On 'first-order' and 'top-end' inequality, and why the distinction is important

The debate about income inequality seems to be happening at two levels, which I'm going to label "first-order" and "top-end" inequality.

1. First-order inequality is visible in standard measures such the gini coefficient, and shows up as an increase in the gap between average and median incomes.
2. Top-end inequality refers to the share of income that goes to those whose income puts them above the 99th percentile and beyond.

(If I'm giving new names to phenomena that have already been defined, please let me know in the comments, and I'll make the necessary changes.)

I think it's important to make this distinction: top-end inequality generally doesn't show up in first-order measures, and vice-versa. And each type of inequality has its own challenges for policy.

Here is an exerpt from a very nice column by Pete McMartin, in which he quotes Kevin Milligan:

In the aftermath of the HST referendum, Kevin Milligan, a University of B.C. associate professor of economics, came across a poll that caused him pause. Milligan, who specializes in tax policy, had campaigned hard for the harmonized sales tax, believing it to be good for the economy.

The majority of respondents in that poll agreed with Milligan. They, too, felt that, overall, the HST would benefit the economy.

But oddly — and here is where the respondents’ opinions diverged from Milligan’s — while they recognized the HST would benefit the economy, they also felt that, on a personal level, none of the HST’s benefits would accrue to them.

A message resided in that distinction, Milligan felt, one that perhaps spoke to a greater malaise.

“With all the growth in the economy the HST promised,” Milligan said, “these people couldn’t bring themselves to vote for it because they didn’t see that growth benefiting them.”

(Here is the poll Kevin was talking about.)

This is a first-order problem. Economists will often concentrate their attention on the question of whether or not a policy will increase total - and hence average incomes. Behind this choice is an implicit assumption that most people should see some benefit, or at least that the number of those who benefit outnumber those who lose out. But if this isn't the case, then we end up with what we saw in BC: people rejecting a policy that they believe will increase average incomes.

First-order inequality is - in my view - a far more important problem than top-end inequality. It also turns out that in Canada, it's one that seems to have stabilised, albeit at levels that we may not find acceptable. Here is a graph from an earlier post:

Here is a graph of the ratio of the 80th and 20th income percentiles:

The divergence between mean and median incomes is a first-order concern:

Here is the same graph for incomes after transfers and taxes:

The story before the mid-1990s is pretty grim: stagnant incomes and increasing inequality. But first-order measures of inequality have levelled off since then, and median incomes - in particular, median incomes after transfers and taxes - have grown appreciably. To a very great extent, the belief that most people have not benefited from economic growth is not consistent with data from the last fifteen years. Moreover, the recipe for reducing first-order inequality is fairly straightforward: strengthen the system of transfers.

Top-end inequality is very different. Firstly, it shows no sign of slowing. And since we're not entirely sure why it's happening, it's not immediately obvious that measures such as a high-income surtax will have any more than a symbolic effect. For that matter, it's not clear how improving transfers would affect top-end inequality.

More fundamentally, the questions that are raised by top-end inequality quite different from those raised by first-order inequality. Top-end inequality raises the spectre of a tiny economic super-elite using its income and wealth to establish its dominance in other areas of society.

A solution for one sort of inequality is unlikely to do much for the other. We've already seen a levelling off of first-order inequality, and that didn't stop the worsening of top-order inequality. Nor does it seem likely that a solution to top-end inequality would do much for the first-order problem; the numbers involved are simply too small.

I think this distinction is important:

• Arguments to the effect that inequality is stable because the Gini index has levelled off are addressing first-order inequality, not top-end inequality.
• An excessive focus on top-end inequality - at the expense of first-order inequality - means that too much attention is paid to taking from the rich, and not enough to the other half of Robin Hood's agenda.

 

 

 

Comments

[Winstongee]

"First-order inequality is - in my view - a far more important problem than top-end inequality."

This belief of yours warrants some explanation. It has to depend on some conception of society that you fail to make explicit, one where first-order inequality poses greater threats to society's "proper" functioning than top-end inequality. To complicate things, you yourself say that "[t]op-end inequality raises the spectre of a tiny economic super-elite using its income and wealth to establish its dominance in other areas of society." Obviously you don't believe that is the current situation in Canada, and I suppose you don't believe it will be anytime soon. If this is a fair characterization of your views, then they warrant some elaboration, because much work has been done to demonstrate the grave implications of so-called top-end inequality.

[Stephen Gordon]

The purpose of this post is to draw attention to the extent to which much of the debate has been conducted at cross-purposes. If you're more concerned with the top end, I don't see how or why I would try to convince you otherwise.

[Determinant]

The happy side of this though is that Canada's robust political fundraising laws and very low donor caps mean that the few cannot use large amounts of personal wealth to commandeer the political process, specifically political parties. Broad-based personal retail fundraising is the only kind we allow anymore, no large donations, no union donations, no corporate donations. I think that is healthy.

[Stephen Gordon]

That's actually a big reason why I'm not quite as concerned with top-end inequality as I might be if I were in the US.

[Bob Smith]

Stephen,

Out of curiosity, what is an "economic family of 2 or more"? Does that have any special meaning beyond the obvious (i.e., not single people)?

[W. Peden]

Determinant,

That sounds very healthy. Back in the 1980s (and maybe today) the Co-Operative retail chain ran a credit card system where each use of the credit card led to a Co-Op donation to the Labour party.

If Canada has made such a system work without state funding, then I think a lot of countries should look into it.

[Russil Wvong]

One comment on the HST referendum: in Greater Vancouver (where about half of BC's population lives), the key divide is between people who own a home, and people who don't. Housing prices have risen steeply over the last two or three decades, at a much faster rate than median household income. Anyone who's not a homeowner likely feels that they're falling way behind.

Kevin Milligan's observation is an excellent one: if people don't feel that they'll benefit from economic growth, they're not likely to support pro-growth policy changes.

[Mandos]

I'm obviously very much concerned with the top-end. So I'm less interested in the trivial details of taxes and transfers, within certain bounds. To me the value of such discussions is as a political object to gain support for dealing with the top end.

A lack of concern about the latifundization of the worth seems a little sanguine to me, even in a Canadian context. The top end has far more levers than trivial campaign contributions to have an outsized effect on democratic governance.

[Stephen Gordon]

Bob: Here is StatsCan's definition:

"An economic family is a group of individuals sharing a common dwelling unit who are related by blood, marriage (including common-law relationships) or adoption."

The data on Cansim are for 'economic families', 'unattached individuals' and 'all families'. For some series, they are broken down further.

[Kevin Milligan]

Hi,

Thanks for making the post Stephen. Some responses:

1) it was actually a plurality, not majority, of poll respondents who thought HST would be good for economy. Still interesting difference between the general good of economy and 'good for me' in poll response.

2) I take your point that median incomes had a good decade in the 2000s relative to the two decades before.

3) I know that poverty rates have grown most for young, single people. I wonder if leaving them out (focusing on 2+ CFs) changes things relative to looking at whole population?

4) Even if median incomes have done ok, it might depend how much people *perceive* this. Do people really think everyone is benefiting from growth? People might be mistaken, but I believe the perception is that the answer is no.

[Frances Woolley]

Stephen - I think you're a bit optimistic about the levelling off of what you call first order inequality.

First of all, there have been a lot of changes in the composition of economic families, e.g. the % of women who are neither married nor living in common law relationships increased 50% from 1981 to 2006, with all of the growth coming from women without a university degree. There are big changes in gender roles happening at the bottom end of the earnings distribution, which you don't see when you just focus on families. So I'm worried that this apparently smooth surface is hiding a lot of turbulence underneath.

Second, there's the problem of inference - just because things levelled off for a while doesn't mean that they will continue to do so.

I agree with those who say top-end inequality is a problem. Suppose that we are utilitarians, concerned with maximizing total well-being. I think we can agree that the increase in well-being that the richest people are getting as a result of any extra consumption is close to zero. There's just basically a limit to how much happiness money can buy. So from a utilitarian point of view, the consumption of the richest of the rich is basically a complete waste.

[Stephen Gordon]

It was that last point that made me think of the 'first-order' nature of the problem. We're generally satisfied with showing that total/average incomes will rise as a result of a given policy, but that's clearly not a sufficient condition for broad support.

[Kevin Milligan]

"We're generally satisfied with showing that total/average incomes will rise as a result of a given policy, but that's clearly not a sufficient condition for broad support."

I agree and, as I said to Pete McM, I think that was one of the roots of the HST 'expert' vs 'layman' problem. It's hard to sell a 'pro-growth' policy when people don't think they benefit from growth.

The best way to have a fair, just, and big economy in 2031 is to have pro-growth policies now. How do we get that done if we can't convince people they benefit from growth?

[Stephen Gordon]

Frances - I didn't mean to declare victory. And even if first-order inequality has stabilised, it has done so at a level we're probably not comfortable with. I'm still very keen on strengthening the transfer system.

[Frances Woolley]

Stephen - "We're generally satisfied with showing that total/average incomes will rise as a result of a given policy, but that's clearly not a sufficient condition for broad support.""

Yes, absolutely. Things like support for the Tea Party movement in the US make no sense until you start looking at the difference between Tea Partier wage growth and average wage growth.

It does get boring and tedious saying the same thing (GAI, GAI, GAI) over and over again, but I think that message of support for increased transfers can be lost if you don't shout it out loud and clear. And increased transfers actually don't sell as well as you might think that they do - this is the BC HST experience. Sure, people were getting an HST refund cheque in the mail, but it wasn't salient to them in the way that increased taxes were salient. Why? I don't really know.

[Determinant]

Increasing taxes and then getting a cheque from the government to make you feel better is a terrible presentation. It's bad sales and bad customer relations.

Even if you say "Low income people will get rebate cheques!!!" and you get a rebate cheque, your government has just called you are low-income or poor. That hurts. Again, it's terrible customer relations.

ISTM many of these policy debates fail to take heed of the basic lessons of customer relations. I learned my lessons working in a call centre. Now I have joined the NDP. It's all retail relationships.

I have been saying for a while now that sales and perception matters. I'm glad Stephen has jumped on my bandwagon.

[Kevin Milligan]

"Sure, people were getting an HST refund cheque in the mail, but it wasn't salient to them"

This is the part where I come close to admitting that economists fail. The HST credit is

a) named directly for the HST
b) a separate payment not buried in the tax system
c) trivially easy application (one tick-box)
d) sent out in advance, quarterly. (ie low level of liquidity issues)

That sounds, to me, like pretty much the best that we can do, salience-wise. I'm at a loss to say how we could make such a transfer more salient.

Yet, as Frances notes, a significant portion of the BC population ignored it when considering the HST. Support for HST was worst among households most likely to benefit through the larger transfer. I was yelled at during the public forums by spitting-mad otherwise-nice old ladies for suggesting that the HST credit existed, and might be enough to compensate people.

If we want to get democratic support for policies economists like, we have to figure out a way to get such people onside. That is hard.

[Eric Pedersen]

I'd say this classification system misses a pretty important category: 'bottom end' inequality; i.e.: the difference between median (or top) and low incomes. Neither first-order or top-end inequality will capture the rate at which the bottom of the income curve is flattening or stretching out. In fact, in a system with a right-skewed income distribution, you could easily have first order inequality decrease due to the lower tail moving down, rather than the median moving up, which I think would violate pretty much everyone's mental model of inequality. That leaves me suspicious that first-order inequality measures are too blunt an instrument to really understand policy effects on income distribution.

I don't actually know how the bottom tail has changed over time, but it seems important to include in any analysis of inequality and policy.

[Eric Pedersen]

As a follow-up question (since that last comment was getting a bit long): is there a major reason for focusing only on single-number summaries of inequality at all? There seems to be a pretty large amount of data on the whole distribution of income over time, and any form of aggregation would tend to wash out some effects. Are there reasons that statistical approaches like relative distributions haven't seemed to have caught on? Or are they being used for policy analysis which isn't as visible in the blogosphere?

[JL]

A paper by Milligan and Lefebvre (2005) showed that in Quebec the 5$ daycare system really helped people jump on board and seemed to have a positive impact on getting more women in the labour market. Even though a tax rebate basically brought this down to 5$ already, it just wasn't the same because they needed to save money now (not later). I think there is a concept for this that you economists use but I forget. Could the attitude towards the HST be for similar reasons?

On another note, I do think most people understand growth is good, but people are also not convinced that the "trickle down effect" will have any visible impact on them (at least not in the short run). It's too indirect. Like academics who are tired of hoping that the knowledge produced through advancing their field will end up trickling down to general knowledge and decide to engage in “public” or “applied” research : the way things are done do matter for people.

I think that’s why profit sharing policies are good for loyalty (at least they seem to be from hearsay). People need to feel that what they are doing is directly useful to them or to their goals and they are right to think so. Anyone stuck at a dead end job working their ass off to boost productivity in the hopes of getting a trickle down is alienated beyond measure in my books....

So I agree with Determinent selling the idea is key, but selling is imbeded in practice and that involves the means of delivery...

[Kevin Milligan]

Hi JL, I imagine you mean Phil Merrigan, not Milligan.

[Russil Wvong]

Kevin: "This is the part where I come close to admitting that economists fail."

That raises an interesting question: what's the role of economists in the policymaking process? I would have thought that economists would be responsible for recommending concrete policies, based on analysis of the costs and benefits. But it'd be up to political leaders to mobilize public support for them (including details such as naming, public information campaigns, etc.).

I think the BC government's big mistake was putting the question to a referendum. It seemed that the premier, Gordon Campbell, was shocked by the level of public anger, and was reacting without thinking carefully: promising a referendum, setting the threshold at 50%, and promising a sizable income tax cut (later cancelled).

Contrast this with the BC carbon tax, also a good policy on technocratic principles, but not easily comprehended by the public. This was handled in a more typical way: the government brought it in between elections; voters had two or three years to live with it; and the government survived the next election.

[reason]

"To a very great extent, the belief that most people have not benefited from economic growth is not consistent with data from the last fifteen years."

You are speaking about Canada only. Please make that clear in future.

[shan]

I'm having difficulty understanding the final two charts. Why is median income after transfers and taxes not lower than median market income in 2009? Shouldn't the sum of transfers and taxes be substantially negative at the median? Does this really mean that fully half of economic families paid no taxes net of transfers? It is hard to believe, given how much I'm paying at an income not far from there.

[Stephen Gordon]

Eric Pederson: I dunno. I just looked at the ratio of the 40th and 20th percentiles, and there's not much change. In this post, it looks as though the people in the middle of the distribution are the losers, not the bottom. And yes, the notion that inequality can be summarised by one summary statistic is somewhat problematic.

reason: You're kidding, yes?

shan: Transfers > taxes?

[Mandos]

Russell: That kind of thing, while it may or may not risk a government's re-election, sticks in the public craw for longer than you seem to realize. As it should. It makes it even more difficult to run on these policies in the future, and thus risks the democratic legitimacy of ANY of these kinds of policies.

Why do people think that it's a *good* thing to let democracy be tossed aside by ideologically-driven technocrats? It doesn't work, it doesn't create a sustainable polity.

[Robert McClelland]

Top-end inequality is very different. Firstly, it shows no sign of slowing. And since we're not entirely sure why it's happening...

Actually we know exactly why it's happening. It's because the trickle down economics policies we've been adopting don't work.

[Patrick]

I've been wondering if 1st order inequality is really about a sort of diminishing returns from technology. Bear with me ... As we replace ever more people with 'robots', it seems to get harder and harder for people to find something else to do. Trite example: Newcomen made it possible to mine more coal when available coal was a hard constraint on growth, but when you replace a book keeping clerk with a computer, and the only available option for putting the now excess labour to use is to spend lots of money and time to retrain ... well, in some sense it may be rational to bench the labour. Since people need wages to live, they really can't sit on the sidelines, so they take whatever job they can get. I can easily imagine that having lots of people scrambling to get just any job would over time make those people worse-off.

[Stephen Gordon]

Or you could tell the 'skill-biased technical change' story, in which technical change has disproportionately benefited those with higher skills. (Sometimes SBTC is hauled out to explain top-end inequality, but that's clearly not the case.)

[Frances Woolley]

Patrick - I keep on thinking back to Nick's old post "Of horses and men."

[Bob Smith]

"If we want to get democratic support for policies economists like, we have to figure out a way to get such people onside. That is hard."

In fairness, I think some of the opposition to the HST was less a function of the economics of the HST, so much as a function of the process by which it was implemented in BC. To have the government drop a major policy bombshell like that shortly after an election without given an inkling that that was a possibility in the election (and, on some accounts, after denying that it was a possibility during the election) can only be described as a massive blunder.

The contrast with Ontario is instructive - I doubt Ontarians differ significantly in their view of the implications of the HST for them from British Columbians, but there was never the same visceral anger that we saw in BC (although it helps that Ontarian politics are far less whacky than BC politics - I mean when the NDP team up with Bill Vanderzam and CUPE to OPPOSE a tax, you know something is weird). McGuinty was mid-way through his term when he implemented the HST and could plausibly say that this wasn't something that he could have contemplated in his election campaign, Campbell couldn't. BC got off on the wrong foot, and kept making mistep after mistep thereafter. Unfortunately, in terms of implementing policies, economists sort of have to work with the politicians they have - if you've got bumbling idiots trying to implement policy, that makes life hard.

[Phil Koop]

The purpose of this post is to draw attention to the extent to which much of the debate has been conducted at cross-purposes.

Then perhaps it would have been wiser not to detract from your purpose by imposing normative judgments on the two issues.

If you're more concerned with the top end, I don't see how or why I would try to convince you otherwise.

How so? This proposition seems as debatable as any in economics, and more so than most. In fact, you yourself made a start with your remarks about political funding in Canada. I don't think you believe what you are saying here.

[JL]

Oh! Merrigan yes!

[Stephen Gordon]

I don't think you believe what you are saying here.

You want to rephrase that? Because if you're going to call me a liar on my blog, we're going to have problems.

[K]

To me, rent-seeking has to be seen as a big part of the explanation. The persistence of profits across most industries but especially in areas like finance, telecom and natural resources is far too high to be explained by innovation. High earners in high rent industries extract massive rents too. Executive bonuses are frequently an order of magnitude higher than base salary, are strongly linked to general upswings in the industry (beyond the control of the executive), and somehow never drop to near zero even with abysmal performance.

If we want to address inequality an assault on rents has to be one of the principal objectives. That means structural reform of some industries to ensure high levels of competition, finding ways to tax the rents (or failing that nationalization - the horror!). Profits rightfully belong to the private sector. But *rents* belong to the public.

[Patrick]

Can't SBTC be concomitant with 'of horses and men'? e.g semi-skilled clerk is benched by computer while PhD CS nerd earns top dollar writing software to put engineers and doctors out of work?

As a CS nerd, I've always held a secret fear that the workers I've obsoleted would one day come looking for payback (Atlas Slipped and was Squished?).

[JL]

Koop: Give it break... I am left wing and think the top end is a problem as much as the next guy, but this is a good post that makes a valid point on a conceptual distinction. We don't have to go to war everytime an economist makes a normative slip on an issue we don't agree on...

[Stephen Gordon]

JL: Not helping. "Normative slip"?

[Frances Woolley]

Patrick: "Atlas Slipped and was Squished"

Love it. Perhaps this could be the new slogan for Lululemon? ;-)

[Bob Smith]

Stephen: Here is StatsCan's definition:

"An economic family is a group of individuals sharing a common dwelling unit who are related by blood, marriage (including common-law relationships) or adoption.""

Thanks. I ask because I was recently reading an article by a fellow (Terry Fitzgerald) with the Minnesota Federal Reserve Bank (
http://www.minneapolisfed.org/pubs/region/08-09/income.pdf) discussing the evolution of family incomes over the past 30 odd years. One of his points was that there is an odd paradox in US data whereby individual incomes have risen, while family incomes have seemingly stagnated. Part of his explanation for this paradox was that, the nature of the average US family has evolved since the 1970s. In 1976, 62% of American households were married couples with. By 2006 that percentage had fallen to 50%. His point was that looking at family income, without taking into account the change in family structure was problematic. If you split up a two-worker family, family income will fall in half, even though actual income has remained unchanged.

Now, his focus was on family income, rather than income inequality (although he does note in passing that, while all family groups appear to have had rising incomes, they have not risen uniformly), but you'd think that the same considerations would have an impact on measures of family income inequality, particularly if there are systematic differences in family composition amongst different income groups. Even without any change in the income distribution, if you had an increase in family break-up (or, more likely in the US, family non-formation) you'll end up with poorer familes at the bottom of the income spectrum. And if the rate of family break-up or family non-formation is not uniform over the income spectrum (for example, if marriage is more common amongst, say, college graduates, as it is by a hefty degree in the US), you could end up with, seemingly, rapidly increasing family inequality.

This might explain the seemingly rapidly rise in inequality you observe between the 1970's and the mid 1990's and the relative stability since then. I'm having a hard time finding clean data on the point, but my impression is that there was a big drop in the marriage rate (understood as the proportion of families that are either married or in common-law relationships) between the 1970s and the mid-1990s, but that drop has since steadied off (for example, between 2001 and 2006, the proportion of families that were married dropped by 2 percentage points, but the portion of common-law couples increased by 1.7% percentage points, to almost fully offset it). Moreover, while the marriage rate has stayed more or less constant for university educated woman over that time (the legal marriage rate has dropped rapidly, but common-law relationships have largely offset it), for non-unviersity educated woman, it has dropped significantly. Superficially, at least, there appears to be a story there.

[Mike Moffatt]

"Even if you say "Low income people will get rebate cheques!!!" and you get a rebate cheque, your government has just called you are low-income or poor. That hurts. Again, it's terrible customer relations."

I think there's a lot to this. I've always felt it was better if everyone, rich and poor, received the same size cheque (call it a "national dividend") and have the clawback come back through the tax system.

Example: HST rebate cheques in Ontario are clawed back at a marginal tax rate of 4%. You'd accomplish the same thing by simple raising the tax rate on that bracket by 4% and keeping all the cheques equal sized. Then you wouldn't be rubbing it in people's faces that they're low income.

[Stephen Gordon]

Bob: I dunno. Do you remember this post? The gini coefficients in the UK and Sweden also plateaued around 1995. Maybe the same story about household formation can be told there, but that would be quite a coincidence.

[Stephen Gordon]

"Even if you say "Low income people will get rebate cheques!!!" and you get a rebate cheque, your government has just called you are low-income or poor. That hurts. Again, it's terrible customer relations."

You know, I really need some sort of evidence before I buy this argument. Are low-income households insulted because they pay a lower marginal tax rate? Unless your neighbours are reading your mail and/or accessing your bank account, there's no stigma associated with receiving larger cheques from the government.

[W. Peden]

Stephen Gordon,

Perhaps the worry is that someone on $10,000 a year may not be aware that they have a low-income, and getting a rebate will make them aware of that unfortunate fact.

Presumably, it would help net happiness to send cards to those on six-figure-or-more incomes and say "Congratulations, you're rich!"

[Mike Moffatt]

"You know, I really need some sort of evidence before I buy this argument. Are low-income households insulted because they pay a lower marginal tax rate? Unless your neighbours are reading your mail and/or accessing your bank account, there's no stigma associated with receiving larger cheques from the government."

I think a larger problem is that people hear that low-income families will receive a cheque and they don't think they'll get one, because they don't believe they're low income. What's the figure - 80% of people think they're middle class?

[JL]

Stephen: sorry I was not clear I meant a normative statement "I don't think this is a problem" which involves descriptive elements but also a conception of what is or is not a problem for our society, which are normative categories. Nothing wrong with a normative statement, I said "slip" in the sense that it was "slipped in there". Unless you had no idea that was a normative statement in which case I really would call it a slip... but I doubt that is the case.

[K]

Mike: "I've always felt it was better if everyone, rich and poor, received the same size cheque (call it a "national dividend") "

Hallelujah! "Dividend" also implies a rent from ownership as opposed to "guaranteed income" which implies charity. Institutionalizes a critical principle.

Stephen: "there's no stigma associated with receiving larger cheques from the government"

Compared to a layabout landowner living off rents, I think there's a pretty broad consensus that there is some kind of moral imperative for a welfare recipient to try to get off the dole. I'm sure welfare recipients feel it. Receiving charity is demeaning for many people. On the other hand, I don't see any moral imperative for anybody to be weaned off their rightful share of the rents of the earth. Establishing a National Dividend and terminating means tested programs would also eliminate significant overhead costs.

[JL]

"Even if you say "Low income people will get rebate cheques!!!" and you get a rebate cheque, your government has just called you are low-income or poor. That hurts. Again, it's terrible customer relations."

I am also not convinced of this. I have the feeling people are only "ashamed" of being poor if it is said to their face or if they have to be visible about it (like standing in line at a food bank). I don't think receiving a cheque in the mail is very insulting. Also it is in their interest for others to believe or recognise that they should be receiving more.

[JL]

"I think a larger problem is that people hear that low-income families will receive a cheque and they don't think they'll get one, because they don't believe they're low income. What's the figure - 80% of people think they're middle class?"

That's more convincing.

[Bob Smith]

"Maybe the same story about household formation can be told there, but that would be quite a coincidence."

Would it be a co-incidence? If you think that the evolution of family structures came about as a result of a change in social norms arising from the 60s (the rise of feminism, the sexual revolution, the decline of traditional insitutions, yada, yada, yada), you'd think that it would hit all western countries at more or less the same time.

Put it another way, the fact that we see a simiar trend in the UK, Sweden and Canada would seem to rule out country specific policies (that would be a co-incidence). Instead you have to look at something that hits all western countries equally at more or less the same times. Globalization and technology are plausible candidates, but I'd think that changing societal attitudes towards marriage would be, superficially at least, and equally plausible alternative. For what it's worth, I found this study of the evolution of family patterns over the 80's and 90's (http://www.bls.gov/opub/mlr/2003/09/art1full.pdf). At least for Canada and the UK, there appears to be a levelling off of the marriage rate and the single parent family rate in the mid 1990's, although given that there are only a few data points, it's hard to say anything conclusive(there isn't as obvious a break in Sweden, but the same caveat would apply).

[Russil Wvong]

Bob: causation runs in the other direction as well. Unemployed or underemployed men make less attractive marriage prospects. Economic changes (technology, trade, inflation) which result in less income for unskilled male workers will reduce marriage rates and increase divorce rates.

(By the way, if you haven't read Tony Judt's "Postwar: A History of Europe Since 1945", I'd highly recommend it. Judt does an excellent job of describing both economic and social changes, not just political history.)

Mandos: "Why do people think that it's a *good* thing to let democracy be tossed aside?"

Anthony King calls this the "division of labor" view of democracy. The role of the voters is to choose a government; the role of the government is to govern. At election time, the voters judge the government on its overall record. Between elections, voters don't get involved in day-to-day decision-making. (This is very different from the "agency" view of democracy which prevails in the US.)
http://www.theatlantic.com/past/docs/issues/97jan/scared/scared.htm

[Mandos]

I'll tell you what the "division of labour" view of democracy is: not. "You don't worry your pretty little heads about it."

[Bob Smith]

"Bob: causation runs in the other direction as well. Unemployed or underemployed men make less attractive marriage prospects. Economic changes (technology, trade, inflation) which result in less income for unskilled male workers will reduce marriage rates and increase divorce rates."

Fair enough, causation could run the other way (although I don't recall, was their a decline in marriage rates during the Great Depression?). Still, it's interesting that the divorce laws of Canada, the UK, and Sweden (to say nothing of other developed countries) were all substantially liberalized in the late 60's early '70s. I don't think one can credibly claim that economic factors drove the entirely of the breakdown of marriage.

[Frances Woolley]

Bob Smith: "although I don't recall, was their a decline in marriage rates during the Great Depression?"

Yes, a very pronounced one.

" Globalization and technology are plausible candidates, but I'd think that changing societal attitudes towards marriage would be, superficially at least, and equally plausible alternative."

Changing attitudes towards marriage went hand in hand with changes in technology. The birth control pill. Washing machines, dishwashers, freezers, fridges, cars, etc.

[Bob Smith]

"Changing attitudes towards marriage went hand in hand with changes in technology. The birth control pill. Washing machines, dishwashers, freezers, fridges, cars, etc."

I'll concede that point (although, strictly speaking, cars, frides and washing machines all pre-date changing attitudes towards marriage, but I can accept that there would be a time lag), but the usual story isn't that income inequality is rising because of the pill, washing machines and dishwashers. The usual technology story is that technology reduced the demand for unskilled labour while increasing the demand for skilled labour. Plausible enough, but maybe technology drives family inequality through its interaction with social values.

In any event, that misses the point. To the extent that family income inequality is increasing as a result of changing family structure, that really isn't something that we can do much about (short of holding a gun to peoples heads and telling them they have to get married), nor it is something that we should care about (at least, not because of inequality, I think there is an argument that governments should want to promote two adult families, but that's a different discussion). Fitzgerald's point was that some of the apparent stagnation in family income wasn't a function of family incomes actually stagnating, it was a statistical ghost that resulted from comparing apples and bananas. I'm just wondering if that logic extends to inequality.

[Russil Wvong]

Bob: "To the extent that family income inequality is increasing as a result of changing family structure, that really isn't something that we can do much about--"

Wait, why does the cause matter? I assume that the government shouldn't be attempting to change family structure directly; but if there's more divorces and single-parent families, then poverty and inequality will increase, because it's considerably more expensive to maintain two separate households than a single household; in other words, it's not just a statistical artifact. This would suggest increasing redistribution to compensate.

One of Kevin Milligan's papers notes that child benefits make a measurable difference to child well-being (not surprisingly, given the importance of income instability as a factor in overall household stress).

[Frances Woolley]

Bob: "To the extent that family income inequality is increasing as a result of changing family structure, that really isn't something that we can do much about--"

There are substantial "marriage" (strictly speaking, cohabitation) penalties built into our tax-transfer system - if a single parent with a couple of kids and a minimum wage job marries someone else with a minimum wage job, they will see quite substantial loss of government benefits.

[Frances Woolley]

Russil Wvong: "One of Kevin Milligan's papers notes that child benefits make a measurable difference to child well-being"

Shelley Phipps and Peter Burton are big names in this area.

[Russil Wvong]

Frances: thanks for the info about marriage penalties. A quick Google search turned up this thread:
http://www.canadianmoneyforum.com/showthread.php?t=2173

In particular, the GST credit and the Canada Child Tax Benefit are calculated based on household income, not individual income.

Someone on the thread mentioned that for the most part, Canada's tax system is based on the principle of family-formation-neutrality: "tax systems should not encourage or discourage particular family forms." I wonder how much it would cost to remove the marriage penalties for the GST credit and CCTB.

[Determinant]

"I'll tell you what the "division of labour" view of democracy is: not. "You don't worry your pretty little heads about it."

Exactly. The duty of the people is to express their opinions on any given topic so that the politicians may listen. When we hold an election we hold them responsible.

Elections after confidence votes are an explicit appeal to the confidence of the people.

It is the job of parties to be the machinery that links the popular will to the policy of the government, in conjunction with the Public Service. Every cabinet minister and the Prime Minister all have partisan, political advisors and Public Service advisors and advice is provided to the Minister/PM by both.