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[Data] Inequalities: France Is Doing Better Than Most OECD Countries

BLOG - 1 August 2019

Based on an original idea by Marc-Antoine Jamet, Mayor of Val-de-Rueil.

Inequalities, on which the G7 summit, to be held in Biarritz from August 24th to August 26th, will focus, are a constant issue of global - and French - concern. In a world irrigated with false information, where emotion often prevails over reason, it is important to take the heat out of the public debate on this subject, especially in France, a country particularly passionate about equality, where perceptions are often far from reality. Julien Damon, sociologist and associate professor at Sciences Po, shares his analysis on poverty, the middle class and inequalities in France and in the world today.

 

Addressing inequalities on a global scale is one thing, but doing so in the case of France is another, as the passion surrounding the subject can ignite the public debate. Voltaire, reading Rousseau’s Discourse on the Origin and Basis of Inequality among Men, wrote "I have received, Sir, your new book against humankind [...] We have never used so much spirit to want to make us stupid". While the poverty lines mentioned in the first opus of this series are significant on a global scale, they are less so in France. It is important to understand the global context of inequalities and the context in which France operates, while taking into account France’s specificities. It is necessary to distinguish perceptions of inequalities from reality, without minimizing facts.

How did inequalities evolve at the global level?

The economist Branko Milanovic makes a clear observation: since the beginning of the millennium, while national inequalities - driven by very high incomes - have been increasing, international inequalities have tended to decrease. In addition to enriching the richest, globalization has also enabled the poorest (outside the "rich" world) to improve their economic situation. Milanovic highlights the phenomenon explored in the previous post: rising incomes in emerging countries are fuelling the growth of the national middle classes and the decline of the developed world's middle classes. While it is very pronounced in the United States and several European countries, this decline is not yet very strong in France. However, this concern is growing among the French population.
 

Source : Branko Milanović

 

The elephant curve shows the growth of average income (on the ordinate) as a function of the global distribution of income (on the abscissa) between 1988 and 2008 in 120 countries. It appears that, while the income of the poorest 5% has increased, the disadvantage of these people has not decreased because their income has increased less rapidly than the average overall income. A second group of losers, very different, is emerging: those whose incomes are between the 80th and 95th percentile - incomes that are therefore rather high on a global scale but not necessarily on a rich country scale - who have also grown less quickly than overall income; they have become relatively poorer. This is the decline of the middle class in developed countries.

A rather favourable situation for France

On the French side, the relative situation is rather favourable according to some indicators. The Gini index (it varies between 0 and 1, the closer it is to zero, the more egalitarian the country) places France (0.29) below the OECD average (0.3), far behind the United States, the United Kingdom, China or South Africa, the most unequal country on earth.
 

Source : OECD

 

If we take another common indicator, the inter-decile ratio S90/S10, which compares what the most favoured 10% and the least favoured 10% receive on average, France is even better positioned. The most favoured receive about 7 times more than the least favoured, compared to 21 times in Mexico, 19 times in the United States and 10 times in the United Kingdom. Nevertheless, inequalities are increasing: the inter-decile ratio was 6 in the early 2000s.
 
In addition to general indicators, figures on living conditions, access to basic services and facilities (housing, food, internet, etc.) can be used to measure inequality. Access to information and communication technologies, in a world where mobile phones are much more widespread than access to drinking water, is being closely monitored. Today, over 3.5 billion people around the world have access to the Internet, including 70% of young people aged 15 to 24.
 

Source : ITU

 

In France, this number stands at 90% for the total population, which means that the digital divide is one of the most worrying forms of inequality. Indeed, while it has never been so small, in France, it has never been so problematic for those on the wrong side of the gap.
 

Source : Credoc

 

According to the UN, the world has been predominantly urban since 2008. Ongoing urbanization is characterized by two phenomena: metropolization - the concentration of wealth, talent and investment in large cities - and "slumming" - the growth of the most degraded neighbourhoods. The statistics are not very reliable, but the UN estimates that nearly one billion people (one eighth of humanity, one quarter of urban dwellers) live in slums.
 

Source : UN habitat

 

However, it is difficult to compare the mega-shantytowns of developing countries with contemporary camps in France. While our country is still experiencing insalubrious conditions and a return of these slums, which had been eradicated at the beginning of the 1980s, the overall situation of French housing is constantly improving. In the early 1970s, 40% had no toilets or sanitary facilities. This is now the case for less than 1% of the stock. Even if these conditions are very rare, there are still unacceptable situations, often very visible and very strongly denounced.
 

 

The importance of social spending: a French singularity

 

Source : OECD

 

A French singularity remains, that of social spending, the importance of which partly explains the stability of poverty and inequality in France. We are the only OECD country whose social spending - over €714.5 billion in 2016 - exceeds 30% of GDP. By way of comparison, the European average is 29%, the OECD average is 22%, and the world average is 10%. With less than 1% of the world's population, France accounts for over 10% of the world’s social spending. The effort of 33% of GDP today was, at the end of the 1950s, 15%. This is mainly due to an increase in expenditure on pensions and health insurance over the period. France's particularity lies in the importance of its pension system, which itself accounts for almost half of social spending. This results in a very low poverty rate for pensioners (around 8%), but high poverty rates for families with children (20%).
 

 

Source : DREES

 

The French population is predominantly pessimistic...

Thus, in terms of inequality and poverty, France is doing rather well compared to the whole world, but especially compared to the nations that are "comparable”. Nevertheless, pessimism is high, both in terms of past inequalities and future developments.
 

Source : Eurobaromètre
 
Source : Eurobaromètre

 

This level of concern can be explained by several factors. First, some segments of the population have good reason to be concerned. This is the case for young people and, by construction, their parents when they are wondering about their children's future. Then, perhaps there is a particular form of French lamento. Above all, the French population may fear the loss or erosion of institutions and positions to which they traditionally had access. They are worried because they believe, rightly or wrongly, that they have something to lose. This is not the case in many other EU Member States, where people may first feel that they have something to gain.
 

Source : DREES

 

When asked over the past 15 years whether they believe that inequalities have increased, decreased or remained stable over the past five years, over 60% (90% in 2011) of French people systematically answered that they have increased.
 

Source : DRESS

 

The scores are roughly equivalent regarding a possible evolution of inequalities in the future. Here again, never less than 60% of French people believe that inequalities will increase. According to Institut Montaigne and Elabe’s Barometer of the Territories, 78% of French people even consider the current society unfair (including 28% very unfair). When asked to describe which inequalities they consider to be the most widespread, the French cite income inequalities as a priority. Next come, quite far behind, employment inequalities, inequalities linked to ethnic origin, housing, access to healthcare, education and, lastly, those linked to family heritage.

... which runs counter to actuel inequality trends

However, according to the Gini index, inequalities have clearly decreased since 1970: the index has fallen from over 0.33 in 1970 to less than 0.29 in 2015. Nevertheless, there are developments within this long trend: a clear decrease until the early 1990s, followed by a stabilization and then an increase between 1998 and 2011, and finally a decrease until 2015, under the double effect of the financial crisis and an increase in taxes on the wealthiest.
 

 

The same trend is revealed by the inter-decile ratio D9/D1 (minimum standard of living of the wealthiest 10% divided by the maximum standard of living of the poorest 10%): a very sharp decline in inequality in the 1970s, followed by stabilisation from the 1980s onwards. In 1970, the poorest had a standard of living at most 4.6 times lower than the wealthiest 10%. In 2016, this ratio is 3.4.
 

 

The observation is therefore simple and irrefutable: inequalities in living standards are not exploding in France. As with poverty, the trend is towards stabilization.

Income inequalities vs. asset inequalities

In recent years, the focus has been on the recent upswing in income inequality and asset concentration. But over time, the image is different. The dynamic, over two centuries, is that of an emergence of the middle class. In 1800, the wealthiest 10% owned 80% of the estate, compared to 60% today. Among them, the wealthiest 1% concentrated, in 1800, 45% of the wealth; they only own a little over 20% today. The feeling varies according to the interpretation of the most recent movements, which see an upward recovery for the wealthiest, with stagnation for the middle class. This is certainly a key element of the French problem: the recent destabilization of the middle class.
 

Wealth concentration
Source : World Inequality Database, Thomas Piketty
Wealth concentration
Source : World Inequality Database, Thomas Piketty

 

Inequalities in assets, which are a stock, are much greater than income inequalities, which are a flow.

Source : Insee
Source : World Inequality Database, Thomas Piketty

 

In 2015, the average household wealth was €270,000, and the median wealth was €158,000. The best-endowed half owns 92% of the total assets, the best-endowed 10%, 47%, and the best-endowed 1%, 16%. While in 2015, the inter-decile ratio D9/D1 is 3.5 for income, for wealth it is 822. The Gini index is 0.29 for income, compared to 0.65 for wealth. While in the long term, particularly during the 20th century, the trend has been towards a substantial reduction in these wealth inequalities, the upward recovery has been clear since the 1990s. Less pronounced than in most other OECD countries, this new growth in wealth inequality reflects in France, as everywhere, the consequences of the transformations of capitalism and the digital economy, but also of ageing and changes in tax and benefit systems.

More or less unequal territories

Finally, a more striking and topical fact is that the territories are unequal. They are unequal among themselves, and within themselves.
 
The General Office of the Commissioner for Equality of the Territories assesses inequalities in living standards from one territory to another, based on the median of disposable income per consumption unit. The result is a fairly classic map of metropolization and wealth. Over a decade or so, disparities between employment areas have tended to narrow slightly.
 

income inequalities
Source : Cepremap

 

With regard to inequalities within territories, a Gini index has been calculated for 2015 by the Observatoire du bien-être (Cepremap) in different areas. The results are clear: Paris is the most unequal urban area, with a Gini similar to that of Brazil; rural municipalities have a Gini approximating that of Sweden. Indeed, as in many Western countries, inequality and poverty are higher in the most urbanized areas.
 
Thus, with regard to inequality, France enjoys a rather favourable situation in the world, with a Gini index (0.29) lower than the OECD average (0.3). Moreover, inequalities have clearly decreased since 1970 (from 0.33 to 0.29). This is partly explained by the importance of social spending, which exceeds 30% of GDP and thereby makes France unique. However, the French population is highly pessimistic when it comes to inequalities, both in terms of their evolution in the past and in the future. For some segments of the population - young people in particular - this concern is justified. This is also the result of a French lamento, with the French population having more to lose than some of their European neighbours for example.

 

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