Income Inequality, Globalization, and the Welfare State: Evidence from 23 Industrial Countries, 1990–2009

Abstract

The debate regarding the welfare state–weakening effect and the income inequality‐increasing effect of globalization remains a contentious issue among stratification scholars. For some, globalization increases income inequality, while for others, globalization has no, or a negligible, effect on income inequality. This study brings new evidence to bear on this debate by separately investigating effects of multiple indicators of globalization (international trade, foreign direct investment [FDI] and immigration), and of welfare state generosity (government social‐protection spending) on (1) income inequality before taxes and transfers and (2) income inequality after taxes and transfers, using data from 23 Organisation for Economic Co‐operation and Development (OECD) countries over 1990–2009. First, results show a positive effect of international trade, a negative effect of immigration, but no effect of FDI and government social‐protection spending on income inequality before taxes and transfers. Second, results show no effect of the globalization indicators but a negative effect of government social‐protection spending on income inequality after taxes and transfers. These findings suggest that (1) globalization has inequality‐increasing effects depending on measures of income inequality; (2) the welfare state, in many OECD countries, continues to shape income distribution; and (3) in contrast with the popular narrative, immigration may decrease income inequality.

Who Becomes a Business Owner in High-inequality Regimes? The Conditioning Effect of Economic Inequality on the Impact of Individual Educational and Financial Endowment on Entrepreneurship

“…For instance, the Gini coefficient is 24.86 in Sweden, 26.19 in Finland, 29.43 in France, 28.95 in Germany, and 37.96 in the United States. Consistent with previous research (Auguste 2018; Piketty 2014), the SWIID data show that the United States is among the leading advanced economies with economic inequality.…”

Income inequality in the post-2000 era: Development, globalization, and the state

“…Not surprisingly, welfare state retrenchment characterizes the recent experience of Western nations where inequality has been on the rise (Huber and Stephens, 2001; Korpi, 2003). Prior work on affluent nations shows that welfare generosity significantly reduces income inequality (Alderson and Nielsen, 2002; Mahutga et al, 2017), while a broader measure of government spending consistently shows negative effects, as well (Auguste, 2018; Brady and Leicht, 2008; Kollmeyer, 2015). By contrast, measures of government spending or tax revenue do not perform as well in studies featuring larger cross-national samples, displaying either no significant impact (Cole, 2015; Kerrissey, 2015; Wong, 2016) or a conditional effect (Lee, 2005a) on inequality.…”

“…Moreover, to the extent that trade liberalization increases the demand for skilled (relative to unskilled) labor, this may elevate inequality levels, as well (Alderson and Nielsen, 2002; Rodrik, 1999). However, prior research lacks consensus, as studies find that international trade either increases (Auguste, 2018; Barro, 2008), reduces (Brady and Leicht, 2008; Wong, 2016), or does not significantly impact (Cole, 2015; Kollmeyer, 2015) income inequality. Research focused on affluent nations finds that ‘Southern imports’ (i.e., imports from less developed nations) are linked to growing inequality (Alderson and Nielsen, 2002; Kwon, 2014, 2016).…”

“…Thus, another contribution of the present study will be to estimate the effect of migration in a global setting alongside foreign investment and trade. Among wealthier nations, the effect of migration on inequality remains inconclusive, with effects ranging from positive (Alderson and Nielsen, 2002) to negative (Auguste, 2018) to mostly non-significant (Kollmeyer, 2015; Kwon, 2016). Among a broader sample of nations, the anticipated effect of migration is even less clear given that the skill level of immigrants relative to the local population may vary considerably from one part of the world to another.…”

The Impact of Economic Inequality on Entrepreneurship: Does a Society’s Stage of Development Make a Difference?

“…One of the most influential accounts linking inequality and development is Kuznets’s (1955) hypothesis that income inequality increases as a country transitions to modernization, peaks at an intermediate level of development, and then decreases at advanced levels of development. However, while cross-sectional analyses have shown income inequality to be, on average, higher in less developed and developing countries than in advanced countries (Clark 2019; Nielsen 1994), recent income inequality upswings observed in many advanced economies have problematized the Kuznets proposition (Auguste 2018; Kwon and Salcido 2019; Piketty 2014). Still, research has found Kuznets’s core argument (that inequality is produced by social differentiations that are related to distinct stages of development) relevant for understanding recent trends in inequality (Clark 2019; Kwon 2016a; Milanovic 2016:50).…”