Louis Chauvel with Eyal BarHaim University of Luxembourg

Louis Chauvel with Eyal Bar-Haim University of Luxembourg Shrinking middle classes: Public policies and polarization of incomes www. louischauvel. org/espanet_2015. htm IRSEI Institute for Research on Socio-Economic Inequality louis. chauvel@uni. lu http: //www. louischauvel. org 1

The “wage earner society” French-style from expansion to backlash Former elements of “middlization” *Homogenization *Objective upward mobility *Beliefs in progress Contemporary challenges: destabilization of middle classes *New heterogeneity *Risks of downward intergenerational mobility *Anxiety 2

http: //www. louischauvel. org http: //orbilu. uni. lu/handle/10993/18773 Chauvel, L. (2014), The Intensity and Shape of Inequality: The ABG Method of Distributional Analysis. Review of Income and Wealth. doi: 10. 1111/roiw. 12161 Welfare Regimes, Cohorts and the Middle Classes http: //orbilu. uni. lu/handle/10993/7040 3

Alderson, A. S. , J. Beckfield and F. Nielsen, Exactly How Has Income Inequality Changed? Patterns of Distributional Change in Core Societies. International Journal of Comparative Sociology, 46, 405 -423, 2005. Alderson, Arthur S. and Kevin Doran. 2013. “How Has Income Inequality Grown? The Reshaping of the Income Distribution in LIS Countries. ” Pp. 51– 74 in Gornick, Janet and Markus Jäntti (eds. ). Income Inequality: Economic Disparities and the Middle Class in Affluent Countries. Stanford, CA: Stanford University Press. Dallinger, U. , "The Endangered Middle Class? A Comparative Analysis of the Role Public Redistribution Plays", Journal of European Social Policy, 23(1), 83– 101, 2013. Mau S. (2012) Lebenschancen. Wohin driftet die Mittelschicht? Suhrkamp Verlag (Frankfurt/M). 4

0. The central question : different shapes of inequality & the middle classes 1. 2. 3. 4. 5. 6. A new methodological tool: the isograph Data : LIS microdatasets of 25 western countries Empirical changes of isograph shapes Impact of changes : simulations A typology of inequality shapes and the middle classes Conclusions : earnings, redistributions, public policies and the interests of the middle classes 5

The strobiloid = graphing changing shapes 6

The German Strobiloid 2010 representation of income distribution Lawyers Medical docs Managers… Engineers Nurses Indust. workers Shop assist. School Teachers Upper middle class Drivers Cleaning laborers

Previous results: Gini is a convenient but very imperfect measure of inequality (a-unable to show the shape of inequality b- bad representation of the lower strata situation) Questions: 1 - Can we improve the existing tools to understand middle classes problems? 2 - Is there a single middle class policy or a diversity of policies? (with diverse consequences for the middle classes? ) 3 - Are these diverse policies empirically relevant? (do we detect cases? ) [4 - What is the role of primary incomes (earnings+capital inc) distribution and the one of redistribution] 8

The interests of the middle class: • Higher incomes => find resources to redistribute (=tax the rich, f. ex. ) (lower Gini is good but the poor can benefit even more…) • Higher “density” => homogeneity of middle class is politically good (lower Gini is good, in general) • Lower distance with the rich => can compete for consumption (lower Gini is good in general) • Higher distance with the poor (come on, who will iron my shirts? ) 9

0. The central question : different shapes of inequality & the middle classes 1. 2. 3. 4. 5. 6. A new methodological tool: the isograph Data : LIS microdatasets of 25 western countries Empirical changes of isograph shapes Impact of changes : simulations A typology of inequality shapes and the middle classes Conclusions : earnings, redistributions, public policies and the interests of the middle classes 10

1 - From Pareto log-log to Pen’s Parade, and to logit-log Ø Consider log(M) where M is the “medianized” eq income Ø Logit-rank=log (p / (1 - p) ) where p is the “fractional rank” ( 0 < p < 1) Ø We graph ln(M) by logit(p) => “almost” a straight line Y=Ln(M medianized income) If this is a perfect straight line a = Gini index (Dagum 1975) X=Logit-rank Logit (p) 11

Logit-Rank & Applications Ø Logit-rank transformation is a convenient tool to transform ordinal variables in ]–infinite ; + infinite[ standardized distribution Ø In the context of distributional analysis, it provides a “net of distributional change” relative reference position of individuals and of groups Ø It is more convenient than percentiles levels [between 0 and 1] that present border issues Ø Useful in income volatility analysis and in contexts where “positional” aspects are central 0 is median 2 is close to top decile 4 is close to top 2% … 12 1 is close to top quartile 3 is close to top vingtile 5 is close to top 1%

The Isograph = slope on the CF Graph = local inequality The stronger the slope, Y=Ln (medinc) (1) The higher local inequality (2) Isograph = Slope ISO = Y/X a (4) (3) g>0 b>0 X=Logit(fr) (1) Higher inequality at the top b>0 (2) Lower inequality at the top b<0 (3) Higher inequality at the bottom g>0 (4) Lower inequality at the top g<0 13

0. The central question : different shapes of inequality & the middle classes 1. 2. 3. 4. 5. 6. A new methodological tool: the isograph Data : LIS microdatasets of 25 western countries Empirical changes of isograph shapes Impact of changes : simulations A typology of inequality shapes and the middle classes Conclusions : earnings, redistributions, public policies and the interests of the middle classes 14

2 - Data and measurements : • Data : Lis source of medianized equivalized disposable income after tax and transfers (09/07/2015) • From 241 country/year samples => 25 western nations with 1990 s’ and 2000 s’ samples 15

0. The central question : different shapes of inequality & the middle classes 1. 2. 3. 4. 5. 6. A new methodological tool: the isograph Data : LIS microdatasets of 25 western countries Empirical changes of isograph shapes Impact of changes : simulations A typology of inequality shapes and the middle classes Conclusions : earnings, redistributions, public policies and the interests of the middle classes 16

The strobiloid = graphing changing shapes 17

The isograph = graphing local level inequality 18

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0. The central question : different shapes of inequality & the middle classes 1. 2. 3. 4. 5. 6. A new methodological tool: the isograph Data : LIS microdatasets of 25 western countries Empirical changes of isograph shapes Impact of changes : simulations A typology of inequality shapes and the middle classes Conclusions : earnings, redistributions, public policies and the interests of the middle classes 21

The isographs of 3 public policies Distribution of 8% of the GDP, initial Gini = 35%, final Gini = 30% Initial distribution , Gini = 35% Policy 1, homothetic equalization Gini = 30% Policy 3, median un-friendly Policy 2, median friendly and anti-poor 22

Gains and losses of Policy 2, median friendly 3 public policies and anti-poor Compared to the initial distribution, Gini = 35% Policy 1, homothetic equalization Gini = 30% Policy 3, median un-friendly 23

Policy 3, median Policy 2, un-friendly median friendly and anti-poor Density changes of 3 public policies Compared to the initial distribution, Gini = 35% Policy 1, homothetic equalization Gini = 30% 24

0. The central question : different shapes of inequality & the middle classes 1. 2. 3. 4. 5. 6. A new methodological tool: the isograph Data : LIS microdatasets of 25 western countries Empirical changes of isograph shapes Impact of changes : simulations A typology of inequality shapes and the middle classes Conclusions : earnings, redistributions, public policies and the interests of the middle classes 25

hv Average isographs of a typology of 25 countries early 1990 s’ and in the 2000 s’ 5 4 3 2 1 26

Moving countries of the typology of 25 countries early 1990 s’ and in the 2000 s’ 27

6 - Conclusion A – Distribution analysis is even more complicated than previously thought B – Declining Gini is good, in general, for the middle classes C – Important degrees of freedom exist for middle classes development (or decay) D – Countries with similar Gini indexes may have significantly different shapes E – The income distribution models are relatively stable over time F – Changes in the typology exist (towards more inequality) G – Further research will focus on the role of primary incomes and on redistributions 28

Isographs of before/after Redistribution in 23 countries in the 2000 s’ 29