Maart 2015 - Vitality Runners Vlaardingen

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Economic
inequality
in the Netherlands
in 8 figures
1 Comparedwithothercountries,income
inequalityisrelativelylowintheNetherlands
Economic inequality is high on the
international political and academic
agenda. How does the Netherlands
perform in terms of economic
inequality and its consequences?
And what might be done to improve
The degree of inequality in the income distribution – measured using the Ginicoefficient – varies widely from country to country, as figure 1 illustrates. If we look
at the oecd statistics, the Netherlands occupies a middling position in Europe. It is
not so unequal as the us or the uk, but is more unequal than countries which the
Netherlands often regards as its ‘equals’, such as Denmark or Belgium. If we look
at the most recent figures from the leading cross-national data centre Luxembourg
Income Study (lis), income inequality in the Netherlands is relatively low.
that performance? These questions
are addressed in this factsheet in
8 figures.
Figure 1:
Income inequality in different countries: disposable household incomes,
measured using the Gini-coefficient, 2010
Gini-coefficient oecd
Gini-coefficient lis
0.40
0.35
0.30
The Netherlands Scientific Council for Government Policy (wrr) serves as an independent
advisory body for the Dutch government. Its task is to provide sound information on
developments that may affect society in the long term, to identify obstacles and problems
and to provide new perspectives and policy alternatives.
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This factsheet is based on the wrr publication ‘Hoe ongelijk is Nederland? Een verkenning van
de ontwikkeling en gevolgen van economische ongelijkheid’ (‘How unequal is the Netherlands?
An exploration of the development and consequences of economic inequality’), M. Kremer,
M. Bovens, E. Schrijvers and R. Went (eds.). Amsterdam: aup, 2014.
Translation factsheet: Julian Ross, Carlisle, uk.
© wrr 2014 | Source: oecd 2013, lis (www.lisdatacenter.org)
2 But the gap between the top and
bottom 10 percent is widening
3 Gross median household income is
stagnating; new vulnerable groups
Measured using the Gini-coefficient, income differentials in the Netherlands widened
in the 1980s, after which they stabilised. One limitation of this measure of inequality is
its heavy emphasis on changes around the middle. Consequently, income inequality is
increasingly compared using other measures, such as the gap between the average income
of the highest and lowest 10 percent of the income pyramid. According to calculations by
Salverda (2014), this gap has widened in the Netherlands since 1985.
The growth in this income inequality is due in part to increasing
pay differentials (De Beer 2014). Developments on the labour
market, such as increasing use of technology and globalisation,
play a role here. These developments mean that, as in the us, gross
median household income in the Netherlands, i.e. the income
of most households before deduction of tax and social security
contributions, is stagnating. In addition, there are new and existing
categories of workers in the Netherlands who are at greater risk
of ending up at the bottom of the income ladder, such as single
earners and a proportion of the 800,000 self-employed workers
(Salverda 2014, De Beer 2014).
Figure 2: Standardised income inequality: S10-S1 ratio versus Gini-coefficient,
The Netherlands, 1977=100, 1977-2011
160
Figure 3: Median gross household income in the Netherlands and the us, 1977-2012
120
140
110
120
100
100
90
S10 : S1
us
Netherlands
© wrr 2014 | Source: Salverda 2014, cbs
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
80
1977
1981
1985
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
80
Gini-coefficient
© wrr 2014 | Source: Salverda 2014, us Census and cbs
4 Redistributionthroughtaxandsocial
securitysystemlargelycompensates
for(gross)incomedifferentials
Figure 4 shows that, without government intervention,
the Gini-coefficient in the Netherlands (in the middle of
the 2000s) would have been 0.57, just as high as in the us
at that time. However, thanks to the welfare state, the
secondary income distribution (the distribution of net
incomes) is a good deal less unequal in the Netherlands:
the redistributive mechanisms of tax and social security
take the Gini-coefficient in the Netherlands down to
0.33 compared with 0.42 in the us.
Figure 4: Income inequality and redistribution via tax and social security in
different countries, early to mid-2000s
Gini-coefficient after tax and social security
Gini-coefficient before tax and social security
us
Canada
uk
Ireland
Australia
Norway
Sweden
Finland
Denmark
Netherlands
Germany
Switzerland
Austria
Spain
Japan
Korea
Taiwan
0.00
0.42
0.38
0.41
0.35
0.38
0.37
0.33
0.35
0.33
0.33
0.36
0.31
0.47
0.33
0.38
0.33
0.49
0.37
0.44
0.36 0.42
0.10
0.20
0.30
0.40
0.57
0.55
0.63
0.63
0.55
0.57
0.57
0.58
0.56
0.57
0.60
0.55
0.57
0.50
0.60
0.70
© wrr 2014 | Source: Cassidy 2013, Gornick, based on most recent lis datasets
There has been a marked increase in this redistribution in the
Netherlands in recent decades (Caminada et al. 2014). In 2012,
redistribution through the tax and social security system reduced the
primary income inequality by 49 percent, compared with 45 and 41
percent, respectively, in 2001 and 1990. This increase in redistribution
is accounted for largely by redistribution of income among the
growing group of older persons, aged over 65; the redistributive
effect of the state pension system (aow) is very strong in the
Netherlands. For those of working age (15-65 years), redistribution
by the government has not increased in recent decades.
5 Wealth in the Netherlands: much more
unequally distributed than income
E co n o m i c i n e q u a l i t y concerns
not just income, but also wealth.
As in other countries, wealth in
the Netherlands (the value of
people’s assets) is more unequally
distributed than income. This is
illustrated in figure 5.
According to this figure, the wealthiest 10 percent of the
population own more than half (61 percent) of the total
wealth in the Netherlands. The top 2 percent within this
group actually hold no less than a third of that wealth,
while the lowest 60 percent of the Dutch population
together hold 1 percent (rounded off) of the total wealth.
The middle groups in Dutch society have relatively little
wealth, partly due to the extensive welfare state, and it is
primarily the lowest decile who have debts. In international
perspective, wealth inequality in the Netherlands is on the
high side (Van Bavel 2014).
Figure 5: Distribution of net household wealth across
ten deciles (based on wealth), The Netherlands,
1 January 2012
70
61
60
percentage (%) of total wealth
50
40
30
19
20
12
7
10
-4
0
0
0
1
1
2
3
4
5
3
0
6
7
8
9
10
© wrr 2014 | Source: Van Bavel 2014, cbs
6 Social consequences of economic inequality:
less social and political trust
According to the now famous book The Spirit Level by
Wilkinson and Pickett (2009), a high level of income
inequality has negative effects for everyone, not just
for the lower income groups. This is because income
inequality has psychosocial effects as well as material
effects. When there is pronounced inequality, people
constantly compare themselves with others, giving
rise to ‘social evaluation anxiety’ (see interview with
Wilkinson, Kremer and Schrijvers 2014).
Figure 6 shows that not all the social consequences found by Wilkinson and Pickett remain intact after
extensive (European comparative) research: high income inequality does not have an immediate
adverse impact on criminality or social participation, for example. High income inequality does
however lead to reduced upward social mobility and less social trust: greater economic distance
also implies greater social distance. Moreover, trust in political and other institutions declines
across the whole population, and especially trust in constitutional democracy and parliament. It is
striking to note that this process is more pronounced at the upper end of society than in the lower
echelons (Van de Werfhorst 2014).
Figure 6: Social and political consequences of income inequality
High income inequality
Views on democracy,
Euroscepticism
Status anxiety
Political participation
Mental health
Social and
institutional trust
Psychosocial effects: trust,
stress, interpersonal
comparison
Personal subjective
well-being
No robust effects: subjective
health, criminality, family
formation, social
participation
Physical complaints
Social mobility
Quality of housing
Resources distributed more
unequally among members
of society
© wrr 2014 | Source: Van de Werfhorst 2014
7 Economic consequences
of inequality: less growth?
There are indications that high economic inequality
also has a negative impact on economic growth.
Several mechanisms have been identified which
could plausibly cause income inequality to hold back
economic growth, though there is as yet no consensus
on this among economists. Figure 7 contains a
schematic representation of four mechanisms which
are cited in the international literature as means
by which high income inequality could impede
economic growth.
Not every mechanism necessarily has the same effect
everywhere and at all times (or in the same degree), and
the first two mechanisms in the figure (underconsumption
and private debt) can also (temporarily) work against each
other. There are also indications that lower economic
growth is not conducive to stabilising or reducing income
inequality, and can therefore exacerbate the effects of
the four mechanisms; the dotted line in the figure refers
to this process (Went 2014).
Figure 7: How income inequality could hold back economic growth
Underinvestment
in human capital
Underconsumption
Private debt
Political lobbies
More income to the
top; less propensity
to consume; more
luxury goods
Consumption
sustained despite
stagnating or falling
income by borrowing
or addressing savings
Increase in share in
income of 10%, 1%
(or 0.1%)
Fewer resources for
investments in
education, own
business, health
Less effective
demand (and
innovation); greater
instability
Less consumption
when debts are
repaid or inability to
borrow further and
save more
More resources for
lobbies/donations
to sustain existing
situation
Reduced increase in
human capital
Less economic growth
© wrr 2014 | Source: Went 2014
Figure 8: Predistribution and redistribution
Predistribution
Whether economic inequality is too high or too low is a political judgement. Those
wishing to reduce economic inequality generally look at redistributive instruments.
According to De Beer (2014) and Salverda (2014), for example, existing policy could
focus more on the needs of workers at the bottom end of the labour market, such as
single earners and (some) self-employed persons, for example via an earned income
tax credit. Another example is the suggestion to tax income from wealth more and
income from employment less (Van Bavel 2014).
However, more attention could also be devoted to ‘predistribution’: an attempt to
reduce pay differentials on the labour market, rather than ‘repairing’ them afterwards
through the tax and social security system. Particularly in countries with a strongly
redistributive income policy, such as the Netherlands, there are grounds for asking
whether it is desirable and effective to compensate even further for a skewed
distribution of gross pay through the tax and social security system. Figure 4 above
shows that the secondary income differentials (the amount of money people have in
their wallets) are the same in Japan as in the Netherlands (both countries have a Gini
coefficient of 0.33). However, the differentials in gross pay are less marked in Japan than
in the Netherlands (0.49 compared with 0.57), so that less redistribution is needed.
· Pay agreements
· Consumer pressure
· Profit-sharing at companies
Redistribution
· Income tax
· Wealth tax
· Tax credits
· Social security
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Income inequality
8 Economicinequalitycanalsobe
reducedthroughmorepredistribution
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© wrr 2014 | Source: Kremer, Bovens, Schrijvers, Went 2014
In practical terms, predistribution could be achieved
through statutory pay regulations (minimum
wages and capped top rates of pay) and collective
bargaining negotiations (in which representatives
of employers and employees play a crucial role),
or by reforming companies (for example to create
associations and co-operatives), or through consumer
pressure (consumers could for example deliberately
choose products made by companies with low pay
differentials). Economic inequality is thus not only a
matter for the government.
References
Bavel, B. van (2014) ’Vermogensongelijkheid in Nederland. De vergeten dimensie’, in M. Kremer,
M. Bovens, E. Schrijvers and R. Went (eds.) Hoe ongelijk is Nederland? Een verkenning
van de ontwikkeling en gevolgen van economische ongelijkheid, Amsterdam: aup.
Beer, P. de (2014) ‘Groeiende beloningsverschillen in Nederland’, in M. Kremer, M. Bovens,
E. Schrijvers and R. Went (eds.) Hoe ongelijk is Nederland? Een verkenning van de
ontwikkeling en gevolgen van economische ongelijkheid, Amsterdam: aup.
Caminada, K., J. Been, K. Goudswaard and M. de Graaf-Zijl (2014) De ontwikkeling van
inkomensherverdeling in Nederland 1990- 2012. Department of Economics Research
Memorandum 2014.02, Leiden : Leiden University.
Cassidy, J. (2013) ‘American inequality in six charts’, The New Yorker. 18 November. Available on:
www.newyorker.com/online/blogs/johncassidy/2013/11/inequality-and-growth-what-dowe-know.html.
Kremer, M., M. Bovens, E. Schrijvers and R. Went (eds.) (2014) Hoe ongelijk is Nederland? Een
verkenning van de ontwikkeling en gevolgen van economische ongelijkheid, Amsterdam: aup.
Kremer, M. and E. Schrijvers (2014) ‘Waarom inkomensongelijkheid nadelig uitpakt voor
iedereen. Een gesprek met Richard Wilkinson’, in M. Kremer, M. Bovens, E. Schrijvers
and R. Went (eds.) Hoe ongelijk is Nederland? Een verkenning van de ontwikkeling en
gevolgen van economische ongelijkheid, Amsterdam: aup.
oecd (2013) Crisis squeezes income and puts pressure on inequality and poverty. New Results from
the oecd Income Distribution Database. Paris: oecd.
Salverda, W. (2014) ‘De tektoniek van de inkomensongelijkheid in Nederland’, in M. Kremer,
M. Bovens, E. Schrijvers and R. Went (eds.) Hoe ongelijk is Nederland? Een verkenning
van de ontwikkeling en gevolgen van economische ongelijkheid, Amsterdam: aup.
Went, R. (2014) ‘Inkomensongelijkheid en groei’, in M. Kremer, M. Bovens, E. Schrijvers
and R. Went (eds.) Hoe ongelijk is Nederland? Een verkenning van de ontwikkeling en
gevolgen van economische ongelijkheid, Amsterdam: aup.
Werfhorst, H. van de (2014) ‘Politieke en sociale gevolgen van inkomensongelijkheid’, in M.
Kremer, M. Bovens, E. Schrijvers and R. Went (eds.) Hoe ongelijk is Nederland? Een
verkenning van de ontwikkeling en gevolgen van economische ongelijkheid, Amsterdam: aup.
Wilkinson, R. and K. Pickett (2009) The Spirit Level. Why Equality is Better for Everyone. London:
Pinguin Books.
wrr | Buitenhof 34 | P.O. Box 20004 | 2500 EA The Hague | The Netherlands | Tel. +31 70 356 46 00 | www.wrr.nl
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