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Egalitarian Capitalism

Egalitarian Capitalism: Jobs, Incomes, and Growth in Affluent Countries

Lane Kenworthy
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    Egalitarian Capitalism
    Book Description:

    Declining participation in labor unions, the movement toward a service-based economy, and increased globalization have cast doubt on the extent to which welfare states can continue to stem inequality in market economies over the long-term. Does the new economy render existing models of social assistance obsolete? Do traditional welfare states hamper economic and employment growth, thereby worsening the plight of the poor? Lane Kenworthy offers a rigorous empirical analysis of these questions inEgalitarian Capitalism. The book examines sixteen industrialized countries in North America, Western Europe, and Scandinavia-each with different approaches to assisting the poor-to see how successful each has been in developing its economy and curbing inequality over the past twenty years.

    Kenworthy finds that inequality grew in almost all of these countries, from the most progressive to the least. Using simple but powerful statistical tests, he assesses the theory that inequality is necessary to improve economic growth and reduce poverty. He finds no necessary trade-off between equality and economic growth but discovers some evidence that high minimum wages dampen employment growth in private sector services. Kenworthy suggests that without greater private sector employment, public supports may be unable to adequately sustain living standards for the poor. An equitable growth strategy necessitates a balance of policy options: Creating jobs is aided by loose employment regulation, low payroll taxes, and, in some cases, lower real wages for workers at the bottom of the income spectrum. However, high employment is also facilitated by a system that "makes work pay" with earnings subsidies, workplace flexibilities, financial support for those who are between jobs or unable to work, and universal health and child care coverage. Kenworthy suggests that these strategies, though generally presented as mutually exclusive, could be effectively combined to create a robust, fair economy.

    Egalitarian Capitalismaddresses fundamental questions of national policy with rigorous scholarship and a clarity that makes it accessible to any reader interested in the alleged trade-off between social equity and market efficiency. The book analyzes the viability of traditional welfare regimes and offers sustainable options that can promote egalitarian societies without hampering economic progress.

    A Volume in the American Sociological Association's Rose Series in Sociology

    eISBN: 978-1-61044-335-7
    Subjects: Business, Economics, Sociology

Table of Contents

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  1. Front Matter
    (pp. i-xii)
  2. Table of Contents
    (pp. xiii-xiv)
  3. About the Author
    (pp. xv-xvi)
  4. Acknowledgments
    (pp. xvii-xviii)
  5. Chapter 1 Introduction: Egalitarian Capitalism in the Late Twentieth Century
    (pp. 1-12)

    Must we give up on the vision of a dynamic and productive yet relatively egalitarian form of capitalism? This is the question I seek to address in this book.

    Many people would prefer to live in a society that is not only affluent but also reasonably egalitarian. In 1999, for example, significant majorities of citizens polled by the International Social Survey Program (ISSP) said that income differences in their country were too large: 71 percent in Australia, 86 percent in Austria, 71 percent in Canada, 88 percent in France, 82 percent in Germany, 69 percent in Japan, 73 percent in...

  6. Chapter 2 Method and Data
    (pp. 13-21)

    This book explores trends in inequality, incomes, and employment across the world’s richest nations in the 1980s and 1990s. There are a variety of ways to approach the task of analyzing national-level institutions, policies, and/or performance outcomes. One approach is in-depth country case studies (see, for example, Danziger and Gottschalk 1995). A second is intensive comparison of a small number of countries (Kautto et al. 1999). A third involves using structured synthesis of the findings of case studies and/or country comparisons to draw conclusions about patterns across a larger group of nations (Scharpf 2000). A fourth approach is statistical analysis...

  7. Chapter 3 The End of Equality?
    (pp. 22-43)

    A market economy tends to generate sizable income disparities across individuals and households. In a context of free exchange, differences in initial assets, ability, power, and luck are bound to produce differences in earnings and incomes. In democratic societies, however, labor unions and political parties have traditionally mitigated the inequality generated by the market. Unions reduce pay inequality among employed individuals, and political parties implement government tax and transfer programs that redistribute income from households with high earnings to ones with low earnings.

    Among affluent capitalist nations, there is considerable variation in the degree of inequality produced by markets, unions,...

  8. Chapter 4 An Equality-Growth Trade-off?
    (pp. 44-68)

    Egalitarianism may still be viable, but is it counterproductive? That is, can low inequality be achieved only at the expense of other desirable goals? In this chapter I examine the oldest of these concerns: that equality impedes economic growth.

    There are two opposing views about the effect of income inequality on economic growth. One holds that inequality is beneficial for growth. Arthur Okun’s 1975 bookEquality and Efficiency: The Big Trade-offoffers the classic expression of this perspective: “Any insistence on carving the pie into equal slices would shrink the size of the pie. That fact poses the trade-off between...

  9. Chapter 5 An Equality-Jobs Trade-off?
    (pp. 69-93)

    In my examination of trends in inequality among working-age households in chapter 3, employment developments turned out to be a key determinant. What, then, explains employment trends in affluent countries over the past two decades? One of the most prominent explanations focuses on inequality—specifically, the degree of earnings inequality among employed individuals (rather than among households).

    Between 1979 and 2000 the share of the working-age population that is employed increased from 68 percent to 75 percent in the United States, but only from 67 percent to 69 percent in Western Europe. The average unemployment rate in the United States...

  10. Chapter 6 An Equality-Incomes Trade-off?
    (pp. 94-124)

    The analyses in chapter 4 indicated no adverse effect of low levels of income inequality on economic growth, but the findings in chapter 5 suggested that low levels of pay inequality may have impeded employment growth in the 1980s and 1990s. The asserted trade-off that is potentially most damning to egalitarians, in my view, has to do with the real income levels of those at the low end of the distribution. The focus here is on the effects of redistribution. Many welfare state critics (Friedman and Friedman 1979; Lindbeck 1995; Murray 1984; Tullock 1997) and even some supporters (Arrow 1979;...

  11. Chapter 7 Lessons from Country Experiences
    (pp. 125-145)

    Must we give up on the vision of a dynamic and productive yet relatively egalitarian form of capitalism? This is the question I set out to address in this book. The comparative analyses in chapters 3 through 6 suggest that the answer is no.

    In chapter 3, I examined developments in income inequality among the working-age population in the 1980s and 1990s. Some of the more egalitarian countries—most notably Sweden and Finland, but also Norway and Denmark—experienced employment declines, which led to increased earnings inequality among households. But this triggered an increase in government redistribution, as more people...

  12. Chapter 8 Which Way Forward?
    (pp. 146-174)

    The findings in this book suggest that low income inequality can be sustained and that it need not severely impede the growth of economic output, employment, or living standards for those at the bottom of the distribution. I suggested in the introductory chapter that a sensible contemporary vision of an egalitarian capitalist society would prioritize low income inequality, high living standards (especially at the low end), and high employment. In this final chapter, I outline an approach to egalitarianism that I believe would be particularly promising for pursuing these aims in the early years of the twenty-first century. It centers...

  13. Appendix: Variables
    (pp. 175-184)
  14. Notes
    (pp. 185-188)
  15. References
    (pp. 189-212)
  16. Index
    (pp. 213-222)