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Only the high degree of inequality in Amsterdam appears as an outlier, which is easily attributable to the much greater size of its urban population. Housing inequality in the Northern and Southern Low Countries compared fourteenth to nineteenth centuries. A more elaborate analysis of the determinants of inequality in the early modern Low Countries can be undertaken by means of an OLS regression on the Gini coefficient table 1. The Gini coefficients from towns in both the Northern and Southern Low Countries are taken as the dependent variable in the model.
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Since most variables commonly invoked in modern econometric studies of inequality are not readily available for the pre-industrial era, some perhaps rather rough proxies have been included here as independent variables instead. Population size and relative population change could be derived thanks to the data collected by Jan De Vries and Paul Bairoch De Vries ; Bairoch et al.
Population change, in this case, refers to the relative growth of the city's population size during the previous fifty years. Results from OLS regressions on the Gini coefficient in urban case studies of the Low Countries fifteenth to nineteenth centuries a. Sources : see Supplementary material, Appendices A and C. Testing for the influence of economic growth and the development of living standards is considerably more difficult since GDP per capita and real wage estimations are not generally available at the local level for all the towns under scrutiny.
Instead of using Angus Maddison's regional GDP per capita estimates Bolt and Van Zanden , I have opted for an alternative proxy for economic development: the deflated average rental value of houses. Since several studies have demonstrated how the development of housing rents in the pre-industrial Low Countries accurately reflects economic performance, this can be considered a relatively reliable proxy for per capita economic performance Van Ryssel ; Soly Real wages are more difficult to obtain for each of the case studies, since that would require price and wage series for all of the towns.
However, a comparison of the available wage and grain price series for most of the towns studied here indicates that prices and wages tended to co-vary from place to place price and wage data in Verlinden and Scholliers That is to say: where wages were lower for instance in Aalst and Kortrijk, when compared with Ghent or Antwerp , grain prices were usually lower to a similar degree a similar remark in Van Zanden Therefore, the real wage indices for the Northern and Southern Low Countries constructed by Robert Allen, and based on price and wage data from Amsterdam, and Bruges, Ghent, and Antwerp respectively can serve as an acceptable proxy.
Dummy variables have been added to look at the effect of the local characteristics of a case study: whether the town was located in the Northern Low Countries, and whether it was a maritime port city, or a capital city. A more detailed description of all the variables used can be found in the Supplementary material, Appendix.
What are the main interpretations to be derived from this analysis? Although population size appears to be a strong predictor of urban inequality levels model A , the effect can at least partially be explained by a range of related variables model B. Nevertheless, larger cities tend to have higher levels of inequality. A more diverse economic structure, but also higher levels of immigration needed to sustain larger urban population sizes in the context of low or negative urban natural demographic growth seem likely candidates to explain this effect. Since the towns under scrutiny generally tended to grow through time—and especially during the eighteenth and nineteenth centuries—this in itself partially helps to explain the growing inequality pattern established earlier.
Even though population size is a rather strong predictor of inequality in this model, the addition of a number of other independent variables nevertheless significantly improves the explanatory value of the model. Population change, which serves as a proxy for migration, does not turn out to be significant. In contrast, both the average value of houses in a town which serves as a proxy for income per capita and the real wage level are significant and produce relatively strong positive and negative effects, respectively.
Industrial Policy in the 21st Century – the Challenge for Africa
At the same time, the fact that lower wages tend to contribute to higher inequality levels perhaps helps to explain why studies are increasingly finding pre-industrial rises in inequality throughout Europe—even in the absence of economic growth. Therefore, regression equation C presents an alternative model in which both variables have been left out. This model exclusively considers the strength of the independent variables of a prior causative nature: location in the Southern or Northern Low Countries, maritime and capital economic functions, spells of pre-industrial economic efflorescence, and industrialization.
Strikingly, the dummy variable for the Northern Low Countries does not turn up as significant in the regression in either model B or C. This indicates that there were no large differences in urban inequality levels between North and South, even after the Revolt, when controlling for economic growth and real wages. Taken together, these times and places did not experience significantly higher levels of inequality when controlling for the other independent variables.
Interpreted in another way, this confirms what was also suggested by figure 3 : inequality was not significantly lower in the Southern Low Countries after the Dutch Revolt than it had been before, or than it became afterward in the North. The presence of a maritime port function seems to have had a slightly depressing effect upon local inequality levels, although this effect is no longer significant in model C.
At the very least this indicates that international trade did not exert a direct positive influence on inequality. In contrast, if a town carried the administrative or political functions of a capital city, that tended to increase the local level of inequality. This suggests that political factors had an important role to play, in both direct and indirect ways.
Lastly, the dummy variable for industrialization is significant and points to a positive effect. Thus, over and above the influence of economic growth, the mechanization of industry during the nineteenth century went hand in hand with deepening inequality. The comparison between the Northern and Southern Netherlands and the results from the regression analysis suggest that largely similar dynamics characterized the relationship between economic development and inequality in the Low Countries before and after the Dutch Revolt.
Therefore, the relative lack of economic growth in the South poses the question: what explanatory variables must be invoked to explain the similarity in the path of inequality to the Northern Low Countries? Two main explanatory factors will be considered in more detail: 1 the respective roles of labor and capital in pre-industrial economic development, and 2 the role of institutions. This means that much attention is again paid to the functional distribution of income, which is the distribution of income shares flowing to each of the factors of production within an economy, i.
Growth, Inequality and Poverty in Emerging and Transition Economies
Recently, Piketty has argued that the growth of inequality today, and the high levels of inequality before the twentieth century, can be explained by the fact that in the long term, the price of capital tends to be higher than the price of labor. The argument is not entirely dissimilar to the one put forward by Van Zanden for the pre-industrial period, since he argued that the primary cause for the growth of inequality in the early modern Northern Low Countries was the discrepancy between the falling factor price of labor i.
Yet not only the respective prices of capital and labor matter, so also do their distribution across the population. For the classical economists factor endowments presented themselves as external to the laws of economic growth, as determined by historical processes of political or otherwise extra-economic developments. Unfortunately, by neglecting the question of how these changes in the functional distribution of income influenced the personal distribution of income, this historiography has largely failed to connect to the findings of economic historians of the nineteenth and twentieth centuries.
Can the arguments about factor prices and factor endowments be invoked for the case of the Southern Low Countries—where, contrary to early modern England and the Northern Low Countries, economic growth was very slow, if not nonexistent before the end of the eighteenth century? Figure 4 shows the ratio of the real wage to GDP per capita in the Low Countries from the sixteenth to the end of the nineteenth century. At the beginning of the period under scrutiny, roughly the period —, real wages were high relative to the GDP per capita.
In fact, almost everywhere in Europe real wages were at a high point following the relative scarcity of labor resulting from the drop in population caused by the ecological and epidemiological crisis of the late Middle Ages Allen The demographic effect of the Black Death on the labor supply in the Southern Low Countries was reinforced by specific institutional arrangements. After craft guilds had gained access to urban political power around the beginning of the fourteenth century, the export-oriented textile industries in the Flemish cities became increasingly subject to corporatist organization and regulation Lis and Soly The industrial structure of the region was transformed from a low-wage economy based on a high degree of labor division to a skill-intensive export industry in which the quality of labor formed the foundation of added value and economic gains Van Der Wee Thus, the scarcity of labor relative to the stock of capital, buttressed by the emergent institutional framework of corporatism, provided for a relatively high price of labor.
Moreover, since small-scale production by independent master-artisans dominated production relations, factor endowments of capital were less unequal than they had been before. The result appears to have been a decline in inequality during the fifteenth century—confirmed at least by the case of Bruges, where a prolonged decline in inequality set in after the fourteenth century. Although the institutional context remained the same, this situation of relative equality would come under growing pressure as the second half of the sixteenth century proceeded, especially when price inflation and wage rigidity slowly undermined the purchasing power of urban wage laborers.
Unsurprisingly, this went hand in hand with an upswing in inequality in most of the towns surveyed here. What caused this gradual fall of real wages relative to GDP per capita? Spreading out from the smaller towns and the countryside from the sixteenth century onward, the production of coarser, standardized textiles destined for domestic and overseas markets gained the upper hand Van Der Wee With the decline of the urban luxury trades came the waning social and political power of the corporatist system Friedrichs ; De Munck The use of putting-out systems became increasingly common, for instance in the growing sector of urban lace production where merchant-entrepreneurs employed growing numbers of women and children at low wages Soly This economic reconversion from a high-wage luxury producer and fashion-maker to a low-cost manufacturer of export commodities did not only bring about a declining income share of labor as opposed to capital.
Dependency relations also deepened, as putting-out and subcontracting networks controlled by merchant-entrepreneurs and artisan-entrepreneurs expanded. The largest industrial export-industries became less based on the corporatist sector of production, its regulations and its political power. This wider tendency toward capital concentration is exemplified by a similar trend toward concentration in the urban real estate market. For all case studies for which we have indications of home ownership during the sixteenth and seventeenth centuries, it was clearly in decline figure 5.
By the end of the seventeenth century, the proportion of rental houses was almost nowhere lower than 50 percent of all dwellings, and in Mechelen, Ghent, or Bruges even higher than 65 percent. These trends toward capital concentration in both industry and real estate help explain why economic decline during the second half of the seventeenth and the beginning of the eighteenth centuries corresponded to deepening levels of economic inequality. Political institutions further reinforced these tendencies. The Habsburg central state implemented a fiscal system that was mostly aimed at pacification and preservation of the status quo: existing fiscal prerogatives were maintained, while the bulk of the burden was carried by regressive consumption taxes Janssens Since the tax burden increased significantly during the eighteenth century, its regressive character probably contributed to the further growth of inequality Van Isterdael During the final period considered here, roughly from to , the industries of the Southern Low Countries became rapidly mechanized.
In the urban sector, as on the countryside, tendencies toward proletarianization were increasingly clear from at least the middle of the eighteenth century onward Lottin and Soly ; Soly ; Lis and Soly The influx of an ever-growing number of wage-dependent laborers, along with the abolishment of the guild system in again eroded the wage—GDP per capita ratio. Subcontracting networks enabled considerable capital concentration in the hands of small numbers of artisan-entrepreneurs, while it reduced large numbers of urban artisans to de facto wage laborers Lis and Soly Such organizational restructuring lay at the heart of the expanding textile industries, where the manufacture of mixed linen and cotton fabrics, cotton spinning, and printing reached new heights of industrial productivity Sabbe By the last quarter of the eighteenth century, most towns counted several manufactures where large volumes of wage labor in textiles, tobacco processing, and sugar refining were concentrated in the hands of a small number of entrepreneurs Coppejans-Desmedt ; Moureaux ; Ryckbosch The same concentration of capital in fewer hands is evident from probate inventory evidence.
In Ghent, the maximum proportion of households with income-yielding invested capital declined from 31 to 20 percent between and Vanaverbeke ; Jacobs In Antwerp, this proportion fell from 32 to 24 percent in the same time period Feyaerts ; Vandervorst , and in Aalst, it declined from 57 percent in the s to 53 percent around , to 38 percent around 1,, and finally 34 percent by the s Ryckbosch Clearly, already in the eighteenth century the Southern Low Countries acquired the basic characteristics of a low-wage economy with a large and continuously growing labor force of wage-dependent men, women, and children compare Mokyr This process of proletarianization and capital concentration which continued throughout most of the nineteenth century was noted by contemporaries as well, who concluded that Belgium enjoyed lower living standards and higher degrees of inequality than, for instance, England Rowntree In a comparative perspective, nineteenth-century Belgium was characterized by extreme levels of capital concentration in the hands of both traditional aristocratic families and the newer industrial bourgeoisie Soltow ; Clark It is no surprise then that in nearly every single town surveyed here the level of inequality in was higher than it had been at any measured point before then.
This study has established how in the Southern Low Countries inequality rose during the centuries prior to, and during, industrialization.
South Africa : “Inequalities hinder economic growth”
The decline of the wage rate relative to overall average incomes and the growth in the concentration of capital ownership appear to be the two principal explanations for this tendency of rising inequality. Both depended at least partially on the institutional context. Moreover, the political institutions of the central state that rose to prominence during the seventeenth and eighteenth centuries were well placed to protect private property rights, but less geared toward the protection of labor.
Furthermore, the overwhelming dominance of regressive taxes underpinning the rise of the fiscal state reinforced existing inequalities. Thus, the high level of capital concentration at the heart of Piketty's explanation for the elevated levels of inequality in the nineteenth century was not a persistent feature of pre-industrial economies, but the result of institutional changes at the detriment of laborers and the growing share of noncapital owners in the European population during the early modern period.
In this, the Southern Low Countries was certainly not unique. Recent studies from Italy and Spain have shown that economic growth was not a pre-requisite for inequality to rise during the early modern period. The widening income gap between rich and poor thus appears to have been overdetermined, with a wide range of factors seemingly able to explain the trend in different locales: state formation, the skill premium, proletarianization, and merchant capitalism have all been suggested as probable causes.
Yet, in societies characterized by demographic growth, and without any form of institutionalized redistribution, it is ultimately little surprise that it was much easier for inequality to rise than to decline. This attestation of the growth of inequality, and its association with a declining wage share of income, suggests an alternative way out of the long-standing debate between optimist and pessimist interpretations of the early modern economy.
After all, in the context of rising inequality, it is perfectly possible for GDP per capita and probated wealth to have grown while real wages fell Angeles Nevertheless, the effect of the growth of inequality on the potential for early modern economic development remains underexplored. Galor and Moav have argued that inequality is conducive to economic growth during the initial phase of industrialization, as it promotes the concentration of physical capital Galor and Moav Although this rests on the uncertain assumption that a lack of physical capital constituted a bottleneck to industrialization, at least the example of the Southern Low Countries suggests that such a relationship between inequality and industrialization is not unthinkable.
As the earliest industrializing region on the Continent, the Southern Low Countries appear to demonstrate a stark contrast to the English case, for which precisely high wages and a relatively egalitarian social structure are assumed to have contributed to the occurrence of the industrial revolution Allen Supplementary material is available at EREH online. Oxford University Press is a department of the University of Oxford.
On the other hand, in high- and middle-income countries increases in income inequality reduce human capital. Identification of the causal effect of income inequality on aggregate output is complicated by the endogeneity of the former variable. We address this issue by estimating a panel model with country and time fixed effects. We instrument income inequality with variation in that variable not driven by GDP per capita building on the work of Brueckner et al.
Our empirical analysis is motivated by the theoretical work of Galor and Zeira Instrumental variables estimates showed that income inequality has a significant negative effect on aggregate output for the average country in the sample. However, for poor countries income inequality has a significant positive effect.
Growth, Inequality and Poverty in Emerging and Transition Economies | SpringerLink
We document that this heterogeneity is also present when considering investment — in particular, investment in human capital — as a channel through which inequality affects aggregate output. Overall, our empirical results provide support for the hypothesis that income inequality is beneficial to economic growth in poor countries, but that it is detrimental to economic growth in advanced economies.
Disclaimer: The findings, interpretations, and conclusions expressed are entirely those of the authors. Unfortunately, data on wealth inequality are not available to generate a long time-series for a large number of countries. As noted in previous empirical research e. Perotti , income inequality and wealth inequality are highly positively correlated. This article is published in collaboration with VoxEU. Publication does not imply endorsement of views by the World Economic Forum. The views expressed in this article are those of the author alone and not the World Economic Forum.
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This has increased since , showing that income inequality has risen in nearly every state. The paper looked at the income of families across the nation and assessed inequality at the state, metropolitan area and county level using data from the IRS. The incomes are averages of the IRS summaries of taxpayers in each income range. What qualifies as the top 1 percent varies by each state, and the states with the highest thresholds are California, Connecticut, District of Columbia, Massachusetts, New Jersey and New York.
This also varies depending on geography. Between the years to , the incomes of those in the top 1 percent grew faster than the incomes of the bottom 99 percent in 43 states and the District of Columbia. In nine states, the income growth of the top 1 percent was half or more of all income growth in that time period. This trend is a reversal of what happened in the United States in the years during and after the Great Depression.
From until , the share of income held by the top 1 percent declined in nearly every state.
The report from the EPI attributes that growth to a different atmosphere for workers, where the minimum wage generally was steadily rising and they were able to join unions and bargain for rights. Today, while unemployment remains low and the economy is doing exceptionally well, wage growth has remained stagnant. In those expansions since , there has been less income growth for the bottom 99 percent, said Price. As the economic recovery continues, Price said that it is critically important to continue to look at growth and specifically how it is distributed. Sign up for free newsletters and get more CNBC delivered to your inbox.