Tackling Global Inequality Through Research

Institutes combine strengths, invite international researchers to share ideas

In describing inequality across the globe, many often use GINI coefficients, statistics capturing the dispersion of a country’s income data; however, an income-only measure can miss important elements of this critical issue. Thanks to a unique effort by two of Northwestern’s premier research institutes, the 50 participants who took part in the May 12-13 Global Inequality Workshop added to a more nuanced and interdisciplinary understanding of inequality in the world.

The two-day workshop, jointly hosted by the Buffett Institute for Global Studies and the Institute for Policy Research (IPR) on Northwestern’s Evanston Campus, was a first for both.

According to Northwestern Provost Daniel Linzer, IPR’s focus was typically seen as ending at the water’s edge of the United States, while the Buffett Institute dealt with everything beyond that shoreline. Now, both seek to share and benefit from one another’s strengths—Buffett from IPR’s more policy-relevant mindset, and IPR from Buffett’s wider global focus.

“It’s great to see the synergy that is occurring between these two institutes,” Linzer said, noting that it can enable researchers to move forward with different perspectives in thinking about such pervasive problems as inequality.

Jay Walsh, Vice President for Research, said the initiative reflected Northwestern's enthusiasm for advancing cross-disciplinary research collaborations "that develop high-impact practical solutions to complex global challenges.”

The 19 faculty presenters from Canada, Denmark, Singapore, the United States, and other countries constituted “an academic dream team,” said Bruce Carruthers, director of the Buffett Institute for Global Studies. He spoke of his great satisfaction in putting together the framework for the workshop with David Figlio, IPR’s director.

“Global inequality is of course much bigger than we can tackle in a workshop like this,” said Carruthers, John D. MacArthur Chair and Professor of Sociology. “But there are pieces that we can focus on and attempt to create solutions.” 

The six panels covered varying perspectives of inequality, starting with a global overview and followed by discussions of education, health, organizations, wages and labor, and public opinion. Yet all converged around the idea that rigorous social science research was key to addressing the many issues—and more is needed. 

“It’s important to be thinking not just about what’s going on in the United States for solutions to the problems plaguing the country, but to also look around the world,” said Figlio, Orrington Lunt Professor of Education and Social Policy and of Economics. “At the same time, there are U.S. domestic policies that are relevant in other countries.” 

The intimate workshop environment was designed to promote discussion and will possibly set the stage for a more comprehensive joint event in the future, according to Carruthers and Figlio.

“I’m convinced that one of the ways we can give groups of people more opportunities is by sharing proofs-of-concept across different disciplines, domains, and locations,” Figlio concluded.

panel summaries

A Global Perspective of Inequality | The Tails of the Distribution | Organizations and Inequality | Inequality and Education | Inequality and Health | Recent Developments in Inequality Research 

A Global Perspective of Inequality

The first panel painted a broad overview of inequality, with University of Ottawa economist Miles Corak using Canada as an example to showcase three ways to consider intergenerational mobility—income, rank in the income distribution, and upward mobility. While Canada does exhibit greater social mobility overall than the United States, for example, he said this method also reveals “a divided landscape." Social mobility is not neatly contained within provincial borders and shows great variance, even between cities, with some of the most isolated communities in the country experiencing the least amount of mobility. 

Max Planck social anthropologist Chris Hann questioned the common assumption that inequality is the unavoidable consequence of increasing social complexity. He noted the efforts of some socialist countries to introduce elements of the market, starting with Hungary, which pioneered “market socialism,” a model that is still  followed by countries such as China and Vietnam. Today, many villagers on the Great Hungarian Plain hold "deep regrets” about at least some aspects of their lost socialist world, a salutary lesson for countries such as Cuba, which is on the cusp of its own transition. More generally, Hann argued for a new vision of the human economy in the spirit of economic anthropologists Karl Polanyi and his influential defender, former Northwestern professor George Dalton. We need some “radical rethinking” of the links between inequality, market economy, and democracy, he said.

In thinking about the puzzling rise of wealth inequality in tandem with democracy, Buffett political scientist Jeffrey Winters asked, "Why does wealth concentration continue to increase despite having more freedom and democracy in the world?” While all governments closely track pay, he explained, almost none track wealth data and “that’s no accident.” Globally, wealth concentration is high, durable, and accelerating thanks to a highly paid “wealth defense industry” of lawyers, accountants, and lobbyists.

“Secrecy is the best friend of wealth concentration,” Winters said, suggesting that its elimination would be one way to help drive concentration down.

The Tails of the Distribution

The second panel investigated some of the phenomena taking place at the ends of the inequality distribution, with discussants broaching the issue of executive wages and “financialization.” 

Visiting finance professor Carola Frydman shared her research on CEO compensation. C-Suite pay rose rapidly in the 1980s and 1990s, but has essentially remained flat since 2000. Beyond salary figures, she noted that it is also important to study how their pay is structured, as this can lead them to maximize shareholder value versus personal gain.

Fleshing out the idea of why “it matters what people do,” economist Ariell Reshef of the Paris School of Economics provided the example of how those countries with the most financial deregulation also saw the greatest increases in wages for that sector, with a corresponding rise in the fortunes of the 1 percent. He argued, therefore, how changes in institutional, legal, and regulatory environments also play a critical role in addressing inequality.

“It’s not just neoclassical economic forces that matter, but how we organize society that matters, and we can change it,” Reshef said. 

Zeroing in on the idea of how the world of finance has affected inequality, economist Olivier Godechot, co-director of a joint Max Planck Sciences Po center, discussed the trend of “financialization,” which promotes greater financial involvement by entities typically outside of the world of finance. It has encouraged nonfinancial firms and even households to engage in risky financial practices, such as acquiring more credit and debt. In particular, he described how when households engage in such practices it affects those at the top end of the income distribution. However, Godechot explained increasing activity on financial markets is the main contributor to the rise in inequality.

Organizations and Inequality

Beyond compensation and financial mechanisms, how might organizational structures contribute to, and even address, issues of inequality? University of Michigan business sociologist Jerry Davis explained how the size and structure of organizations in a country might affect income inequality, as large firms tend to pay higher and more consistent wages than smaller companies. In the United States, the number of corporations listed on the stock market has dropped by more than half since 1997, and many are shedding jobs due to the demands of “shareholder value.” For instance, carmaker GM has the same number of employees as it did in 1928, and the ride-sharing company Uber, with 327,000 regular drivers in the United States, is twice as big as GM. As the concentration of jobs in companies goes down, inequality rises, he said. “Uberization” is the “future of work,” Davis argued.

Harvard sociologist Frank Dobbin discussed the slow spread of diversity within companies: Despite growth in U.S. management positions, white men hold over 60 percent of these jobs today. Black men who work in medium and large private corporations have the same chance of becoming managers as they did in 1983, and at the current rate of change, it will take black women 300 years to catch up relative to white men. Many firms take steps to exert more control over managers to increase their workforce diversity, but this can lead instead to rebellion. Dobbin explained how research on over 800 firms, across more than 30 years, shows that engaging managers in promoting diversity, such as through mentoring and special college recruitment; that increasing contact between groups, through cross-training and self-managed teams; and that accountability to, for instance, diversity managers and task forces; can help to promote diversity.  

Kellogg sociologist Lauren Rivera, an IPR associate, explained how companies perpetuate workplace inequality through hiring based on social class. She conducted a randomized resume audit with András Tilcsik of the University of Toronto, finding that companies were more likely to call back an upper-class male for an interview over equally qualified males from more disadvantaged backgrounds. In addition to social stratification, she also found gender biases: Upper-class women were penalized due to a “commitment penalty,” where employers expect these women to eventually drop out of the workforce to get married and have children.

“Employers are the gatekeepers to income brackets,” she said.

Inequality and Education

Education is often seen as a great equalizer and antidote to inequality, but not everyone has the same access to education, and factors such as school spending can differ.

Discussing their research on Danish children starting school, Aarhus University economists Marianne Simonsen and Helena Skyt Nielsen presented joint work with Rasmus Kløve Landersø on the “shock” experienced by students and their families when entering first grade. They compared children who were 7 and a half, or slightly older, when starting school, with 6 and a half year olds. Starting school at an older age reduced shock and decreased school absences in the first year of school, while also increasing the number of mothers who went back into the workforce, they found.

Continuing along the K–12 spectrum, IPR economist Kirabo Jackson upended decades of thinking that school spending does not matter for outcomes. Using new and more rigorous research methods, Jackson and his colleagues, who include IPR graduate research assistant Claudia Persico, exploited the variation in court-ordered reforms in U.S. states to capture changes in school spending. They revealed that a 10 percent increase in spending leads to an additional three months of education and nearly 8 percent increase in adult wages—and the effects were even more pronounced for lower-income students, raising their additional amount of learning by six months. 

Finally, Norwegian economist Kjell Salvanes highlighted the critical role of getting a college degree. College graduates have higher average earnings, as well as a wider range of earnings, than those with just a high school diploma, likely because there are more high-level opportunities open to those with a college degree.

Inequality and Health

Beyond external effects, inequality can also “get under the skin” of those it affects, eliciting biological responses that can perpetuate, or even widen, inequities. 

“SES [socioeconomic status] is the single most powerful determinant of health outcomes,” explained pediatrician Tom Boyce of the University of California, San Francisco. He illustrated that in any given population of children, a small subset—just 15 to 20 percent—account for over half of the morbidities and well over half of the healthcare use in that population. Low-SES children are disproportionately affected by this “nonrandom distribution," he explained, as early poverty-related adversity affects long-term developmental and health outcomes by becoming biologically embedded in the body and brain. 

IPR developmental psychobiologist Emma Adam gave an overview of her research, showing how stress is implicated in socioeconomic and racial disparities in health. She noted that low-SES individuals and racial and ethnic minorities are exposed to a “wide variety” of stressful social conditions that can affect their levels of cortisol—a biomarker of stress. Notably, these individuals tend to have flatter cortisol rhythms, which are associated with lower educational attainment and worse health outcomes for adults. 

According to INSEAD economist Mark Stabile, one way to improve child heath is through cash benefits. He described how paying out cash benefits for children has had positive effects in Canada. His study shows that the low-income families receiving them have been found to spend the money wisely, allocating funds to food and childcare and investing in education. This additional income was also correlated with strong, positive effects on the children’s mental health and some physical health outcomes, as well as on mothers’ health.

Recent Developments in Inequality Research

In the face of persistent global inequality, what do new approaches to measuring inequality tell us about which policy avenues we can follow to mitigate it?

Branko Milanovic of the CUNY Graduate Center emphasized three distinct ways to think about inequality, that which occurs within a country, internationally between countries, and global inequality. His research on within-country inequality shows that each country responds differently to inequality, and that policy matters in how redistribution changes income inequality. Turning to international inequality, he discussed how large gaps in mean incomes between countries persist. This does not mean, however, that global inequality is on the rise: Even though inequality has increased within the majority of countries, he explained, the overall level of inequality is actually falling if one considers the world as a single unit. 

Though current measures of inequality in the United States focus almost exclusively on views of government redistribution—such as transfer programs—IPR sociologist Leslie McCall has identified a “different angle” for thinking about inequality: economic inclusion in the labor market. Framing her discussion around an opportunity model of beliefs, she noted that rising levels of inequality in the United States are most salient when they are perceived as restricting economic opportunity, meaning that inequality should reduce belief in the “American Dream.” Putting this into a global context, she compared American and Swedish views on inequality, finding surprisingly similar views, especially when it comes to tasking major companies with reducing labor-market inequalities.

Economist Jessica Pan of the National University of Singapore offered policy recommendations to reduce gender disparities in the labor market. Noting that women are significantly underrepresented in high-status and high-income fields, Pan suggested that businesses adopt policies, such as paid parental leave, and that women be exposed to female leaders.

“An important challenge is the design and evaluation of policies to address the remaining gender gaps,” Pan concluded.

Photos by Jim Ziv and Patricia Reese.

Published: June 22, 2016.