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Redistribution, social policy and welfare state
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Economic Policy
Redistribution, social policy and welfare state

Adobe Systems
Redistribution, social policy and welfare state
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Content
̶Distribution and justice
̶theoretical approaches
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̶issues in distribution
̶The welfare state
̶the concept of welfare state
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̶worlds of welfare states
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̶recent challenges to welfare state
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Distribution and justice
̶Distribution of income and wealth has been a major concern throughout the history of economics
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̶Positive and normative economics is difficult to separate in this area.
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̶Two main views of justice in distribution:
̶commutative justice: each person should receive income in proportion to his contribution to the
productive process
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̶distributive justice: implies approximate equality in income distribution
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Issues in distribution
The are several specific areas of concern in the debate about distribution:
̶the distribution of income between persons irrespective of the source of income
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̶the distribution of income between factors of production, in particular between labour and capital
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̶the distribution of earnings between different types of labour
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̶the distribution of wealth
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̶poverty
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Income distribution between people
̶The conventional mean of illustrating income distribution is the Lorenz curve
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Lorenz curves in UK (1979, 2001)

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Income distribution between people
̶and the Gini coefficient.
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Gini coefficient

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The distribution of wealth
Percentage of wealth owned by:
1971
1986
2006
Most wealthy 1 % of population
31
18
21
Most wealthy 5 % of population
52
36
40
Most wealthy 10 % of population
65
50
54
Most wealthy 25 % of population
87
73
77
Most wealthy 50 % of population
97
90
94
Table: Ownership of marketable wealth (UK)

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Redistribution, social policy and welfare state
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Poverty

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Extreme poverty (people living on less than $1.90 a day)

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Extreme poverty (people living on less than $1.90 a day)

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Why is income inequality rising?
̶globalisation
̶a key role for technology => replacement low-skilled workers by machines
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̶labour vs. capital: a shifting balance
̶larger share of income belongs to capital owners
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̶change in the workplace:
̶increase in part-time working
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̶decline in trade union membership
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̶changing in societies:
̶growing tendency to marry people very similar social and educational backgrounds
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Labour share of national income in OECD countries, 1990 and 2009

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Why is income inequality rising?

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Welfare state (WS)
̶The WS is a concept of government in which the state plays a key role in the protection and
promotion of the social and economic well-being of its citizens
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̶WS is funded through taxes and provides cash or in-kind transfers.
̶In kind transfers consist of goods or services, not money
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Social protection expenditure and GDP per capita (US$)

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Diversity of welfare states
̶Differing welfare models evolved after WWII.
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̶Esping-Andersen (The Three Worlds of Welfare Capitalism, 1990) identified models of welfare state
according to stratification and the different providers of welfare
̶Social-democratic (Scandinavian) model
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̶Corporatist (continental) model
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̶Liberal (Anglo-Saxon) model
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̶Southern model
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Social-democratic (Scandinavian) model
̶prevalent in Denmark, Sweden, Norway
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̶generous replacement of market earnings through the state (e.g. for unemployed)
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̶social welfare is an universal right
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̶state as a main provider of social welfare
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̶characterized by high social expenditure, active labour market policies and increased
public-sector employment
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Corporatist (continental) model
̶typified by Germany and France
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̶main provider of welfare is the family, but contributory principle ties many benefits to
employment history
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̶basic security supplemented with contributory benefits (pensions, unemployment, etc.)

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Liberal (Anglo-Saxon) model
̶United Kingdom, Ireland
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̶seeks to increase demand for labour through liberalization and wage flexibility
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̶mostly private forms of insurance
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̶benefits comparatively low and linked to means-testing
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̶poverty relief through minimum wages, but less of a focus on equality.
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Southern model
̶Spain, Italy, Greece, Portugal
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̶extended family as core unit
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̶income maintenance
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̶strong jobs protection – favouring, for example, full-time over temporary workers
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Challenges for welfare states
̶demographic change: population ageing and living longer increases financial burden
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̶globalization: reducing governments’ ability to sustain or reform welfare institutions
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̶changes in the family structure (societal change): e.g. increase the participation rate of women,
the shift away from the male-breadwinner model affects certain aspects of the welfare model
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̶problem of welfare state and efficiency: especially administrative costs and the disincentive
effects on the labour supply
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̶new technologies and the changing mix of jobs
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Challenges for welfare states
Stephanie Mock | Stephanie's Blog | Page 2

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