Do social investment policies reduce income inequality? An analysis of industrial countries

Abstract

Scholars and policymakers who call for social investment (SI) policies hope that SI policies reduce income inequality and poverty, among other policy goals. Meanwhile, some others point out potentially less pro-poor effects of SI policies. There are relatively few cross-national studies that empirically examine the distributional effects of SI policies. The current study seeks to fill the gap by investigating the effects of SI policies on income inequality in OECD countries. The empirical analysis finds mixed results. Parental leave benefits reduce market income inequality, but other family support policies do not lessen inequality, and family allowances and paid leave (the length of generous leave) even increase it. The effects of some family policies are partly context-specific. In contexts where there are a large number of single-mother households, parental leave benefits reduce market income inequality. There is no stable evidence that education and active labour market policy (ALMP) reduce market income inequality. Education and ALMP, however, reduce disposable income inequality (even after controlling for left governments and Nordic countries). The article suggests that in countries with high education and/or ALMP spending, the skills of workers towards the lower end of the income distribution may be relatively high (even though their pre-tax and transfer income may be low), and it may make their income salvageable with redistributive policies. In this sense, SI policies and conventional redistributive policies may be complementary in reducing disposable income inequality.

The Interactions between Labour Market Policies and Income Inequalities in Groups of European Union Countries

“…In the sense of the significant links between LMPs and disposable income inequalities, our results are in line with the majority of previous studies (Checchi and Garcia-Peñalosa 2008;2010;Sakamoto 2021). However, given the adopted method, we were not able to distinguish between the active and passive LMPs' relationships with income inequalities or to confirm if active (Sakamoto 2021) or passive LMPs (Burniaux, Padrini, and Brandt 2006;Checchi and Garcia-Peñalosa 2008) play a more important role in tackling income inequalities to achieve social cohesion.…”

“…Most often, disposable income inequalities are considered when their links to LMPs are considered (Checchi and Garcia-Peñalosa 2008;OECD 2012). Although some active LMPs may be associated with concepts related to labour income or market income inequalities, such as motivating individuals to develop their personal qualifications and education for higher future earnings (European Commission 2017a; Romero and Kuddo 2019), there is no evidence that active LMPs reduce market income inequalities (Sakamoto 2021). We considered different income inequality measures, such as market income, disposable income, and labour income, which sustains the novelty of the analysis.…”

“…On the one hand, active LMPs result in a more elastic labour market and higher market income inequalities because of more competitive rules rewarding those who are better educated and qualified (Koeniger, Leonardi, and Nunziata 2004). Education and active LMPs, however, reduce disposable income inequality (Sakamoto 2021). On the other hand, passive LMPs may decrease income inequalities directly through social transfers for the unemployed (Burniaux, Padrini, and Brandt 2006;Checchi and Garcia-Peñalosa 2008).…”

SOS incomes: simulated effects of COVID-19 and emergency benefits on individual and household income distribution in Italy

“…Considering that workers in non-essential sectors already have lower wages and low-skilled workers usually have fewer opportunities both to work from home (Adams-Prassl et al, 2020; Bonacini et al, 2021) and to move across productive sectors (because of their lower endowment of general human capital), the risk of an increase in market and disposable income inequality once the pandemic emergency will end might become markedly concrete. Therefore, this risk might become more serious if effective structural predistributive policies (that is, social investment and active labour market policies and measures affecting labour market equilibria) and redistributive policies are not implemented and combined (Bozio et al, 2020; Sakamoto, 2021).…”

The politics of disaggregated family policy: The role of party ideology and women's political representation in governments

“…Furthermore, changes in the size of the target group affect spending levels independent of the benefit level. Instead, we relate family policy expenses to the target group (measuring spending levels per child) (Sakamoto, 2021). We divide childcare expenses by the number of children below the common school entry age of 6 years, and family allowances by the number of children and young people below 20 years.…”