some
good inequality as well. It looks like even if a
person thanks to his talent and hard work achieves more than somebody who is good for nothing,
it’s also sometimes considered bad inequality. So I wonder if there are any works that focus on good
inequality, defining it, draw a line, and defend it? If it’s a clear question, I’m done. – Let me suggest that we
collect a few questions. Shall we collect three and then answer? The audio is not great,
but I think you said are there good forms of inequality? – [Audience Member] Yes. That’s your questions basically. Let’s take three
questions and then answer. There are so many of you. Go ahead. – [Audience Member]
About the minimum wage, can you hear me? About the minimum wage, my
extremely conservative friends who I have a shockingly
large number of, argue that it’s basic economics
that if you raise the minimum wage, inflation will rise, and the value of that increase will be almost wiped out. The second argument they make is if you raise the minimum wage, Mcdonalds will put in automated
kiosks to take your money and place your orders, and
your jobs will disappear. How do you respond to that? – Let’s take one more, and
then we’ll answer them. – [Lev] Hi Lev Manovic
from the Draoud Center. Thank you for a most amazing tour de force and debating so many moves in one hour. So my question is, you know, you told us great stories, but we also
know this idea of a country it’s a bit of a myth. Because up in Korea, 50%
of people live in Seoul. So my question is if we
start kind of breaking these pictures by for example
cities versus suburbs right or mega-cities or gender also ethnicities. Are there any particular
variables which will give us completely different pictures, or are we going to get
versions of this picture? – Are there good forms of inequality? – Okay we have to be
brief because there’s lot of different people, so I will try to be. You know one important
thing is to realize, and maybe sometimes people do
not realize it immediately. When we talk about inequality,
it’s not a dichotomy between equality and inequality. It’s not like you are
either equal and everybody has the same income, or you’re unequal. So actually we’re talking about the range. So when we speak about inequality, and the inequality’s
too high, we don’t mean that the alternative is actually everybody should have the same income. Let me make this clear. The alternative is to
have less inequality. It doesn’t mean that
everybody has the same income. And, on bad and good inequality, I think there are several promising venues. But, I think one
particular which is I think very promising is the work which follows the John Romer’s idea
is that essentially now with the disaggregated data, we can tell how much of that
inequality that we observe like for example between us here was due to the circumstances like suppose gender, education of your parents, race, and so on which you could call bad inequality because it’s not something
that is actually you deserved that income, or you don’t
deserve to have a low income on account of negatives. And, there is a second part
which may be due to effort or luck that is actually you
can call good inequality. So basically I want to say
that we actually are moving, and we have empirical work including actually distinguishing
between good and bad inequality in the U.S. overtime and showing that good
inequality is related to higher growth rates, and bad inequality is actually bad for growth. – Paul, can you help this fellow with his concern with the friends? – Yeah so minimum wage. This is a case of economists
doing what they really should and learning. The reason that we think
minimum wage increases over some rage are a good things comes from a remarkable 20 years
now of empirical work starting with Card and Krueger where they, it turns out we have lots
of natural experiments in minimum wages ’cause
they’re set at the state level. So when one state raises the minimum wage and neighboring states do not, you get an observation on what happens. You can compare counties
just across a line. And, the overwhelming evidence from that is that you don’t see the job losses that these stories would
say you should see. So then the question
becomes how can that be? And, the answer I think basically is that people are not bushels of wheat, that the labor market is not just a market like the market for some commodity. That people have
incentives, that employers are not atomistic. There really isn’t a single hiring hole where everybody meets. There’s some search involved. And, for a variety of
reasons, a higher wage may induce workers to work harder or have lower turnover which
makes them more efficient which makes the wage affordable. It may be that in some
cases, large employers in the very local labor market
are actually monopsonists, they’re holding wages
down in an attempt to keep their labor costs low, and if
you raise the minimum wage, they have no incentive to do that anymore, so they may hire. There are a varitey of explanations, but it appears that the labor market is sufficiently different from the market of wheat or the market for, I don’t know, cement or something actually
probably not a very good example. The point is that we now
have hundreds and hundreds of these natural experiments. There’s just lots of
opportunities to see this. And, they all want to say that the effect on employment is zero. So this is evidence. We’re looking at evidence which has a well known liberal bias. – The other thing to remember of course is that the minimum wage has eroded, so much of the discussion about raising the minimum wage is restoring it to levels that we saw for long
periods of time in the past. – And, just a second. Everyone agrees that if you
have a $35 minimum wage, we would have problems. But, the question is
whether bringing it up to a historical norm
relative to average wages is likely to cause job
losses, and the answer is the evidence pretty strongly says no. – And, the discussion
in New York of course has been, for the most part,
around this $15 an hour wage. I think most people think
the discussion in New York, I know there’s been a certain amount of differentiation across the state, but that the state can sustain
the proposals in New York especially in New York City. Your question was about
other kinds of disparities. I’m afraid I had a little
trouble hearing it. (muttering) So I think this reminds
me of a question actually that I was gonna ask you,
Branco, if I understood it. Let me just segue just slightly
that we just didn’t ask in the interest of time. One of the things you discuss
and that other people do is that while income
distributions are widening many forms of inter-group
disparities are narrowing. Gender disparities are
narrowing, you know, there’s all kinds of new, you
know, what we’re celebrating. Racial gaps are narrowing in
many ways, sexual orientation, gender, urban, rural I’m not so sure. So there’s sort of a
paradox that certain forms of inequality are reducing
while income distributions within all of these group are exploding. What do we know about that? – Briefly, first to answer
the question actually. Because of really data
requirements, you know, technically if you really tried very
hard, it could be possible to generate this graph
for rural and urban areas in the world. It’s not going to be easy, but I think it’s technically possible. But, then going further,
for example I’m often asked, that question, and of
course that’s what you’re also alluding to. Can we do the same
graph for like a gender? Have women done compared to
men for example globally? That’s very difficult,
or actually impossible with the data that we have
because we really focus on household, and then
all income in household is by assumption in our
data distributed equally between everybody who is
a member of the household. So we can do wage stuff on earnings when we know who is earning what. But, here it’s actually more difficult. – Just to say that,
Branco, when you do this, this is not based on countries. I mean the data comes from countries, but in fact, the access here is people. – The access is people. The problem for rural,
you would have to have all the data that they
had and each country, you would have to have
rural, urban identifiers. Some countries may not have it. – This is a sort of natural,
it’s a ruthless cosmopolitan view of the world. – It’s ruthless
cosmopolitan view, exactly. And, we could have
ruthless cosmopolitan view also for rural areas and urban areas, but as I said it’s data intensive. On the issues of what is
called horizontal inequality, I’m, very briefly, very unpopular view because I’ve got like two
or three unpopular views in this book. One of them is that I think
we rightly have focused a lot on reducing or
eliminating differences that are due to, you know,
gender, race, other things, but I think this is not
the end of the story because you can actually
have the mean wage of women and men being the same, but the underlying distributions
being very, very unequal. So in other words, we
should not lose sight of the very fact that even
sort of total equality of the mean wages between the two genders might actually still allow you to have huge inequality within women earnings and also huge inequality
among men earnings. So that was my point. – And, that’s in fact what’s
happening in the United States is inequality within the two
genders has risen quite a bit and within many occupations as well. I think we have time for two more. I’m getting a signal to move us along. – [Audience Member] If you were
to be looking at the future, how do you foresee
climate change affecting global income inequality? – Let’s hold that question
and take one more, and then I’m afraid we’ll have to close. – [Audience Member] I’ll
make this very brief. I remember 1950. It isn’t worse now. It’s better. I made 35 cents an hour,
adjusted for inflation that’s $14 an hour. And, I thought I was being overpaid. Probably was. Only Professor Krugman
mentioned the question of future population, and I
think you ought to address in these numbers the
likely hood of a doubling in population in the next 20 years whether it comes from outside or inside. – Okay climate change. – Climate change could
make global distribution more equal by wiping out
the people on the left. The thing about climate change even though the bulk of the emissions
have come from countries that are wealthy, of course the people who are most vulnerable are the poor in the poor countries. I’m not sure that thinking
about what this does to the global Gini
coefficient is the right way to think about it. If you want to think about
places that are really at risk, again, Bangladesh, someplace like that is going to be terribly vulnerable both because of geography but
also because they don’t have a lot of resources. I’m not quite sure I
understood the second question. – Let me mention just two points about climate change if I could. A little bit of advertisement
of one of our other events. We had an event on stage
here on Earth Day last year with Joe Stiglitz and Nicholas Stern discussing the question
of the relationship between inequality and climate change which is a hugely important
and interesting question. And, I would say two
conclusions came out of that. They’re both perhaps somewhat obvious. One is that the impact of climate change is gonna be felt very
unequally across countries and within countries in fact. The poorest are the
ones who are gonna have the least opportunity for climate change mitigation and protection and so forth. But, the other argument that came out which I think is a very interesting one. And, Branco addresses
this somewhat as well, this is really more of an open question, but what’s the impact of
inequality on protections from the damage of climate change? So for example one of the things
that we’re concerned about is places that are very
unequal the will to do or a sort of opting
out of the public grid. They’ve got private electrical systems and private walls and so forth and seem to be investing less in the
kinds of infrastructures and seawalls and so forth. So there’s a nice pice of
research that was just done on this. Branco is gonna do this
himself across states and jurisdictions. So inequality and climate
change are related with causal relationships
in both directions actually, and I think it’s something we need to be thinking about a great deal. – Can I say something about demographics? – Absolutely, yes. – Because you guys have answered beautifully the climate
change on which I have really no idea how it
would affect this graph, but on demographics I do. And, one thing that we didn’t mention here because we didn’t have time is this kind of missing continent often is Africa. And, Africa is going to
play a very important role in that graph in the next 20 years or so because it’s a continent as
we know with actually rising population and of course poor,
and also with very volatile growth rates. So we have had a relatively
good period from 2000 to 2010, or maybe to 2012 or whatever where in Africa most
countries were growing at four, five percent. That was good. But, we don’t know what
will happen in Africa, and as Asia ages, and of course we know with China to have reached the peak in terms of reaching the
peak of the population, optimistically we can
actually see the catch up of Asia, and this graph
really looking good in the future. But, on the other hand, if there is no convergence of African countries meaning that they’re actually catching up with the rest of the world, this graph can also turn out to look in
the next 20 years pretty bad. So demographics do really play a role. We can actually play a
little bit with the numbers, but obviously we don’t know what will be the growth rates, and we
don’t know what will happen to inequalities within nations. But, we have to keep that in mind. That’s actually a big
sort of unknown here. – It’s my sad duty to
bring this go a close. So thank you to my colleagues
and to the audience. (clapping)

4 thoughts on “Globalization and Inequality: Paul Krugman, Janet Gornick, and Branko Milanovic

  1. Isn't Paul Krugman the economic genius who for the entire decade of the 1990s said NAFTA was a net/net win for the United States because offshoring high-paying manufacturing jobs would NOT put downward pressure on US wages? Now here he sits musing about the problems of inequality. You just can't make this stuff up. Even the Left now recognizes this man as an incompetent political hack.

  2. Impressive to see two of these three economists unable to use their microphones correctly so that their audience can hear what they are saying. Dr. Krugman is the exception.

  3. I think they should also take account for consumerism and it's affect on Global warming, because globalization is taking advantage of third world countries where usage of coal is still the primary energy resource for factories & homes.

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