Inequality, poverty and prospects for redistribution

This paper demonstrates that poverty and inequality trends can diverge. It then discusses inequality trends and shows that, despite measurement issues, there is consensus that inequality is very high and has been rising over much of the post-transition period. Due to rising inequality within all groups, and particularly the black population, and lower inequality between race groups, within-group inequality has become the dominant form of inequality. That does not, however, detract from the fact that inequality between groups is still very large. High income inequality largely stems from inequality in access to wage income, due more to wage inequality than to unemployment. A Gini coefficient for wage income amongst the employed of above 0.60 effectively sets a floor to overall income inequality. The high wage premium to educated workers derives from a combination of a skills shortage at the top end of the educational spectrum, driving up their wages, and a surfeit of poorly-educated workers competing for scarce unskilled jobs dampening unskilled wages; if the unemployed were to find jobs, it would be in this bottom part of the wage distribution, and consequently this would not much reduce wage inequality. A continuation of the historical pattern whereby only a small segment of the population obtained good schooling would leave the structures underlying the large wage premium unaltered. The time frame for substantial inequality reduction is thus necessarily a long one, while poverty reduction efforts should not wait for this to occur.