Trends of Poverty and Income Inequality in Cross-National Comparison
| Published date | 01 June 2002 |
| Author | Veli-Matti Ritakallio |
| DOI | 10.1023/A:1020524522441 |
| Date | 01 June 2002 |
| Subject Matter | Article |
European Journal
of
Social Security, Volume 4/2, 151-177,2002.
©Kluwer Law International (KLI).
~rinted
in the Netherlands.
VELI-MATTI
RITAKALLlO*
Trends
of
Poverty and Income Inequality in
Cross-national Comparison
151
Abstract: Comparative research on poverty, income inequality and the effectiveness
of
income transfer systems has flourished during the last two decades, largely owing
to the contribution
of
the Luxembourg Income Study. So far, however, the majority of
comparative analyses have been based on a single year. In this paper, we have analysed
cross-national patterns
of
poverty and income inequality with special emphasis on
their stability. We examine trends in poverty and income inequality between 1980 and
1995 in nine countries representing three different ideal types
of
social policy.
The differences in poverty among the countries studied correspond with the
respective models
of
social policy more clearly in the mid-1990s than they did 15
years earlier. Generally speaking, the poverty rate is slightly under 5 per cent in the
Nordic countries, around 7.5 per cent in Central Europe, 10 per cent in Canada, 12.5
per cent in the UK, and as high as 17.5 per cent in the USA. _
In all countries included in the analysis, the primarydistribution - based on
market income - has become less equal than before. In each country, the proportion
of
the population able to achieve subsistence from the market alone has decreased
continuously. This trend is more significant than the change in actual poverty, which
means that the absolute poverty-alleviating impact of income redistribution systems
became stronger in these countries during the period 1980-1995.
The analysis
of
income inequality produced a similar picture. In comparison to
poverty, however, the change is rather less extensive. The Nordic countries, in par-
ticular, have been able to respond to the rise in market income differences so that the
income inequality for disposable incomes has hardly increased at all. Canada shows
aparallel trend. The USA and, in particular, the UK reflect a movement in the oppo-
site direction.
Trends in poverty in various population groups are analysed. By 1995 poverty
had turned into a risk for young adults in all the countries studied. The poverty rate
increased for the 18-30 age-group in all countries, while an opposite trend was
observed among the elderly, in particular those aged over 65. The poverty rate among
the elderly is now below the average population rate in all the countries studied.
*Department
of
Social Policy, University of Turku, 20014 Turku, Finland. E-mail: Veli-
Matti.Ritakallio@utu.fi.
EUROPEAN JOURNAL OF SOCIAL SECURITY
152
1. INTRODUCTION
The history of international comparative research on poverty and income inequality
is relatively short, due to the lack of commensurate empirical material. The pio-
neering work, Sawyer's comparison
of
income distribution in the GECD countries,
was published a mere 25 years ago. IThe Luxembourg Income Study (LIS) repre-
sents the most significant advance in this field. Within the LIS, an income distribu-
tion database covering over 20 countries has been compiled for use in comparative
research. This database contains national data about annual incomes (including
earnings, capital and self-employment incomes, as well as received and paid income
transfers) for 2,000-57,000 households
per
country. In addition, certain structural
characteristics are recorded for each household, e.g. type of household, place
of
res-
idence, number of wage earners, and the age, education, occupation and social sta-
tus
of
the 'principal' householder. For most countries in the database, cross-section-
al statistics on income distribution are available for several points
of
time (e.g. the
years 1969, 1974, 1979, 1986, 1991 and 1994 for the USA).
In
practice, the LIS
database provides material for reliable and flexible comparative research of issues
such as income differences, income distribution, income profile, poverty, and the
effectiveness of social arrangements in reducing income inequality. Until ten years
ago, researchers comparing welfare states had to undertake aggregate analyses
based on, for instance, the GNP share
of
social expenditure. According to Mitchell,
a larger welfare state is often a better welfare state, since the extent of total social
expenditure correlates negatively with income inequality? In principle, however, it
is possible to allocate social expenditure so that it does not reduce poverty or income
inequality. Consequently, the analyses
of
welfare outcomes and micro-level data
constitute a more reliable starting point for the comparison of welfare states.
A large number of international studies based on the LIS material have been
published in recent years. Among the most significant studies are the comparison of
income transfer systems in ten countries by Mitchell.' the comparison between
income and poverty differences in the
GEeD
countries by Atkinson, Rainwater and
Smeeding," and the international child poverty comparison by Bradbury and Jantti.>
This article reports on a comparative study
of
poverty and income inequality,
as well as the effectiveness of income transfer systems in nine countries represent-
ing three different welfare state models. The focus
of
this study is on the stability of
differences between the countries across the four cross-sectional comparisons over
M.
SAWYER,
Income Distribution in DECD Countries. OECD Economic Outlook -
Occasional Studies, (Paris, OECD, 1976).
2 D.
MITCHELL,
Income Transfers in Ten Welfare States, (Avebury,Aldershot, 1991).
3. Supra.
4A.
ATKINSON,
L.
RAINWATER
AND
T.
SMEEDING,
Income Distribution in OECD Countries.
Evidence fromthe Luxembourg Income Study, (1995 Paris, OECD).
5 B.
BRADBURY
AND
M.
JANTTI,
Child Poverty Across Industrialized Nations, UNICEF,
Economic and Social policy Series 71, (1999 Florence, UNICEF).
EUROPEAN
JOURNAL
OF
SOCIAL
SECURlTY
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