DEVELOPMENT

3.2
Income inequality and equality
Triin Roosalu
The inequality in society has as many dimensions as there
are resources, differentiated into valuable and less valuable.
In principle, in the case of literally every resource, a
determination can be made about who has more or less of
it, and based on these distinctions, an assessment can be
made as to whether the inequality is large or small. How
significant an inequality currently is, is connected to the
values that are predominant in the society. If a sufficient
number of people believe that some resource is important,
the possession of this resource becomes an important
dimension of inequality.
A lot of attention is still paid to economic inequality
and its various dimensions. On the one hand, economic
inequality can quite easily be measured in this monetary
age. On the other hand, this reflects the significance of
money in the present day – money is the resource that
can be exchanged for other resources, by, for instance,
paying for education and healthcare services. Studies have
repeatedly shown that meagre economic opportunities
are connected to low levels of education, limited social
participation, poor health and weak social cohesion. In
this chapter, we focus on the various facets of economic
inequality, juxtaposing countries based on their internal
inequalities.
3.2.1
The significance of inequality
Discussions are constantly being held about the topic
of inequality, by focusing on how much inequality is
acceptable. Some economists assert that inequality is the
motivating force in society that creates opportunities,
for instance, for innovation and, over time, for a general
increase in wealth. However, others find that society cannot
allow great inequality because its price is even grater
inequality, especially in cases where the wealth collects in
the hands of a small group of people. The representatives
of the last interpretation include Joseph Stiglitz, a professor
at Columbia University and a winner of the Nobel
Prize for Economics. He has consistently pointed out that
GDP is not an adequate yardstick of social success, and
has presented empirical and theoretical evidence related
to the problematic nature of inequality. In his book, The
Price of Inequality (Stiglitz 2011), he shows how inequality
has increased in the United States, but this has not
resulted in greater enterprise, but rather, incomes have
converged, leading, in turn, to greater inequality in fields
outside of the economy. Stiglitz’s arguments have been
introduced to Estonian readers by Gustav Kalm (2012),
who also placed them in the Estonian context.
Economic liberalism, the systematic elimination
of regulations and the decline in trade union membership
has been accused of causing economic inequality
even before the economic crisis, and Stiglitz has not
been the only one to do so. When comparing neo-liberal
Anglo-American policies with those of continental
Europe, where the role of trade unions continues to be
relatively strong, it turns out that (Schmitt and Zipperer,
2006) the U.S. model is characterised by the following:
a large percentage of the population that lacks
social cohesion, which is accompanied by great income
inequality, high relative and absolute rates of poverty,
low and uneven educational results, poor health and
large percentages of crime and imprisonment. At the
same time, the flexible labour policies in the U.S. do
not support social mobility, which lags behind the
comparative European states.
In addition to economists, sociologists and other
social scientists have also constantly studied inequality
and stratification, and found proof that social inequality
damages society and social cohesion. Rather recent studies
show that the people in states with less inequality
favour democracy more than others do (De Werfhorst and
Salverda 2012); inequality primarily reduces the electoral
participation of less-educated people, and thereby, causes
unequal political engagement (Scervini and Segatti, 2012);
people in countries with greater inequality are generally
less willing to undertake anything to improve the living
conditions of their compatriots (Paškov and Dewilde,
2012). Therefore, it can be said that material inequality
amplifies the differences in the material and emotional
resources of individuals (Werfhorst and Salverda, 2012).
Thus, the problem of inequality has been significantly
promulgated by economists and social scientists.
This topic also occupies a significant place in influential
international organisations like the UN and OECD.
When speaking of economic inequality, the UN
report on economic development (United Nations, 2012)
differentiates the following aspects: how great a role
labour costs and incomes play in the total production
of the state (compared, for instance, to capital gains);
how large a proportion of total income is comprised of
the highest incomes (the so-called “top 1% of income
earners”); and how incomes are distributed among
the population, that is, how many people’s incomes
fall below the poverty level. Besides these indicators,
which directly describe income equality, attention is
also directed at wealth and material inequality. In this
connection, other related topics are the inequality of
land and capital ownership, and access to the education
that enables greater incomes. The dimension of gender
inequality is also dealt with separately – this indicates
how external circumstances, which individuals cannot
influence, affect their possibilities for earning income.
Therefore, for the purposes of examining social equity,
a differentiation can be made that is related, on the one
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Estonian Human Development Report 2012/2013