Income inequality the overall (EU) perspective and the case of Swedish agriculture. Martin Nordin

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1 Income inequality the overall (EU) perspective and the case of Swedish agriculture Martin Nordin

2 Background Fact: i) Income inequality has increased largely since the 1970s ii) High-skilled sectors and high-skilled labour has experienced large increases in incomes

3 The elephant curve: The global income distribution

4 the great winners have been the Asian poor and middle classes; the great losers, the lower middle classes of the rich world. (Milanovic, 2016)

5 Inequality from an overall perspective Thus: To understand the problems facing the agricultural sector (and rural areas) we must start from the overall perspective Question: Is agriculture a high-skilled sector with a promising future?

6 Change in Gini coefficient between Source: OECD (2011)

7 Source: Piketty and Saez Published by AAAS

8 What has caused the increase in inequality?

9 Increased wage gap between college and high school graduates in the US, Source: Autor, Katz and Kearney, 2008.

10 Explanations Skill-biased technological change new information technologies increase the relative productivity of high-skilled workers International trade imported goods compete with domestic goods produced by unskilled workers Immigration of unskilled workers Unions has less influence on wage-setting

11 Within-country income inequality Focus is mainly on within-country income inequality a determinant of political tensions in a society (think Brexit and Trump)

12 Between-country income inequality Much less research on between country income inequality i.e. income differences between member countries Wage convergence in EU is an implicit goal in many EU policy documents Economic integration should lead to less inequality at the EU level

13 Migration and between-country inequality Between country income inequality leads to migration flows within EU Migration is mainly positive but have political consequences (Brexit) potentially increasing inequality in host country

14 EU (28) Belgium Bulgaria Czech Rep. Denmark Germany Estonia Ireland Greece Spain France Croatia Italy Cyprus Latvia Lithuania Luxembourg Hungary Malta Netherlands Austria Poland Portugal Romania Slovenia Slovakia Finland Sweden UK Iceland Gini EU-wide inequality measure A EU-wide Gini coefficient should include both the within- and the between-country income inequality Eurostat publishes population-weighted averages of country specific Gini coefficients

15 Problems A population-weighted Gini coefficient is underestimated because the between-country difference in income is not captured Need to merge individual data for each member country Treat EU as a single country

16 EU-wide Gini coefficient using individual data Studies show that the EU-wide income inequality is comparable to income inequality in the US About 15% higher than the population-weighted Gini

17 Evolution of inequality since Theil Between Within Between-country inequality has decreased since 2004 reduction in wage differences between countries Within-country inequality has increased after the crisis Source: Own figure based on Fernández-Macias and Vacos Soriano, SES data.

18 Evolution of inequality since 2004 The variation in the within countryinequality is entirely driven by changes in inequality in the UK Source: Fernández-Macias and Vacos- Soriano, SES data

19 Evolution of inequality since 2004 Source: Fernández-Macias and Vacos Soriano, SES data.

20 The future outlook and policy recommendations Inequality is probably going to keep increasing in EU as global competition continues to increase Pressing down wages of low skilled labour in EU To a large extend affecting labour in rural areas To tackle this problem we have to continue up-skilling the labour force in Europe Complemented with redistributed policies to help groups that fall behind (the rural poor)

21 Is agriculture a high-skill sector? Farmers earnings and disposable incomes for Sweden in Martin Nordin och Sören Höjgård Compares earnings in the total Swedish population with earnings in agriculture Earnings from tax records including off-farm incomes and CAP subsidies both operator and partners earnings not factor income

22 Household earnings (thousands) Relative earnins Household earnings Total household population: earnings have increased with 33% Agricultural households: Farm household earnings Earnings in total population Farm household earn./earn. in total pop. earnings have increased with around 55% Gap has decreased with around 12 percentage points

23 Household disposable income (thousands) Households disposble incomes Farm household disposable income Disposable income in total population Disposable incomes are similar for agricultural households and other households

24 Gini coefficientl Inequality in agriculture the Gini Farm households: equivalised disposable Total population: equivalised disposable income Inequality has increased in Sweden Within-inequality has stayed the same in agriculture

25 At-risk-of-poverty rate At-risk-of-poverty rate Farm population: at-risk-of-poverty rate Total population (all): at-risk-of-poverty rate Share below 60% of national median disposable income decreasing in the agricultural population increasing in the rest of the population Thus, same in , around 13%

26 European Agriculture in the Global World Is agriculture a high-skilled sector with a promising prospective? new technologies are being implemented It may suggest that the EU subsidies (CAP) should have a broader redistributive role in ensuring incomes in rural areas not mainly targeting the agricultural population At least, CAP should be a means-tested income support targeting poverty in agriculture