23/03 – The seminar was organized as part of the EPC Well-Being 2030 project.The seminar produced an unusually frank exchange between a representative of the European Commission’s Economic and Financial DG (ECFIN) of the (Karl Pichelmann), Trade Unions: Rory O’ Farrell, and Sian Jones from EAPN.
Whilst there was a surprising degree of consensus on the current trends on income inequality and wealth, and even on the main drivers, major differences arose when the debate moved to the solutions.
While EAPN and ETUI focused on the need to reduce income inequality through tackling the wage share gap/ and wage to profits and redistributive measures through progressive taxation/ tackling tax evasion and wealth taxation measures, recognizing the social and economic benefits of fairer society’s, the Commission focused on growth, fiscal consolidation, wage restraint and activation as the main solutions, neatly echoing the Commission and Council’s economic Governance and Pact for the Euro package discussed now at the Spring Council.
They did however recognize that they were not doing so well in convincing the public of this message, and that social rights were not being fundamentally attacked.
Summary of key points (presentations attached)
Karl Pichelmann (DG ECFIN)
Mr Pichelman provided a useful summary of the current state of play, highlighting the consensus about the rise in inequality, mainly amonst higher income groups and the link with wealth, and its key role in generating the asset bubbles of the crisis. He highlighted the key drivers as: scarcity of global labour and capital, changes in the supply and demand of skills affecting wage levels, but also recognized the key importance of the changes in the % of profit share to wages, the weakening of trade unions in defending minimum wages and the driving economics of the superstars and super rich. However, when it came to the solutions – the remedies fitted closely within current EU economic governance priorities, and did little to tackle the dynamics of inequality.. The first priority is seen as growth – then look at redistribution of its benefits afterwards. This means fiscal consolidation, but with some protection of the most vulnerable, enabling governments to project a perception of fairness and credibility. The second priority is Jobs – work is the best route out of poverty, so a focus on activation, but recognize the limitations in the current climate. It’s important to continue to ensure good welfare systems, within scare public means. See here presentation by Karl Pichelmann2011-03-23-economic-policy-forum-presentation-pichelmann.pdf .
Rory O’ Farrell (ETUI)
Mr O Farrell focused primarily on the issue of trends in wages, as a main driver in income inequality and focused on the issue of drops in wage share of the economy, since the 1970s and how it is distributed – ie the growth in inequality in the top wage earners. He highlighted the crucial role of the minimum wage, but called for more research on maximum wages – ie the top 5%. He also called for more discussion on skill-biased technological changes, as the link between these changes was not straightforward. A major focus of his presentation focused on the disagreements with the Commission’s proposals on the Pact for the Euro – which wants reduction of unit labour costs – which for ETUI is the same as wage share – ie reductions of wage levels in relation to profits and overall growth. See here presentation by Rory O’Farrell .
Sian Jones, EAPN Input
EAPN agreed with the general summary of the trends, but differed in the analysis of the causes and solutions, emphasizing how more equal societies do better, and the need for concrete actions to close the gap. EAPN emphasized the failure of growth alone and high employment rates to reduce the at risk of poverty and inequality levels – 2000-2010, and the differences between MS ie countries which had managed to reduce inequality in the same period. This shows that government policy can make a difference. When talking about poverty we needed to talk about wealth. The link between income inequality and wealth was not straightforward – ie Sweden has some of the lowest income inequality, but the highest wealth inequality. This is due to the large number of low net worth individuals (ie few people with accumulated assets) and the wealth concentrated in the hands of the few. EAPN emphasized the role of inequality in undermining social rights, increasing poverty and undermining social cohesion, but also in impact on health, crime, violence, social capital, mobility and well being, as well as the negative economic and political impact,. The main disagreement however, arises about the solutions. For EAPN, wage share, and low levels of minimum wage is crucial, but also but also closing the gap on high income earners and on redistributional systems – tax, benefits systems and services. Europe 2020 and the current economic governance package on the table has a key opportunity to take action through the crisis recovery to reduce poverty and inequality, instead of its current approach which will increase the gap. A broader question is reclaiming the concept of wealth and well-being, moving beyond GDP as a measure of social progress, and measuring the values of a more equal society promoting the common good and a better life for all. See presentation here by Sian Jones .