Inequality


Underlying concerns with income inequality generally come from concerns of fairness.

To start with an easy scenario working up to less easy ones:

– It is fair to reward effort. So, the more hours one works, the more one should be rewarded in total.
– It is fair to reward skill and ability. So the better one is at doing one’s job (or the more specialised one is at a particular job), the more one should be rewarded.
– It is fair to reward risk taking. So the more one has at risk, the more one should be rewarded if one succeeds.

Regardless of which system one operates under, if we accept these scenarios as fair, then we will have inequality even if everyone started of on the same level. This is purely because of natural differences in people. Some will work harder, some will work better and some will risk what they have in order to see their ideas come to fruition.

How one judges skill and risk taking is a more difficult problem. In our current system for most people, reward is in terms of income and income is determined by the process of negotiation, information gathering and shopping around that we call the market. One could argue there are better ways of determining who should or should not be rewarded especially in the last two categories but I havent been able to come up with a better alternative than a properly functioning liberal democracy, a reasonable welfare safety net and an open market with targetted regulation.

So on the whole, for those reasons of fairness, I have no problems with income inequality so long as the lowest income earners are not poor and that there is equality of opportunity.

There are problems of course in our system that can be easily summed up as follows:
– It is fair to reward inherited wealth. The more one starts out with, the more one should be rewarded.
– It is fair to reward personal networks. The more connections one has, the more one should be rewarded.

But our system does try to address those problems – at least by having some notions of redistribution and inheritance taxes. And I would argue that personal networks is always going to be there anyway and should be regarded as part of skill, ability and risk taking.

An argument I do tend to hear and have struggled with in the past is the fairness of CEO salaries especially in the US where a CEO earns in excess of a hundred times an ordinary waged employee. In the US, I think this is unfair because your ordinary waged employee very likely falls into the category of the working poor (and this should be addressed by the State). But if that was not the case, I’d say that if the board of the company can fool the shareholders into risking their investments for an overpaid figurehead, then all power to them. Sure, regulation should and does exist for cases of outright fraud but in the end it is purely a private matter of fools and their money.

Inequality


The society of St Vincent de Paul has released a social policy issue paper which shows that income inequality is rising in Australia. Our gini coefficient has gone up from 0.296 to 0.309 in 5 years between 97 and 03. A more recent UN Human Development report lists our Gini cofficient as 0.352, higher even than India. On the face of it, that’s a pretty shocking statistic.

However, the thing about income inequality measurements such as the Gini coefficient is that it measures exactly what it purports to measure, the relative income of the lowest earning people compared to the highest earning people. What it doesnt measure is how relatively poor those from one country (for eg Australia) are when compared to those of another country (for eg india) and also how much effort the lowest income earners in one country have to exert to make the income that they do when compared to other countries. More controversially, it doesnt measure why these people have such low incomes.

First, I’m going to preface this entry with a statement that my argument following does not include indigenous australians especially those in the remotest areas of australia as I believe that merits a seperate focus outside of mainstream community issues.

Given that, there are three different issues that I can see:
– what are the factors behind the lowest income earners earning as little as they do?
– how much effort is required for the lowest income earners to earn as much (or as little) as they do?
– what are the living conditions of low income earners?

The first issue is one of cause. I think it is useful to see that low income comes from a combination of external and internal factors.

External factors are such things as systemic factors in the system with high entrance costs like education fees or business startup costs so that the poor are unable irregardless of talent or hardwork to break out of the poverty trap. The working poor, those forced to work such long hours that they cannot afford the time to improve themselves through further training are prime examples. These are factors that are definately the duty of the state to address. Ensuring equality of oppurtunity is essential.

Internal factors are such things as lack of ability, training, will and motivation perhaps complicated by alcohol and drug issues. Such internal factors can only be influenced indirectly if the dignity and freedom of an individual to make their own choices (and mistakes) are respected. Education (again that old liberal solution) may play a part and a better health system can certainly work but direct intervention even with the best of intentions are often morally repugnant and have severe consequences. A good case in point is the type of strategies the commonwealth government used to put in place to address aboriginal poverty back in the 50s, 60s and 70s.

As well, internal factors include different lifestyle choices. There are retirees, nomads, self-sufficient cashless communities and downshifters out there who have a home but pull the occasional beer for a living. Such people who have choosen to have a lower income than most should not be considered poor. The St Vincent De Paul report which measure household income does not make any such distintinction.

Secondly, how much effort is required for low income earners?

In a country with a social welfare system like Australia which covers the unemployed and sets a minimum wage, arguably the amount of effort for the very lowest paid is not much greater than the higher paid. I admit I do not have the statistics, and certainly I am concerned about the working poor and exploited outworkers in sweatshops. So this in one area that I’m certainly interested in – how many hours do the lowest ten percent of earners work?

Finally, what are the living conditions of the lowest income earners? With the social welfare system, provided you obey the admittedly facistic centrelink people, unemployment benefits can pay for shelter, clothes and food. Internal factors especially if drug related or involving a chronic inability to postpone gratification can certainly blow a large hole in the dole. But these are internal factors which again should be considered differently.

This brings me to the crux of my argument. I believe that a large proportion of the reasons for poverty in Australia are due to internal factors and that these are predominantly health issues and should be considered as such as opposed to ideological or economical or poltical issues. In general, people are poor in Australia because they have mental health, drug and alcohol and systemic cultural issues, not because they do not have the opportunity and certainly not because Australian society is intentionally unjust. I believe that this should be the focus when we talk about poverty and it should not be confused with a different issue such as income inequality.

Also, this is about expectations. Where is the line drawn between low income and poverty? Can low income earners in Australia be considered poor? If not, is income inequality then a problem?