(Note that all changes by income group in these three countries are quite ... As shown in Table 5, unemployment rose in all but one of our eleven ..... Income Inequality, Party Polarization, and Roll-Call Voting in the U.S. Senate. ... Labour Market Risk and Welfare State Support â Presented at the ECPR Graduate Conference,.
The impact of the Great Recession on public preferences for redistribution in Western Europe
Jan Rosset (Université de Lausanne) Jonas Pontusson (Université de Genève)
paper prepared for presentation at the Annual Meeting of the American Political Science Association, Washington D.C., August 29, 2014
very rough draft
Relying on data from European Social Surveys of 2008 and 2012, this paper engages in an exploratory analysis of the impact of the Great Recession on public support for redistribution in eleven West European countries.
As commonly recognized, the Great Recession was the most severe
contraction of GDP that Western Europe (and indeed the world economy as a whole) had experienced since the Great Depression of the 1930s.
Among the eleven countries included in our analysis,
unemployment rose very sharply from 2008 to 2012 in Spain, Ireland and Portugal, but quite modestly elsewhere. (In Germany, unemployment actually fell). Despite the fact that the initial financial crisis adversely affected the high-income households, the Great Recession accelerated the rise of income inequality, measured before taxes and transfers, in most countries. To some extent, tax-transfer systems offset the jump in income inequality during the first three years of the crisis, but we also observe significant increases in disposable income inequality in many countries. With unemployment risk and inequality featuring prominently in recent literature on the determinants of public support for redistribution, the Great Recession provides an opportunity to explore the impact of changes in these (macro-level) variables. Not only did unemployment and inequality change suddenly, but the extent of these shocks vary significantly across countries. We are aware of only two studies that have analyzed the evolution of public support for redistribution since the onset of the Great Recession: Brooks and Manza (2013) analyzing US data and Soroka and Wlezien (2014) analyzing British data.
Both studies indicate that average support for
redistribution did not change in the face of the shocks associated with the Great Recession. One of the motivations behind our paper is to assess whether these findings hold for a larger sample of OECD countries. If that were to be so, it would seem to constitute a rather major challenge to core assumptions in the literature on the political economy of redistribution. Like many existing studies of individual preferences for redistribution (citations to be added), our indicator of support for redistribution is based on ESS question that asks respondents whether or not they agree with the proposition that “the government should take measures to reduce differences in income levels.” The ESS provides five response categories to choose from: “agree strongly,” “agree,” “neither agree not disagree,” “disagree” and “strongly disagree.” It is commonplace in the existing literature to
1
collapse the categories “agree” and “strongly agree” into a single binary indicator of support for redistribution (which is then used as the dependent variable in probit models with individual-level and macro-level determinants of support for redistribution). Here we focus instead on the percentage of survey respondents who strongly support redistribution. In light of the fact that huge majorities of West Europeans (often more than 75%) either support or strongly support the proposition that the government should take measures to reduce income inequality, strong support for redistribution is arguably a politically more meaningful indicator of support for redistribution.1 Following Rehm, Hacker and Schlesinger (2012), we are interested not only in how the crisis has affected average support for redistribution or the preferences of the “median voter,” but also in its impact on the distribution of support for redistribution across income groups.
To the extent that rising
unemployment primarily affected low-income households, and thus generated rising income inequality, one might reasonably expect to observe some degree of polarization of preferences over redistribution or, in other words, a strengthening of the (individual-level) association between income and support for redistribution in the wake of the crisis. The empirical evidence presented below represents something of a challenge for a prominent, perhaps the dominant, interpretation of the crisis experience of 2008-12 among comparative political economists.
Studies of government responses to the crisis have emphasized the paucity of policy
initiatives to offset the inegalitarian impact of the crisis and, in particular, the fact that governments staid the course with respect to (“recommodifying”) reforms on unemployment insurance enacted in the 5-10 years before the crisis hit (e.g., Pontusson and Raess 2012, Rueda 2014). In seeking to explain this pattern, it is commonplace to invoke the process of the “dualization” (of welfare states as well as labor markets) that has been identified either as a pervasive trajectory of advanced capitalist political economies (King and Rueda 2008) or, alternatively, as a distinctive trajectory of the coordinated political economies of continental Europe (Thelen 2014). Crudely put, the stylized “story” behind many accounts of the politics of the recent crisis seems to be the following. Unemployment has largely been concentrated among low-skilled and low-paid labormarket outsiders. Insiders have been well protected by employment laws and other forms of social protection. As predicted by the literature on preferences for redistribution, outsiders have become more
2
supportive of redistribution during the crisis, but insiders have not. Catering primarily or exclusively to the insiders or, in other words, middle-income and high-income voters, governments have desisted from engaging in compensatory redistribution. That was the story we expected to confirm when started working on this paper. What we found amounts to a quite different story. To anticipate, the data presented below indicates that low-income earners have not become more supportive of redistribution in the wake of the crisis. On the other hand, we observe significant increases in support for redistribution among middle-income and high-income groups in a number of countries, notably the countries in which unemployment rose most sharply during the crisis.
In countries where average support for redistribution has increased, polarization of
redistributive preferences by income has diminished. In due course, we will also present some evidence suggesting that policy outputs in the first three years of the crisis did respond to rising support for redistribution among middle-income citizens. The paper unfolds as follows.
Section 1 very briefly reviews some of the literature on
determinants of support for redistribution. Section 2 describes changes in support for redistribution from 2008 to 2012 in the eleven countries included in our analysis.
Section 3 explores the impact of
unemployment (and changes in the distribution of unemployment risk) on support for redistribution. Section 4 describes what happened to inequality during the early years of the crisis and explores the implications of inequality for support for redistribution. Section 5 explores relationship between changes in public opinion and changes in redistributive policy outputs. Section 6 concludes.
1. Literature review
The recent comparative literature on preferences for redistribution puts forward mainly two broadly defined factors that can explain differences in preferences for the welfare state across specific contexts: economic inequality and economic risk. First, regarding inequality there is a long tradition in political economy considering that individuals’ relative income will be determinant for their preferences with regard to redistribution. This individual-level reasoning has consequences for differences in aggregate
3
preferences depending on macro-level conditions. As inequality increases, incomes are more concentrated among the top of the income distribution and as a consequence a greater share of the population (assuming that tax rates are not regressive) would benefit from redistributive policies. This idea has been formalised by Meltzer and Richard (1981) in a model that puts forward the distance between average income and the income earned by the median voter as a decisive factor for the preferences of the electorate. While this model provides a strong case for the claim that greater inequality leads to higher levels of redistribution, it finds little support in empirical studies (see e.g. Kenworthy and McCall 2008; Kelly and Enns 2010; Finseraas 2009). As a result, several alternative propositions or refinements of this general framework have been put forward to explain the relationship between inequality and preferences for redistribution. In particular, it seems that more than the level of inequality, the structure of inequality (i.e. whether there is more dispersion in incomes in the lower than in the upper halves of the income distribution) is crucial for the preferences of the median voter (Lupu and Pontusson 2011). Another reason for the lack of clear association between inequality and redistribution is that redistributive policies that generate greater economic efficiency for the society as a whole will tend to be almost unanimously supported when income inequality is low but less so when inequality increases as richer citizens will start to individually lose from these policies (Bénabou 2000). Beyond the level of average support for redistribution, economic inequality is expected to have an influence on the polarization of policy preferences. In line with the literature arguing that legislators (McCarthy et al. 2006) or political parties (Pontusson and Rueda 2008) tend to be more polarized in more unequal settings there is also some evidence that the public hold more polarized policy preferences in contexts where income inequality is high (Garand 2010). This observation could be explained by what is at stake in redistribution: in contexts where income inequalities are low the benefits or losses one can expect from redistribution are limited and, therefore, polarization of public opinion will likely be smaller than in economically more equal settings. However, in this case also, comparative research is not unanimous regarding the presence of an association between inequality and polarization of the preferences of the public (see e.g. Finseraas 2009) Second, the literature on risk in a comparative perspective has mainly focused on unemployment as a major source of economic risk in industrialised countries. It has considered the risk of unemployment
4
both in terms of the objective likelihood of losing one’s job as measured by the unemployment rate in a specific occupation (see e.g. Cusack, Iversen and Rehm 2006; Rehm 2009) and in terms of the risk of not finding a job should the risk of being unemployed be realised (Iversen and Soskice 2001). The idea that the risk of unemployment plays a role in opinion formation is quite intuitive: individuals who perceive that they face a risk of income loss due to unemployment will be more favourable to the welfare state as prosocial policies will play out as a buffer against the risk of losing income. While this mechanism is expected to play a role at the individual level, it has consequences at the aggregate level as well. For instance, Iversen and Soskice (2001) theorize that cross-national differences in skill specificity across nations and the resulting differences in average risk of losing income (because of the risk of not finding a job corresponding to one’s specific skills) results in cross-national differences in support for redistribution and ultimately public policy. Cusack, Iversen and Rehm (2006; 2008) argue that economic shocks producing an increase in unemployment will increase economic risk and thus boost average demand for redistribution. In a similar manner, Ansell (2014) considers that home ownership constitutes a private insurance against a loss of income. Therefore, the evolution of housing prices will have an impact on owner’s preferences for redistribution. In sum, these various perspectives point to the fact that an increased economic insecurity will be associated with higher demand for redistribution. Further, the effect of macro-economic risk does not only depend on its level, but also its distribution. Income and the risk of losing it being two of the main drivers of self-interested political attitudes, how risk is distributed across income groups is likely to affect the conditions for opinion formation at the individual level and aggregate policy preferences. In a recent contribution, Rehm, Hacker and Schlesinger (2012) combine both the income and risk determinants of support for the welfare state and suggest that in contexts where low-income and high risk individuals represent two distinct groups, support for redistribution will be higher than if unemployment risk is concentrated among the poor. Empirically, their analysis relies on a measure of correlation between income and occupational unemployment rate with the idea that if these two measures are less strongly associated with each other, support for redistribution will be on average higher. A similar argument has been advanced by Kurer (2014) who shows that in European democracies unemployment risk is particularly influential for the opinion formation of middle and high income groups and argues that if unemployment risk also impacts
5
these groups the average level of support for redistribution will rise. This line of reasoning also implies that if unemployment risk increases in the same proportion among all income groups, polarization will decline as richer individuals will be particularly sensitive to this change. In sum, the current literature points in two directions with regard to the potential consequences of the Great Recession on aggregate policy preferences. On the one hand, increased levels of insecurity should lead to more demand for redistribution. On the other hand, if rises in unemployment have been predominantly concentrated among the poor, more limited changes in public opinion towards redistribution are to be expected. However, other perspectives on the potential effects of the crisis have to be pointed out. In particular, in the American context, Manza and Brooks (2013) show that public opinion has shifted to less pro-redistributive stands over the 2008-2010 period. Similarly, studying long-time trends in British public opinion, Soroka and Wlezien (2014) show that the preferences of Britons with regard to taxation and the welfare state have not shifted after the crisis. In both cases, the authors argue that partisanship might have been driving public opinion, with the Labour Party in Britain and the Republicans in the US moving towards the right over the last decades. In addition, a specific issue related to feedback effects has to be pointed out. There is indeed the possibility or even high probability that state policies also impact public opinion. Previous research has shown that the type of welfare state regime (Svallfors 1997) or the quality of government are both associated support for redistribution (Svallfors 2013). While welfare state policies can have arguably little influence on the level of unemployment, they do impact the financial consequences for those who lose their job and therefore moderate the level of economic insecurity associated with high unemployment.
2. Support for redistribution
In this section, we present data on public support for redistribution drawn from the European Social Surveys 2008 and 2012.2 Our analysis is restricted to Western European countries and to survey respondents aged between 18 and 65. The latter restriction is based on the assumption that the crisis has had the biggest impact on the preferences of individuals who are active on the labour market. Clearly,
6
theories linking unemployment risk and preferences for redistribution specifically apply to these individuals. The ESS provides the data necessary to trace changes in support for redistribution among working-age individuals from 2008 to 2012 in eleven countries: Belgium, Denmark, Finland, Germany, Ireland, the Netherlands, Portugal, Spain, Sweden, Switzerland, and the United Kingdom3. As noted at the outset, strong agreement with the statement that “the government should measures to reduce differences between income levels” is the indicator of support for redistribution that we use in this paper.
For starters, Table 1 presents the percentage of all working-age ESS respondents
who expressed strong support for redistribution in 2008 and 2012, the change observed from 2008 to 2012, and the statistical significance of the differences between the 2008 and the 2012 sample (based on ttests).
There are strikingly large differences across countries with respect to levels of support for
redistribution in 2012 as well as 2008 and also quite divergent trends over time. At opposite ends of the spectrum, 11.5 % of Danes were strongly supportive of redistribution while 34.5% of Portuguese were strongly supportive of redistribution in 2008. By 2012, strong support for redistribution had fallen to 8% in Denmark and risen to 50.5% in Portugal. In the other nine countries, strong support for redistribution ranged between 13% and 31% in 2008 and between 14% and 36% in 2012. [Table 1] As far as change over time is concerned, the data in Table 1 confirm Soroka and Wlezien’s (2014) observation that the Great Recession did not have any appreciable effect on support for redistribution in the UK. The same holds for Belgium, Finland and the Netherlands. However, support for redistribution increased dramatically from 2008 to 2012 in the three of our countries that were most severely hit by the Great Recession: Portugal, Spain and Ireland. To a lesser extent, support for redistribution also increased from 2008 to 2012 in Germany, Sweden and Switzerland, but the Swiss increase fails to clear the 90% threshold of statistical significance and thus might conceivably be attributed to random differences in the samples analysed. Denmark stands out as the only country with a statistically significant decline in support for redistribution in the wake of the Great Recession. Having divided the population of working-age ESS respondents into three income groups of equal size, we report, in Table 2, strong supporters of redistribution as a percentage of each income tertile
7
in 2008 and 2012.4 Not surprisingly, changes in support for redistribution among individuals in the middle income group—arguably representative of the “median voter”—correlate very closely with changes in support for support for redistribution among all working-age ESS respondents (r=.97). It is also noteworthy that the direction of change in support for redistribution was the same across income groups in all but three countries. The three exceptions to this generalization are Finland, where support for redistribution increased in the top tertile but fell in the bottom and middle tertiles, and Switzerland and the UK, where support for redistribution increased in the middle and top tertiles but fell in the bottom tertile. (Note that all changes by income group in these three countries are quite small, except for the increase in support for redistribution among Swiss ESS respondents in the top tertile). [Table 2] The data presented in Table 2 brings to the fore the question of polarization of redistribution preference by income and, most relevant for our present purposes, trends in polarization over the period 2008-12.
We approach this question in two complementary ways. To begin with, Table 3 presents
estimates of the average marginal effect of household income based on country-year-specific regression models of support for redistribution (coded 1 for those who strongly support redistribution, otherwise zero) that include a series of other predictors, and also reports changes in the average marginal effect of income from 2008 to 2012.5 The figures presented in Table 3 represent the slope of the household income variable, controlling the effects of other variables included in the model.6 Based on the data in Table 2, Table 4 presents a more intuitive measure of preference polarization by income: the difference between the shares of individuals strongly supporting redistribution among the bottom and the top tertiles of the income distribution, relative to the share of individuals strongly supporting redistribution in the bottom tertile. In other words, this measure captures support for redistribution among the rich relative to support for redistribution among the poor. [Tables 3-4]
The correlation between changes in these alternative measures of polarization is far from perfect (r= .71), but the two measures convey essentially the same story.7 With 2008 data, our estimates of the
8
average marginal effect of income are consistently negative.
Though the size of this effect varies
considerably across countries, support for redistribution tended to decline with income in all countries before the Great Recession hit. By 2012, however, the income effect had disappeared in Ireland and actually changed sign in Spain.
Relative to initial levels, we also observe significant reductions in the
effect of income on support for redistribution in Denmark, Finland, the Netherlands and Portugal. Sweden and Great Britain are the only countries in our sample in which preference polarization measured by the average marginal effect of income increased between 2008 and 2012. (In Belgium and Germany, polarization measured in this fashion was essentially unchanged). As shown in Table 4, the difference in support for redistribution between ESS respondents in the bottom and the top income tertiles declined between 2008 and 2012 in all but one country. The exception is Denmark, where polarization measured in this manner increased slightly. The Danish case might best be characterized as a case of stable polarization. With small declines in the differences between the first and the third tertiles, the same holds for Belgium, the UK, Sweden, Finland and the Netherlands. However, we observe a substantial depolarization of preferences in Germany, Switzerland, Spain and, most notably, Ireland and Portugal. Not coincidentally, these are also, with the exception of Switzerland, the countries in which average support for redistribution increased most sharply in the wake of the Great Recession. Figure 1 plots change in support for redistribution among middle-income ESS respondents against the change in polarization as measured by the difference in preferences between the 1st and 3rd tertile. Rising middle-income support for redistribution turns out to be very closely associated with depolarization of support for redistribution by income. There are no instances in which depolarization has been accompanied by a decrease in support for redistribution is the middle-income group. [Figure 1] In sum, the data presented above suggests that we can (should) distinguish two groups of countries with different public opinion responses to the experience of the Great Recession. In one group of countries, the Great Recession marginally boosted average support for redistribution and did not significantly affect preference polarization by income.
9
This group includes Belgium, Finland, the
Netherlands, Sweden and the UK. Consisting of Germany, Ireland, Portugal and Spain, the other group is characterized by significant increases of average support for redistribution and equally significant declines in polarization by income. Partly depending on the particular measures used, Denmark and Switzerland appear to somewhat special cases: in Denmark, average support declined while polarization held steady; in Switzerland, polarization declined while average support held steady. It should also be noted that there is a good deal of variation in the magnitude of the changes in average support and depolarization in the second group of countries. A striking puzzle is that the combination of depolarization and rising average support characterizes not only the three countries that were most severely hit by the Great Recession, but also Germany, arguably the country that fared best in macro-economic terms. In what follows, we explore the relevance of changes in unemployment and inequality for public opinion responses to the Great Recession. Because changes in polarization and middle-income support are so closely correlated, we will focus on the latter.
3. Unemployment and support for redistribution
As shown in Table 5, unemployment rose in all but one of our eleven countries between 20082012. Germany stands out as an exceptional case of falling unemployment during the crisis. However, unemployment increases were quite modest, ranging between 0.6 and 2.2 percentage points, in Belgium, Switzerland, Finland, Sweden, the Netherlands and the UK. By contrast, unemployment rose very sharply in Portugal, Ireland and, above all, Spain. With unemployment rising by 4 percentage points, from a very low initial level, Denmark represents an intermediary case. [Table 5] Insurance models of redistribution would lead us to expect that, everything else being equal, support for redistribution would increase with the rate unemployment. If the risk of unemployment increases equally for all workers, regardless of income, the increase in support for redistribution associated
10
with a given increase in the rate of unemployment might further be expected to rise with individual income, on the assumption that insurance against job loss is more valuable to high-income earners (cf., e.g., Moene and Wallerstein 2001). Needless to say, however, the risk of unemployment varies by skill and income. In dualized or segmented labor markets, it may be that rising unemployment pertains only (or primarily) to low-skilled, low-paid workers. If so, insurance models predict that rising unemployment will be associated with more support for redistribution among low-income citizens, but not among middleand high-income citizens. Following Rehm, Hacker and Schlesinger (2012), we measure the distribution (or incidence) of unemployment risk by the correlation between income and occupational unemployment rates. To obtain the figures presented in Table 6, we assigned each ESS respondent a value corresponding to the countryyear specific rate of unemployment in his or her occupation.8 We then sorted respondents in into country-specific percentiles based on household income (adjusted for household size) and calculated individual-level correlations between unemployment risk and income. As shown in Table 6, all the correlations obtained by this method are negatively signed, meaning that individuals with low-income income are, on average, more likely to work in occupations with high rates of unemployment than individuals with high incomes. [Table 6] The stratification of unemployment risk by income increased from 2008 to 2012 in most countries, but we observe a good deal of cross-national variation in the extent to which this was the case, and some countries bucked the general trend. Stratification of unemployment risk by income essentially remained unchanged in Sweden and actually became less pronounced—considerably less pronounced—in Germany, Ireland and Portugal. The Netherlands and Spain stands out as the two countries in which the increase of unemployment was heavily concentrated in occupational groups characterized by relatively low pay. Figure 2 plots change in middle-income support for redistribution against change in the rate of unemployment and Figure 3 in turn plots change in middle-income support for redistribution against change in the correlation between income and occupational exposure to unemployment risk. While
11
Figure 2 is broadly consistent with our expectations, the relationship between changes in public opinion and income-risk correlations is weaker than we had expected. In particular, the Spanish case flies in the face of the idea that rising middle-income support for redistribution is to be attributed to a crisis-induced decline in stratification of employment risk by income. On the other hand, Spain is the country that experienced that most dramatic increase in overall unemployment. Rising overall unemployment and declining stratification of unemployment might well be conceived as alternative “paths” to higher middleincome support for redistribution. In Table 7, we present regression results that seem to bear out this idea. Despite the small number of observations, rising overall unemployment and falling stratification of unemployment risk by income are both significantly associated with rising middle-income support for redistribution and depolarization of redistribution preferences. [Figures 2-3, Table 7]
4. Inequality and support for redistribution
Tables 8 and 9 provide a bird’s eye view of what happened to inequality among working-age households (or individuals) during the economic crisis of 2008-10. As our analysis of public opinion is restricted to working-age individuals, it makes sense to restrict out attention to inequality among workingage households. The figures in Tables 8 and 9 come from the OECD Database on Income Distribution and Poverty. For most countries, the OECD database reports annual observations and 2011 is the most recent year for which data are available. However, the figures cover only two years for Belgium (2008-10) and Switzerland (2009-11) and four years for the Netherlands (2008-12). For the next iteration of this paper, we hope to be able to present more consistent inequality data derived from the EU-SILC Database. For working-age households only, Table 8 presents Gini coefficients for market income (i.e., income before taxes and transfers) and for disposable income (i.e., income after taxes and transfers) in 2008 and 2011. In principle, one might suspect the crisis to have had two offsetting effects on levels of inequality measured before taxes and transfers. On the one hand, the financial crisis and the squeeze of corporate profits during the ensuing recession may have reduced the income of affluent individuals
12
owning significant financial assets, possibly corporate managers as well, pushing inequality down. On the other hand, we would expect rising unemployment to generate more inequality to the extent that lowincome households lost more income from employment than middle-income and affluent households. The figures in the first panel of Table 8 indicate that the latter, inegalitarian, effect has been dominant. In all but two countries, inequality of market income among working-age households increased appreciably between 2008 and 2011. The two exceptions are Belgium and Switzerland, where inequality measured in this manner declined slightly. (It may or may not be a coincidence that Belgium and Switzerland are also the two countries for which data pertain to a two-year period). Market-income increased most sharply in Spain and Ireland, the two countries which, along with Portugal, experienced the biggest increases of unemployment.
It is also noteworthy that Denmark and the UK experienced larger-than-average
increases of inequality before taxes and transfers. [Table 8] In every single country that experienced an increase of inequality of market income, inequality of disposable income increased less than inequality of market income. In other words, tax-transfer systems partially compensated for market-driven inequality increases. In the Netherlands and Portugal, post-fisc inequality actually declined, i.e., the effects of taxes and transfers more than compensated for marketdriven increases of inequality. While there is significant cross-national variation in the extent to which taxtransfer system compensated for rising inequality (to which we shall return in the next section), it deserves to be noted that changes in pre-fisc and post-fisc inequality are closely correlated (r= .86).
Market
dynamics might thus be said to have the primary “driver” of changes in disposable-income inequality as well as market-income inequality. Table 9 presents data on relative poverty among working-age individuals. The poverty measure used here is the percentage of the population aged 18-65 living in households with an income below 50% of the median household income. Before taxes and transfers, working-age poverty increased in all but three countries: Sweden, Switzerland and the UK. increased in all but one country: Finland.
After taxes and transfers, working-age poverty
While many welfare states compensated for rising overall
inequality, the poverty-reducing effects of compensatory redistribution appear to have diminished during the Great Recession (a point to which we shall also return in the next section).
13
[Table 9] In percentage terms, poverty increased more than overall inequality in most countries. This holds for poverty and inequality measured in terms of disposable income as well as market income. With the poor apparently falling behind everyone else, the crisis may have altered the structure of income inequality to some extent. In the language of Lupu and Pontusson (2011), the structure of inequality may have become less “skewed.” Somewhat curiously, however, 90-50 and 50-10 income ratios for working-age households hardly changed at all between 2008 and 2011 according to the OECD Database on Income Distribution and Poverty. For the next iteration of this paper, we hope to be able probe changes in the structure of inequality and their consequences for support for redistribution with more detailed (timeconsistent) EU-SILC data. For now, we confine ourselves to the following observations about changes in overall working-age inequality and support for redistribution. Should we measure inequality in terms of market income or disposable income for this purpose? While individuals do not directly experience inequality measured by market income, inequality measured by disposable income is closely bound up with existing levels of redistribution and the level of redistribution is itself likely to influence support for redistribution. Since changes in market-income inequality and disposable-income are so closely correlated, however, this conundrum does not seem terribly important for our present purposes. Avoiding endogeneity concerns, Figure 1 plots changes in middle-income support for redistribution against changes inequality before taxes and transfers.
Setting
the Portuguese case aside, we observe a weak but reasonably consistent positive association between these two variables: as predicted by the Meltzer-Richard model, middle-income support for redistribution seems to have risen with inequality. [Figure 4] Based on much existing literature, it is tempting to suppose that rising inequality has also been a source of polarization of preferences for redistribution between the poor and the rich. As shown in Figure 5, this supposition is borne out by our data on changes between 2008 and 2011/12. [Figure 5]
14
In Table 10, we present the results of regression models of middle-income support and polarization with changes in (market) income inequality as well as unemployment and income-risk correlations as predictors. As in Table 7, the effects of changes in unemployment and risk stratification are significant, positive for middle-income support and negative for polarization. Though the coefficient for change in inequality on middle-income support fails to clear the 90% significance, it is noteworthy that it has a negative sign. Controlling for rising unemployment, rising inequality appears to have been associated with falling middle-income support for redistribution.
We also find that rising inequality
indeed appears to be associated with polarization of preferences by income or, perhaps more precisely, with less depolarization of preferences by income. This effect is significant at the 90% level. As indicated above, we want to explore, in future research, whether the negative effect inequality, controlling for unemployment risk, may be due to rising poverty and, as hypothesized by Lupu and Pontusson (2011), a growing separation between the poor and the middle class. [Table 10]
5. Public opinion and redistributive policy outputs
Let us now, very briefly, pursue the question of what happened to redistribution and poverty reduction during the Great Recession and the related question of the potential relevance of changes in public opinion for redistributive politics. It is commonplace in the comparative political economy to operationalize redistribution as the difference between the Gini coefficient for market income (income before taxes and transfers) and the Gini coefficient for “disposable income” (income after taxes and transfers), expressed as a percentage of the Gini coefficient for market income or, in other words, as the percentage reduction in the Gini coefficient produced by taxes and transfers. Based on the OECD data presented in Table 8, the first of Table 11 reports absolute changes in redistribution measured in this fashion. Based on the data in Table 9, the second panel of Table 11 shows changes in poverty reduction, measured as the percentage reduction of the poverty rate (set at 50% of the median household) brought about by taxes and transfers.
15
[Table 11] Looking at overall redistribution, Germany stands out as the one country in which the redistributive effects of taxes and transfers diminished over 2008-11, however slightly. In Sweden, overall redistribution did not change at all and in Belgium and Denmark it increased just a little. In the remaining seven countries, however, we observe quite substantial increases of redistribution during the Great Recession. It seems clear that these increases in redistribution were not the result of the adoption of new redistributive policy initiatives, but rather, at least primarily, a result of households below the mean income becoming eligible for transfer benefits as their pre-fisc incomes were adversely affected by employment losses. As in previous recessions (see Kenworthy and Pontusson 2005), existing welfare states generated compensatory redistribution. Interestingly, this appears to have been least true in the largest, most generous welfare states. The data on poverty reduction tell a strikingly different story. According to OECD data, the poverty-reducing effects of the welfare state increased in Belgium, Denmark, Finland and Spain. In the other countries, however, poverty reduction was either unchanged (Germany and Portugal) or declined substantially during the early crisis years. The failure of the Swedish welfare state to offset the rise of working-age poverty in 2008-11 is especially striking. The general story conveyed by these data seems to be that the crisis of 2008-2010 triggered an increase in redistribution, but also, with some notable exceptions, a decline in poverty reduction. In other words, redistribution became less targeted to poor households. It is tempting to suppose that the shift towards less pro-poor redistribution is related to the rise of support for redistribution among middle-income and upper-income citizens and the attendant depolarization of redistribution preferences by income. Figures 6 and 7 provide some preliminary, partial evidence in support of this interpretation. Figure 6 plots changes in overall redistribution over 2008-11 against changes in the percentage of middle-income ESS respondents expressing strong support for redistribution. The fit is far from perfect but the two variables appear to be positively associated. Figure 7 in turn plots changes in poverty reduction against changes in middle-income support for redistribution. There is no association between these variables.
16
[Figures 6-7] We do not suppose that governments and legislatures redesigned tax-transfer systems in response to the shifts in public support that we have documented.
Again, changes in redistributive effects must
first and foremost be seen as more or less automatic results of the interaction between existing taxtransfer schemes and the impact of the crisis on different income groups. But governments did fiddle at the margins and the crisis could have been an opportunity to reform existing systems. It seems reasonable to argue that rising support for redistribution among middle-income and upper-income citizens put pressure on governments to maintain redistributive policies that benefitted these citizens. By the same token, the fact that support for redistribution among low-income citizens did not increase significantly may have been a factor behind decisions to maintain cuts in poverty-targeted programs that many governments had adopted in the ten years before the Great Recession. 6. Conclusion
To summarize, the empirical evidence presented above suggests that the Great Recession had a significant impact on public support for redistribution in countries that experienced very sharp increases of unemployment, but that its impact in other countries was generally quite muted. To the extent that the crisis has a discernable impact, its impact has pretty consistently been to boost support for redistribution among middle-income and high-income citizens and to reduce income differences in support for redistribution. We have also presented some preliminary evidence indicating that rising income inequality has constrained this response of middle-income and high-income citizens to economic insecurity and the attendant “depolarization” of support for redistribution. Finally, our exploratory analysis suggests that shifts in public support for redistribution may have contributed to a shift away from “pro-poor redistribution.” Our discussion brings to the fore following puzzle: despite being more exposed to economic insecurity than other citizens, and adversely affected by rising inequality, poor citizens do not appear to have responded to the crisis by becoming more supportive of redistribution. In future research, we plan to explore why this might be so. Declining unionization among low-paid workers and ideological or
17
cultural concerns associated with “right-wing populism” present themselves as obvious explanatory factors to be considered.
18
References
Ansell, Ben. 2014. The Political Economy of Ownership: Housing Markets and the Welfare State. American Political Science Review 108 (2): 383-402. Bénabou, Roland. 2000. Unequal Societies: Income Distribution and the Social Contract. The American Economic Review 90 (1): 96-129. Bermeo, Nancy and Jonas Pontusson (eds.). 2012. Coping with Crisis: Government Reactions to the Great Recession. New York: Russell Sage Foundation Press. Brooks, Clem, and Jeff Manza. 2013. A Broken Public? Americans’ Responses to the Great Recession. American Sociological Review 78 (5): 727-748. Cusack, Thomas R., Torben Iversen, and Philipp Rehm. 2008. “Economic Shocks Inequality, and Popular Support for Redistribution.” In Democracy, Inequality and Representation eds. Pablo Beramendi and Christopher J. Anderson. New York: Russell Sage Foundation. 203-231. Iversen, Torben, and David Soskice. 2001. An Asset Theory of Social Policy Preferences American Political Science Review 95 (4): 875-893. Finseraas, Henning. 2009. Income inequality and demand for redistribution: a multilevel analysis of European public opinion. Scandinavian Political Studies 32 (1): 94-119. Garand, James C. . 2010. Income Inequality, Party Polarization, and Roll-Call Voting in the U.S. Senate. The Journal of Politics 72 (4): 1109-1128. Kelly, Nathan J., and Peter K. Enns. 2010. Inequality and the Dynamics of Public Opinion. American Journal of Political Science 54 (4): 855-75. Kenworthy, Lane, and Jonas Pontusson. 2005. Rising Inequality and the Politics of Redistribution in Affluent Countries Perspectives on Politics 3 (3): 449-71. King, Desmond and David Rueda. 2008. “Cheap Labor: The New Politics of ‘Bread and Roses’ in Industrial Democracies” 6: 279-297. Kurer, Thomas. 2014. “The Potential for Cross-Class Coalitions: Assessing Socio-Economic Status Labour Market Risk and Welfare State Support “ Presented at the ECPR Graduate Conference, Innsbruck. Lindvall, Johannes. 2014. The electoral consequences of two great crises. European Journal of Political Research. Lupu, Noam, and Jonas Pontusson. 2011. The Structure of Inequality and the Politics of Redistribution. American Political Science Review 105 (02): 316-336. McCarthy, Nolan, Kaith T. Poole, and Howard Rosenthal. 2006. Polarized America: The Dance of Inequality and Unequal Riches. Cambridge, MA: MIT Press. Meltzer, Allan H., and Scott F. Richard. 1981. A Rational Choice Theory of the Size of Government. The Journal of Political Economy 89 (5): 914-927. Moene, Karl Ove, and Michael Wallerstein. 2001. Inequality, Social Insurance, and Redistribution. The American Political Science Review 95 (4): 859-874. Pontusson, Jonas and Damian Raess. 2012. “How (and Why) is This Time Different? The Politics of Economic Crisis in Western Europe and the US,” Annual Review of Political Science, 15: 13-33.
19
Pontusson, Jonas, and David Rueda. 2008. “Inequality as a Source of Political Polarization: A Comparative Analysis of Twelve OECD Countries.” In Democracy, Inequality, and Representation, eds. Pablo Beramendi and Christopher J. Anderson. New York: Russel Sage Foundation. 312-353. Rehm, Philipp. 2009. Risks and Redistribution: An Individual-Level Analysis. Comparative Political Studies 42 (7): 855-881. Rehm, Philipp. 2011. Social Policy by Popular Demand. World Politics 63 (2): 271-299. Rehm, Philipp, Jacob S Hacker, and Mark Schlesinger. 2012. Insecure alliances: Risk, inequality, and support for the welfare state. American Political Science Review 106 (02): 386-406. Rueda, David. 2014. “Dualization, crisis and the welfare state,” Socio-Economic Review 12:381-407. Soroka, Stuart, and Christopher Wlezien. 2014. Economic crisis and support for redistribution in the United Kingdom. Mass Politics in Tough Times: Opinions, Votes and Protest in the Great Recession: 105. Svallfors, Stefan. 1997. Worlds of Welfare and Attitudes to Redistribution: A Comparison of Eight Western Nations. European Sociological Review 13 (3): 283-304. Svallfors, Stefan. 2013. Government quality, egalitarianism, and attitudes to taxes and social spending: a European comparison. European Political Science Review 5 (03): 363-380. Thelen, Kathleen. 2014. Varieties of liberalization and the new politics of social solidarity. New York: Cambridge University Press.
20
Table 1: Share of respondents strongly supporting redistribution (in %)
Belgium Denmark Finland Germany Ireland Netherlands Portugal Spain Sweden Switzerland UK
2008
2012
change
p-value
25.70
24.06
-1.64
0.324
11.49
8.06
-3.44
0.006
31.10
30.39
-0.71
0.666
22.10
28.09
5.99
0.000
21.90
31.85
9.96
0.000
13.01
13.81
0.80
0.546
34.60
50.56
15.95
0.000
28.61
36.21
7.60
0.000
18.29
21.57
3.29
0.035
20.16
22.49
2.33
0.166
17.95
18.05
0.10
0.940
Source: ESS rounds 4 and 6.
21
Table 2: Share of respondents strongly supporting redistribution by income tertile (in %)
2008 Low income Belgium Denmark Finland Germany Ireland Netherlands Portugal Spain Sweden Switzerland UK
Middle income
2012 High income
Low income
High income
Low income
Middle income
High income
32.93
27.29
16.93
31.11
24.89
16.63
-1.82
-2.41
-0.30
11.97
10.88
11.39
8.38
8.67
7.69
-3.59
-2.21
-3.70
37.66
31.69
25.64
35.43
30.27
26.02
-2.23
-1.42
0.38
29.43
23.32
13.74
35.66
26.98
21.74
6.23
3.66
8.00
25.00
22.31
17.28
32.91
28.67
33.62
7.91
6.36
16.34
17.15
13.81
8.06
17.38
15.54
8.99
0.23
1.73
0.93
44.98
29.76
28.99
48.87
46.02
53.74
3.89
16.26
24.75
32.27
31.04
23.77
40.72
38.37
37.32
8.46
7.32
13.54
22.97
19.22
12.59
27.39
20.96
16.00
4.41
1.73
3.41
29.97
21.35
13.27
29.85
21.41
18.54
-0.12
0.05
5.27
23.77
19.30
11.32
23.49
19.61
11.98
-0.29
0.31
0.66
Source: ESS rounds 4 and 6.
Middle income
Change 2008-2012
22
Table 3: Polarization measured by the average marginal effect of income
Belgium Denmark Finland Germany Ireland Netherlands Portugal Spain Sweden Switzerland UK
p-value
2008
2012
Change
-0.017
-0.017
-0.000
0.679
-0.003
-0.002
-0.001
0.769
-0.017
-0.016
-0.000
0.507
-0.020
-0.019
-0.001
0.362
-0.007
0.000
-0.007
0.157
-0.016
-0.012
-0.005
0.295
-0.019
-0.004
-0.015
0.007
-0.011
0.006
-0.016
0.021
-0.019
-0.024
0.005
0.660
-0.024
-0.015
-0.009
0.059
-0.016
-0.018
0.002
0.961
Source: ESS rounds 4 and 6.
23
Table 4: Polarization measured by the difference between average support for redistribution among the 1st and the 3rd tertiles relative to support in the 1st tertile
Belgium Denmark Finland Germany Ireland Netherlands Portugal Spain Sweden Switzerland UK
2008
2012
Change
48.59
46.56
-2.03
4.83
8.22
3.40
31.92
26.55
-5.37
53.30
39.03
-14.27
30.89
-2.16
-33.05
52.98
48.26
-4.71
35.55
-9.96
-45.52
26.32
8.36
-17.96
45.18
41.58
-3.60
55.73
37.88
-17.85
52.40
49.00
-3.40
Source: ESS rounds 4 and 6.
24
Table 5: Harmonized unemployment rates
Belgium Denmark Finland Germany Ireland Netherlands Portugal Spain Sweden Switzerland United Kingdom
2008
2012
change
7.0 3.5 6.4 7.5 6.4 3.1 7.7 11.3 6.2 3.5 5.7
7.6 7.5 7.7 5.5 14.7 5.3 15.9 24.8 8.0 4.2 7.9
0.6 4.0 1.3 -2.0 8.3 2.2 8.2 13.5 1.8 0.7 2.2
Source: OECD.
25
Table 6: Correlations of income and occupation unemployment rates
Belgium Denmark Finland Germany Ireland Netherlands Portugal Spain Sweden Switzerland United Kingdom
2008
2012
change
-.371 -.286 -.347 -.417 -.331 -.218 -.335 -.336 -.356 -.258 -.401
-.406 -.302 -.328 -.353 -.269 -.317 -.277 -.427 -.358 -.288 -.420
-.035 -.016 -.019 .065 .062 -.099 .058 -.091 -.002 -.030 -.019
Note: positive change signifies a weaker negative correlation of income and unemployment risk.
26
Table 7: OLS models I
Change in support for redistribution
Change in polarization
.84 (.012) 47.53 (.055) .270 (.860)
-2.00 (.021) -161.44 (.021) -7.55 (.091)
N
11
11
Adjusted R-squared
.54
.56
Change in unemployment Change in correlation of unemployment and income Constant
Note: p-values in parentheses.
27
Table 8: Gini coefficients, working-age households, 2008-2011
Belgium (2008-10) Denmark Finland Germany Ireland Netherlands (2008-12) Portugal Spain Sweden Switzerland (2009-11) United Kingdom
2008
2011
change
2008
2011
change
42.1 36.1 40.6 40.8 48.7 38.2 46.2 40.2 36.8 32.8 45.7
41.8 38.9 42.1 42.1 53.3 39.1 47.8 46.7 38.1 32.1 47.8
-0.7 2.8 1.5 1.3 4.6 0.9 1.6 6.5 1.3 -0.7 2.1
26.5 23.5 26.4 28.8 29.1 28.9 35.2 30.9 25.9 29.0 37.0
26.2 25.0 26.8 29.8 30.8 27.8 33.9 34.8 26.8 27.8 37.8
-0.3 1.5 0.4 1.0 1.7 -1.1 -1.3 3.9 0.9 -1.3 0.8
Source: OECD.
28
Table 9: Percentage of working-age population living in households with an income below 50% of the median household income
2008 Belgium (2008-10) Denmark Finland Germany Ireland Netherlands (2008-12) Portugal Spain Sweden Switzerland (2009-11) United Kingdom
19.9 13.9 19.1 17.8 33.4 16.8 19.6 20.2 16.4 7.3 24.7
market income 2011
change
2008
2.3 2.9 1.0 1.4 2.8 2.0 1.8 7.3 -0.2 0.0 -0.6
9.0 5.4 7.0 8.1 9.0 7.6 11.7 12.9 8.1 7.3 16.5
22.2 16.8 20.1 19.2 35.8 18.8 21.4 27.5 16.2 7.3 24.3
29
disposable income 2012 %change 9.3 5.8 6.7 8.7 9.8 8.8 12.8 16.6 9.7 7.6 16.7
0.3 0.4 -0.3 0.6 0.8 1.2 1.1 3.7 1.8 0.3 0.2
Table 10: OLS models II
Change in unemployment Change in correlation of unemployment and income Change in gross income inequality Constant N Adjusted R-squared
Change in support for redistribution
Change in polarization
1.40 (.015) 50.72 (.037) -1.41 (.170) .968 (.526) 11
-3.94 (.006) -172.57 (.007) 4.93 (.054) -9.99 (.020) 11
.61
.72
Note: p-values in parentheses.
30
Table 11: Changes in redistribution and poverty reduction, working-age households, 2008-11
Belgium (2008-10) Denmark Finland (2008-12) Germany Ireland Netherlands (2008-12) Portugal Spain Sweden Switzerland (2009-11) United Kingdom
Redistribution
poverty reduction
.27 .83 2.43 -.20 1.97 4.55 5.27 2.35 .04 1.81 1.88
2.01 3.43 3.88 -1.29 1.38 -1.17 0.97 2.86 -11.14 -2.68 -2.58
Source: OECD.
31
Figure 1: Change in support for redistribution among middle income earners and change in polarization
32
Figure 2: Change in support for redistribution in the 2nd tertile and change in the national unemployment rate
33
Figure 3: Change in support for redistribution in the 2nd tertile and change in the correlation between income and unemployment
34
Figure 4: Change in support for redistribution in the 2nd tertile and change in income inequality
35
Figure 5: Change in polarization of public opinion and change in income inequality
36
Figure 6: Change in redistribution and change in support for redistribution among middle income respondents
37
Figure 7: Change in poverty reduction and change in support for redistribution among middle income respondents
38
Endnotes 1 In the next iteration of this paper, we will also explore the impact of the Great Recession on less strong support for redistribution. 2
The European Social Survey is a cross-national survey that collects data through face-to-face interviews. More information on the survey and the data are available at www.europeansocialsurvey.org.
The ESS was not run in at least one of the rounds we analyse in Austria, Italy, Greece, Iceland and Luxembourg. In addition, the cases of France and Norway could not be included due to the lack of data on occupational unemployment rates that is used in several of our analyses.
3
4
The household income variable included in the ESS was used in order to construct a variable measuring income adjusted for household size and this variable was then used to sort ESS respondents (in a given country-year) into tertiles. In the ESS, respondents are asked to identify an income band to which belong. The income bands that are proposed roughly correspond to the household income deciles in a given country. For the individuals in the first nine income, we assigned an income correspond to the midoint of the income band in question. The income attributed to the top band, which has no upper bound, was extrapolated based on the mid-income of individuals located in the previous category and the frequency of individuals located in the previous categories using the formula suggested by Hout (2004) for analysing the General Social Survey and used extensively with ESS data as well (e.g. Rueda and Pontusson 2010). The household income assigned in this manner has been divided by the square root of the number of household members to obtain an income measure that is weighted by household size.
5
With the sample restricted to individuals aged between 18 and 65, the models include the following control variables: gender; age; years of education; working in public sector (dummy); self-employed; student; unemployed and occupational unemployment rate, which corresponds to the country-specific level of unemployment in the occupation of the respondent, based on the ISCO-88 one-digit classification (distinguishing nine major occupational groupings). We are grateful to Philipp Rehm who provided us with the data on occupational unemployment rates for country-years. These were calculated based on the European Union Labour Force Survey produced by Eurostat. A detailed explanation on how these measures were computed can be found in Rehm (2009; 2011).
6
The statistical significance reported in the last column is based on logistic regression models in which data for the two years are pooled. In addition to all predictors described in note 5, a dummy variable identifying the round of the survey is added and interacted with the income variable. It is the significance level of the regression coefficient of this interaction term that is reported in the table. These discrepancies between the two measures are likely linked to the fact that the measure using average marginal effects has been obtained using models in which the effects of unemployment and occupational unemployment rates (the rate of unemployment in one’s occupation) were controlled for and that part of the depolarization observed could be due to increase in unemployment during the crisis – an issue we will address in the next section. Note also that income tertiles might not be the relevant categories capturing the differences in preferences across income groups. It could be, for instance, that only the very rich or the very poor differ in their preferences and that tertiles are not the relevant cut-off points to study polarization. The average-marginal-effects approach is more sensitive to this issue.
7
8
See note 5.
39
