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Covid-19 has led to the first rise in extreme poverty in a generation.
An additional 119~124 million people were pushed back into extreme poverty in 2020.

https://sdgs.un.org/goals/goal1

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Goal 1 | Department of Economic and Social Affairs

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In February 2021, President Xi Jinping declared that China had eliminated poverty in 2020.
Since the campaign started in 2015, the Chinese government has spent over $80 billion to end poverty. The government has relocated millions of households from remote rural regions to new villages more suitable for economic development; constructed new roads, houses, and other infrastructure projects; and offered direct cash transfers.

https://thediplomat.com/2021/09/how-successful-was-chinas-poverty-alleviation-drive/

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In February 2021, in the middle of the COVID-19 pandemic and the ensuing global economic downturn, President Xi Jinping declared that China had eliminated poverty in 2020. Poverty elimination was one of Xi's most signature national policies. Since Xi took power in 2012, China lifted over 100 million members of its rural population out of poverty. Xi called this campaign a "complete victory," a "miracle for humankind," and China's great contribution to the world. Chinese media credited the tremendous success to the leadership of the Chinese Communist Party (CCP), stating that such a success would be impossible without the "institutional advantage" of the Chinese party-state political system.

Poverty elimination was a mass mobilization campaign. Since Mao Zedong developed the Mass Line during the Yan'an era, mass mobilization has been the CCP's key to success, ranging from its civil war victory to its management of the COVID-19 pandemic. Since the campaign started in 2015, the Chinese government has spent over $80 billion to end poverty. The government has relocated millions of households from remote rural regions to new villages more suitable for economic development; constructed new roads, houses, and other infrastructure projects; and offered direct cash transfers.

Beijing has dispatched over 775,000 cadres to survey all rural families to determine which households were living in poverty. Then, the government paired each poor household with a cadre to monitor the poverty elimination process. Many ordinary citizens also became involved in the campaign by donating money and goods to rural households and helping farmers to sell their products. The campaign even revived some old Maoist methods, such as sending medical workers to rural areas for checkups and treatments.

The poverty elimination campaign indeed improved the livelihood of numerous poor peasants in rural China. After building a new house paid for by government grants and no-interest loans, a farmer in a remote part of Yunnan province said, "Three years ago, we didn't have these nice houses.... Now we have good places to live and health care."

This tremendous living-standard improvement generates significant supports for the CCP's regime legitimacy. A recent report from Harvard University's Ash Center for Democratic Governance and Innovation found that the biggest boost in government satisfaction came in low-income and inland regions, where the poverty elimination campaign was active. As a result, many rural residents attributed their living standard improvement to Xi himself and strongly supported Xi's removal of term limits in 2018. One peasant even said, "Twenty years of Xi is better than ten!"
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Despite the tremendous achievements, the poverty elimination campaign failed to address the root cause of rural poverty: the underdeveloped rural human capital. Poor rural education has long plagued China. Research shows that 63 percent of rural students drop out before graduating from high school. Furthermore, the problem runs beyond schools; it includes malnutrition, health problems, and lack of early childhood development. Over half of rural babies in China face malnutrition and over half of rural children are developmentally stunted, with an IQ lower than 90, because of a lack of early childhood education. Forty percent of schoolchildren in rural China have intestinal worms, and over 30 percent of rural students have vision problems but do not have glasses. (For an in-depth discussion of rural poverty in China, read "Invisible China" by Scott Rozelle and Natalie Hell.)

This stunning failure in human capital development will have profoundly negative impacts on the future of China. Currently, about 70 percent of the Chinese labor force not only has no high school education but also lacks the potential for human capital development, as Rozelle and Hell note. These workers are only suitable for labor-intensive jobs, such as assembly line workers, and cannot be retrained for higher value-add jobs because of their lack of learning ability.

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As China moves toward an innovation-driven economy and loses its comparative advantage for labor-intensive jobs to lower income countries, between 200 and 300 million working age Chinese might become structurally unemployable. They will get left behind by the rapidly developing Chinese economy and soon fall into poverty. High levels of structural unemployment will lead to social chaos. Jobless working-age people will become dissatisfied with the status quo and demand changes. Their anger will become a ticking bomb for the regime.
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Facing this tremendous challenge, the Chinese government is not doing enough to address the rural human capital development problem. The poverty elimination campaign primarily focuses on lifting poor households above the poverty line of 4,000 renminbi ($619) per person per year and providing basic needs such as food, closing, medical services, education, and housing. The 2015 CCP Central Committee and State Council Decision to Achieve Victory in the Poverty Elimination Campaign identified job training, migration, social welfare expansion, and business support as primary means to lift the rural population out of poverty. The Decision also declared the expansion of central and local government spending on infrastructure constructions to expand networks of roads, electricity, and internet connections.

In contrast, the campaign did not focus on human capital development. Local cadres were not incentivized to improve rural education. Chinese local officials operate under the cadre responsibility system. This system assigns policy goals as targets, which local cadres need to achieve. Higher officials evaluate local cadre performance by measuring how well they met their targets. Local leaders always prefer accomplishing hard targets over soft targets because they weigh more in assessing their performances.

In the Rural Revitalization Plan (2018-2022), only one out of 22 targets for local cadres relates to education. In addition, the plan labels this target as "predictive" rather than "binding," implying that it is a soft target. It explains why cadres focus almost exclusively on infrastructure construction and providing material goods, as these targets are measurable and binding hard targets. Meanwhile, human capital development is ignored.

The existing rural education policy creates a distortion because it focuses on quantity rather than quality. The 2015 Decision calls for expanding secondary education by enrolling all students who cannot attend academic high schools in newly constructed vocational high schools to receive professional job training. The government pledges to eliminate vocational school tuition and provide financial aid to poor students. The Chinese government reiterated this vocational school expansion policy in all Agricultural Number One Documents between 2015 and 2021.

According to Rozelle and Hell, 91 percent of students scored the same or worse in math exams after attending a vocational school for a year, showing that rural vocational school students are not learning at all. Most students are not even receiving proper job training in vocational high schools, as 56 percent of students spend their job training sessions working in low-level manufacturing. The low-quality education offered by vocational high schools will not develop China's rural human capital. Despite receiving a high school diploma, these students will still face the future of structural unemployment.

This problem is not confined to vocational schools. China's top policy design incentivizes local governments to maximize student enrollment in all levels of schooling. In the County Socioeconomic Statistic Statement, another document measuring the progress of the Rural Revitalization Plan, only two out of 24 targets are about education, and these two targets are the numbers of students in elementary and middle schools. Secondary school enrollment is also a measurement for education policy implementation. Rural cadres are incentivized to reach enrollment targets because they are measurable; cadres can demonstrate their competence by hitting these numerical targets quickly. However, they often disregard student outcomes, something that is harder to measure.
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Deng Xiaoping defined the core value of socialism with Chinese characteristics as "productivity development to achieve common prosperity." The poverty elimination campaign is a solid step toward the "common prosperity" ideal. The elimination of poverty symbolizes China's achievement of a moderately prosperous society, a goal for generations of Chinese leaders, on the 100th anniversary of the Chinese Communist Party. However, how sustainable is this tremendous achievement?

Without real gains in rural human capital development, the elimination of poverty might be fragile and ephemeral. As opportunities close because of China's slowing economic growth, finding low-skill jobs will become increasingly difficult. Without the capability to learn and upgrade their skill sets, rural peasant workers will soon find themselves stuck at the bottom rungs of the social ladder. In the worst-case scenario, they will find themselves falling back into poverty again once the campaign ends.

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How Successful Was China's Poverty Alleviation Drive?

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Advertisement In February 2021, in the middle of the COVID-19 pandemic and the ensuing global economic downturn, President Xi Jinping declared that China had eliminated poverty in 2020. Poverty elimination was one of Xi's most signature national policies. Since Xi took power in 2012, China lifted over 100 million members of its rural population out of poverty.

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Methods By Governments(US) to Solve Inequality

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Methods By Governments(US) to Solve Inequality

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1. Raise the minimum wage
2. Increase access to high-quality preschool
3. Expand apprenticeships

4. Offer universal paid family leave

5.  Allow Americans to refinance their student debt
6. Improve retirement security

https://www.americanprogress.org/article/6-policies-to-combat-inequality/

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When President Barack Obama gives his State of the Union address Tuesday, it is widely expected that he will focus on income inequality, making it a top-of-the-agenda item for this year and the remainder of his term. In his December speech hosted by the Center for American Progress, the president likely offered a preview of his message as he argued that a strong middle class helps drive economic growth:

We need to dispel the myth that the goals of growing the economy and reducing inequality are necessarily in conflict, when they should actually work in concert. We know from our history that our economy grows best from the middle out, when growth is more widely shared. And we know that beyond a certain level of inequality, growth actually slows altogether.

As the consensus to build an economy that works for everyone and not just the wealthy grows, we believe that there are a few key policies that the president should call for that would begin to roll back income inequality in both the short and long term. While these policies by no means represent all that must be done to address inequality-such as protecting workers' rights on the job, improving regulation of financial markets, and limiting the corrosive influence of money in politics, to name a few-they represent new, common-sense approaches that could enjoy broad support and help restore an economy that works for everyone.

1. Raise the minimum wage to $10.10 per hour

One of the most direct and efficient ways to address inequality is to raise the federal minimum wage. While average workers' wages have remained stagnant, the pay for those at the top has skyrocketed. Today, CEOs make 273 times more than average workers do-a differential that is more than 10 times larger today than it was 50 years ago. From 1968 to 2012, the American economy grew tremendously, driven in large part by a 124 percent increase in worker productivity. If the minimum wage had kept pace, it would be close to $22 per hour. Yet the minimum wage has not even kept up with inflation and is actually almost a third lower in value than it was in 1968-contributing directly to rising levels of income inequality. Raising the federal minimum wage from $7.25 to $10.10 per hour and indexing it to inflation would directly or indirectly raise the wages of 28 million workers, who would receive $35 billion in extra wages. Furthermore, polling shows that voters of both parties overwhelmingly support raising the minimum wage to $10.10.

But raising the minimum wage is not just a matter of fairness or a means of combating inequality; it is also needed to jumpstart our economy. Increasing the minimum wage would put money in the pockets of workers, who are likely to spend that money immediately at businesses in their communities. This boost in demand for goods and services will help stimulate the economy. The money then gets funneled back to employers who would need to hire more staff to keep up with the demand. Empirical research shows that raising the minimum wage, far from causing increased unemployment, will actually boost the economy and generate a virtuous cycle of increasing prosperity. If all low-wage workers earn more, virtually every American business would have more customers, and every taxpayer would have to spend less on poverty programs. Just as importantly, research shows that a higher minimum wage could positively affect economic growth by inducing more human-capital development, which can also help lower income inequality.

2. Increase access to high-quality preschool

Low-income children are falling behind before they even step foot into kindergarten and can be months or even years behind their peers developmentally. Researchers estimate that half of the achievement gap in high school can be attributed to children's experiences before age 5. Differences between children emerge early, leading to large gaps in key skills such as vocabulary. Preschool programs can help children gain four months of additional learning, and the highest-quality programs have been shown to help children gain an additional year of learning. Children who attend high-quality preschools have positive outcomes throughout their lifetime: They are more likely to graduate from high school, attend college, and earn higher wages as adults.

In 2013, CAP proposed allowing all families to voluntarily send their children to two years of high-quality public preschool. Congress has since introduced bipartisan legislation, and 40 states already have preschool programs in their states, with conservative administrations in states such as Oklahoma and Georgia leading the way. Also last year, Republican governors in Michigan and Alabama championed new investments in preschool despite difficult fiscal constraints. In her former role as president of the U.S. Chamber of Commerce Foundation, Margaret Spellings stated that:

Business leaders strongly believe that investments in high-quality early learning for children from birth to age 5 yield high returns, not only in the lives of children but for our nation-including long-term educational, social, and economic benefits, from increased earnings and tax revenues to breaking the cycle of poverty.

Offering universal access to high-quality early education can ensure that all children, regardless of their background, start on a more level playing field, thereby combating inequality for the next generation of Americans. This approach, which has broad support, will give all children more of a fair shot to realize the American Dream by working hard and playing by the rules. It will also better prepare our workforce for the challenges of the 21st-century global economy.

3. Expand apprenticeships

Apprenticeships-an "earn-while-you-learn" form of paid worker training-have been shown to significantly boost workers' lifetime wages and create pathways to well-paying careers for unemployed young workers-without incurring student debt. Many countries already rely on apprenticeships as a central tool for developing a competitive workforce, but the training model is largely unfamiliar to Americans. Apprenticeships benefit workers by connecting them with a paid job, raising their lifetime wages, and offering a postsecondary education with little or no debt. Unlike most interns, apprentices are paid employees who earn a paycheck for their work. Researchers have found that workers who complete an apprenticeship earn an average of $300,000 more in wages and benefits than comparable job seekers in their lifetime. And because they can often earn college credit for their coursework and on-the-job training, apprentices gain debt-free education at a time when the average student-loan debt for the class of 2012 is more than $29,000.

At the same time, employers who sponsor apprentices gain skilled workers, reduce employee turnover, and improve productivity. Apprenticeships can help businesses address skilled-labor shortages at a time when many employers are reporting that they cannot find skilled workers to fill jobs. In the United States, 98 percent of businesses sponsoring apprenticeships report that they would recommend them, and researchers in Canada found that Canadian employers receive a benefit of $1.47 for every $1 spent on apprenticeship training. There are a number of steps that Congress can take-and others that can be accomplished through executive action-that could help expand the use of apprenticeships in the United States.

Apprenticeships offer another option for individuals to upgrade their skills-hence their future earnings, without the need for student debt. At a time when the wage premium on postsecondary education is large, apprenticeships can be a more accessible pathway to a stronger economic future for millions of Americans and can ultimately lower levels of inequality.

4. Offer universal paid family leave

Income inequality directly contributes to the disparate abilities of parents to care for their children and provide them with the kind of living environment most conducive to healthy growth, success in school, and success in the workplace. Not only can wealthier parents afford high-quality child care and private pre-K, but they also disproportionately have access to flexible schedules, paid leave, and paid sick days through their employers. Their children benefit from more parental time, which translates into larger vocabularies, more attention to schooling and homework, greater attendance at parent-teacher conferences, and more and better health care.

Yet even though we know that parental time and attention is critically important for children's educational and economic outcomes, America is the only industrialized nation that does not guarantee mothers paid time off to care for a new child. Today, only 12 percent of workers have paid family leave through their employers, and low-wage workers are six times less likely to have access to paid family leave as high-income earners. In addition, women of color are disproportionately affected; they are just as likely to work as white women but are less likely to have access to benefits such as paid leave.

Offering universal paid family leave would help prevent inequality from persisting across generations. The Family and Medical Insurance Leave Act, or FAMILY Act, would provide up to 12 weeks of paid leave each year to workers for a medical condition, the birth or adoption of a new child, or the serious illness of a family member. During that time, workers could receive two-thirds of their monthly wages-up to $1,000 per week. Workers would pay into this system, with an average contribution of about $2 per week per worker from their paycheck.

5. Allow Americans to refinance their student debt

Student-loan debt has overtaken credit card debt and has now eclipsed $1 trillion. Yet the majority of federally backed student debt is at an interest rate higher than 6 percent. In contrast, the government can borrow money at a much lower cost, meaning that many students are paying two to three times the federal rate. Allowing students to refinance their student loans would boost the likelihood of repayment, freeing up income that could be spent in other sectors and alleviating inequality by lowering the effective cost for low-income individuals to attend college. A 2013 CAP analysis found that just refinancing federal student loans with an interest rate above 5 percent would have resulted in a savings of $14 billion for individual borrowers in 2013 and would have pumped $21 billion into the economy in the first year alone.

In recent years, college graduates' wages have been increasingly pulling away from the wages of individuals who only have a high school degree. This makes college access more critical than ever to improving economic mobility for Americans. Yet high levels of student debt can become a long-term impediment for low- and middle-income families: Graduates saddled with large monthly loan payments have to delay buying a home, are left with fewer job choices, and experience lower levels of economic stability as a result.

6. Improve retirement security

Economic inequality continues into retirement. About half of all workers do not have a retirement plan at work, and those who do have a 401(k) have only accumulated enough money to give them a monthly retirement payment of about $575 on average. Consequently, accounting firm Ernst & Young estimated that 59 percent of new middle-class retirees will outlive their savings. Furthermore, traditional defined-benefit pensions-a staple of good, middle-class jobs a generation ago-have become a rarity. The tax code also reinforces inequality in retirement; its upside-down-pyramid shape offers larger incentives for those at the top to save-even though they are already more likely to do so-and relatively little help for those at the bottom. Specifically, personal contributions to qualified retirement accounts receive a tax deduction, meaning that those in the top tax bracket, for example, receive 39.6 cents back for every dollar they save while those in the 10 percent tax bracket receive 10 cents back for every dollar they save.

However, CAP has proposed a low-cost solution that meets the needs of workers and businesses: The Secure, Accessible, Flexible, and Efficient, or SAFE, Retirement Plan would automatically enroll workers in a collective defined-contribution plan, offer low fees and professional fund management, collectively pool participants' assets, and turn these assets into lifetime payments in retirement at a low cost. Additionally, a Universal Savings Credit, which would replace all existing deductions with a new flat tax credit based on their contributions to a savings account, would flip the upside-down pyramid of tax benefits to better help low- and middle-income families save for retirement.

Conclusion

While there is no silver bullet to instantly reverse decades-long trends in rising inequality, there are common-sense policies with broad support that together can help put America back on the right path toward an economy that works for all. Adopting the six policies outlined here would go a long way to increase the wages of workers today, help all children start on a more level playing field, make skills training and postsecondary education more widely accessible, and ensure that all Americans can retire with dignity.
Ben Olinsky is a Senior Fellow at the Center for American Progress.

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When President Barack Obama gives his State of the Union address Tuesday, it is widely expected that he will focus on income inequality, making it a top-of-the-agenda item for this year and the remainder of his term.

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Despite the high level of US inequality, tax relief and government spending programs do help low-income Americans.

Since 1965, the United States has expanded the social safety net for poor and low-income families, notes Jason Furman (PIIE). As a result, the US poverty rate is lower than it would be without these transfers—15 percent instead of 27 percent in 2015.

https://www.piie.com/microsites/how-fix-economic-inequality#group-6-Government-efforts-Bbc0tzQWIu

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How to Fix Economic Inequality? An Overview of Policies for the United States and Other High-Income Economies

An Overview of Policies for the United States and Other High-Income Economies

For decades, a gap has been growing between the rich and poor in advanced economies, especially the United States. Then the coronavirus pandemic struck, costing over a million lives globally by the end of October 2020 and setting off the worst global recession in nearly a century. The people most vulnerable to a health and economic shock have been hit the hardest.

Now at a time of acute health and economic crisis, widening divisions are raising moral, social, economic, and political challenges. Many experts argue that longstanding US policies that widened inequality have also exacerbated the pandemic's impact. As the United States and other countries strive to rebuild their economies, governments have an opening to alleviate unfair economic disparities and improve access to opportunities.

This guide draws together research from the world's leading experts on inequality trends and causes within countries and a list of available policy options to mitigate the growing gap (mostly for the United States, with lessons applicable to other advanced countries).
Most of the research below comes from the Peterson Institute 2019 conference on "Combating Inequality," later work from attending experts, and other PIIE publications. Read also "We Have the Tools to Reverse the Rise in Inequality," by conference organizers Olivier Blanchard (PIIE) and Dani Rodrik (Harvard University), and their book of essays by conference participants, Combating Inequality: Rethinking Government's Role, published by MIT Press.

Income inequality has grown within advanced economies as top earners have experienced more rapid income growth and bottom earners were left behind.

In the past few decades, the Gini coefficient-a standard measure of income distribution across population segments-increased within most high-income economies. The United States remains the most unequal high-income economy in the world. The disparity reflects a surge in incomes for the richest population segments, along with sluggish or even falling incomes for the poorest, especially during bad economic times.

At the same time, the middle class is shrinking. The percent of Americans in the middle class has dropped since the 1970s, from 61 percent in 1971 to 51 percent in 2019. Some have moved up the income ladder, but an increasing number are also moving down. The middle class has also shrunk considerably in countries like Germany, Canada, and Sweden, but other advanced economies have generally experienced more modest declines.

Wealth is even more concentrated at the top than income.

Wealth buttresses financial security for families. It comprises the value of assets, such as a home or corporate stocks, minus outstanding debt, such as a mortgage or student loans. Wealth is much more concentrated among the top tier of wealth holders, with households in the top 10 percent of the wealth distribution in high-income countries owning more than half of all household wealth in 2015 (or latest year available), according to the Organization for Economic Cooperation and Development (OECD). In the United States, they own 79 percent. By comparison, the top 10 percent of all income earners receive about a quarter of all cash income. Changes in wealth inequality in recent years differ across countries, though it grew particularly wider in the United States and the United Kingdom after the global financial crisis.

The richest Americans have been able to save more of their money and grow their wealth faster than the average American since the late 1980s. A Pew Research Center study finds only upper-income families in the United States grew wealth between 2001 and 2016, gaining 33 percent at the median. Middle-income families experienced a 20 percent loss in median net worth while lower-income families lost 45 percent.

How to measure inequality?

Inequality can be measured in many ways, most often using income. The Gini coefficient is a measure of how equally income is distributed across the population, with 0 being perfectly equal (where everyone receives an equal share) and 1 being completely unequal (where 100 percent of income goes to only one person). Wealth inequality considers the value of people's assets, like real estate and corporate stock, minus debts. Many income inequality measures do not account for taxes and government transfers like healthcare and income support programs, which help reduce inequality. For more on the impact of government intervention, see Section 6 below and this study by the Congressional Budget Office (CBO).

"The American Dream" is fading. Generations today are much less likely to earn more than their parents.

Social mobility-the chance to move up the income ladder-has fallen in the United States. Americans are increasingly stuck in the income bracket they were born into. Research by Raj Chetty (Harvard University) shows on average, almost 80 percent of children born in 1950 were earning more than their parents by age 30. For children born in 1980, that number dropped to 50 percent. Escaping poverty has become more difficult as wider economic gains disproportionally benefit wealthier classes. A child born in Canada has almost double the chance of moving from the bottom to top income quintile.

The top 1 percent command an ever bigger share of national income and wealth in the United States.

In the United States, the top 1 percent of earners made a little over 10 percent of the country's income in 1980. In 2017, they made 20 percent, surpassing the share of the bottom half of earners. In Europe, the gains among the top 1 percent have been less dramatic, and the bottom half still has more income share than the top 1 percent.

The top 1 percent wealth share declined for much of the 20 th century in the United States but then started rising in the late 1970s. It has recently reached levels last observed in the early 1920s. The upswing has been almost entirely driven by the wealthiest top 0.1 percent, who held 7 percent of US wealth in 1979 and nearly 20 percent today, based on research by Emmanuel Saez and Gabriel Zucman.

The income gap between men and women has narrowed but persists.

Since the 1970s, widespread progress occurred in reducing the wage gap between men and women across advanced economies, but progress leveled off in the United States and elsewhere around 2005. Women in the United States earned 18 percent less than men on average in 2019, close to the average among G7 countries. Factors for the wage gap include differences in jobs held by men and women and outright discrimination. If current trends continue, it may take a century to reach wage parity.

The income gap between Black and white Americans has remained about the same since the 1980s. The racial wealth gap has widened considerably.

White Americans earned 2.5 times more than Black Americans in the 1960s. By the 1980s that differential dropped to 1.3 times more, partially because the minimum wage expanded to more sectors. The racial earnings gap has since stagnated.

The US racial wealth gap has grown since the 1980s-1990s and the difference between groups is pronounced. In 2019, a typical white family had eight times the wealth of a Black family and five times the wealth of a Hispanic family.

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Technology and trade are factors, but policies determine outcome.

Automation and trade liberalization have profoundly transformed labor markets across advanced economies, giving disproportionate advantages to highly skilled and educated workers, and research shows these forces have played a role in widening inequality. But it is important to emphasize the role of governments in mitigating these effects. The United States and Europe have very different levels of inequality despite similar levels of technological change and trade liberalization. Divergent policies among countries must logically have influenced their disparities in the growth in inequality.

How have technology and globalization widened inequality within the United States?

Economists generally think globalization has contributed marginally to rising US wage inequality but that technology has played a much bigger role. For the last half century, the United States has generated tremendous economic growth and wealth as a result of technological innovations and international trade and investment. Tech giants emerged with the advent of the internet. Businesses tapped global supply chains, technology breakthroughs, and international markets to expand their reach, turning some into multinational powerhouses, generating high-end jobs, and making a whole new range of products affordable for consumers.

But some workers have lost out. US industrial production is still at historically high levels, but automation makes that achievement possible with far fewer workers. The US economy, like many advanced economies, has been driven more by services (information, business and professional services, health care, restaurants, travel, financial services) and less by manufacturing, with consumers spending a smaller percent of their incomes on manufactured goods than they used to.

Technology has reduced demand for certain low- and middle-wage workers, such as in factory assembly lines, and increased demand for high-skilled, higher-paid workers. To cut costs and stay competitive, many businesses outsourced manufacturing production from domestic factories to countries like China, Vietnam, and Mexico, displacing some domestic manufacturing jobs. (A Peterson Institute study finds about 156,000 US manufacturing jobs were lost on net each year between 2001 and 2016 from expanded trade, or less than 1 percent of the workers laid off in a typical year). ¹

Men and workers without a college degree have been hardest hit, especially in factory towns outside major US cities. Many of these workers have dropped out of the labor force. By contrast, highly educated and skilled workers, particularly in urban areas, earned a premium.
Learn more about the effects of trade and investment in this guide, "What Is Globalization?"
Governments have cut top tax rates.

Tax policy is one of the most important factors in determining inequality levels in advanced economies. Taxes in the United States and many other rich countries have become less progressive in the past 50 years, meaning that tax obligations have declined for those with the highest incomes. The top earners used to pay much higher tax rates on their income than they do now. Less progressive taxation has accelerated the growth of top incomes.

An Overview of Policies for the United States and Other High-Income Economies

For decades, a gap has been growing between the rich and poor in advanced economies, especially the United States. Then the coronavirus pandemic struck, costing over a million lives globally by the end of October 2020 and setting off the worst global recession in nearly a century. The people most vulnerable to a health and economic shock have been hit the hardest.

Now at a time of acute health and economic crisis, widening divisions are raising moral, social, economic, and political challenges. Many experts argue that longstanding US policies that widened inequality have also exacerbated the pandemic's impact. As the United States and other countries strive to rebuild their economies, governments have an opening to alleviate unfair economic disparities and improve access to opportunities.

This guide draws together research from the world's leading experts on inequality trends and causes within countries and a list of available policy options to mitigate the growing gap (mostly for the United States, with lessons applicable to other advanced countries).
Most of the research below comes from the Peterson Institute 2019 conference on "Combating Inequality," later work from attending experts, and other PIIE publications. Read also "We Have the Tools to Reverse the Rise in Inequality," by conference organizers Olivier Blanchard (PIIE) and Dani Rodrik (Harvard University), and their book of essays by conference participants, Combating Inequality: Rethinking Government's Role, published by MIT Press.

Income inequality has grown within advanced economies as top earners have experienced more rapid income growth and bottom earners were left behind.

In the past few decades, the Gini coefficient-a standard measure of income distribution across population segments-increased within most high-income economies. The United States remains the most unequal high-income economy in the world. The disparity reflects a surge in incomes for the richest population segments, along with sluggish or even falling incomes for the poorest, especially during bad economic times.

At the same time, the middle class is shrinking. The percent of Americans in the middle class has dropped since the 1970s, from 61 percent in 1971 to 51 percent in 2019. Some have moved up the income ladder, but an increasing number are also moving down. The middle class has also shrunk considerably in countries like Germany, Canada, and Sweden, but other advanced economies have generally experienced more modest declines.

Wealth is even more concentrated at the top than income.

Wealth buttresses financial security for families. It comprises the value of assets, such as a home or corporate stocks, minus outstanding debt, such as a mortgage or student loans. Wealth is much more concentrated among the top tier of wealth holders, with households in the top 10 percent of the wealth distribution in high-income countries owning more than half of all household wealth in 2015 (or latest year available), according to the Organization for Economic Cooperation and Development (OECD). In the United States, they own 79 percent. By comparison, the top 10 percent of all income earners receive about a quarter of all cash income. Changes in wealth inequality in recent years differ across countries, though it grew particularly wider in the United States and the United Kingdom after the global financial crisis.

The richest Americans have been able to save more of their money and grow their wealth faster than the average American since the late 1980s. A Pew Research Center study finds only upper-income families in the United States grew wealth between 2001 and 2016, gaining 33 percent at the median. Middle-income families experienced a 20 percent loss in median net worth while lower-income families lost 45 percent.

How to measure inequality?

Inequality can be measured in many ways, most often using income. The Gini coefficient is a measure of how equally income is distributed across the population, with 0 being perfectly equal (where everyone receives an equal share) and 1 being completely unequal (where 100 percent of income goes to only one person). Wealth inequality considers the value of people's assets, like real estate and corporate stock, minus debts. Many income inequality measures do not account for taxes and government transfers like healthcare and income support programs, which help reduce inequality. For more on the impact of government intervention, see Section 6 below and this study by the Congressional Budget Office (CBO).

"The American Dream" is fading. Generations today are much less likely to earn more than their parents.

Social mobility-the chance to move up the income ladder-has fallen in the United States. Americans are increasingly stuck in the income bracket they were born into. Research by Raj Chetty (Harvard University) shows on average, almost 80 percent of children born in 1950 were earning more than their parents by age 30. For children born in 1980, that number dropped to 50 percent. Escaping poverty has become more difficult as wider economic gains disproportionally benefit wealthier classes. A child born in Canada has almost double the chance of moving from the bottom to top income quintile.

The top 1 percent command an ever bigger share of national income and wealth in the United States.

In the United States, the top 1 percent of earners made a little over 10 percent of the country's income in 1980. In 2017, they made 20 percent, surpassing the share of the bottom half of earners. In Europe, the gains among the top 1 percent have been less dramatic, and the bottom half still has more income share than the top 1 percent.

The top 1 percent wealth share declined for much of the 20 th century in the United States but then started rising in the late 1970s. It has recently reached levels last observed in the early 1920s. The upswing has been almost entirely driven by the wealthiest top 0.1 percent, who held 7 percent of US wealth in 1979 and nearly 20 percent today, based on research by Emmanuel Saez and Gabriel Zucman.

The income gap between men and women has narrowed but persists.

Since the 1970s, widespread progress occurred in reducing the wage gap between men and women across advanced economies, but progress leveled off in the United States and elsewhere around 2005. Women in the United States earned 18 percent less than men on average in 2019, close to the average among G7 countries. Factors for the wage gap include differences in jobs held by men and women and outright discrimination. If current trends continue, it may take a century to reach wage parity.

The income gap between Black and white Americans has remained about the same since the 1980s. The racial wealth gap has widened considerably.

White Americans earned 2.5 times more than Black Americans in the 1960s. By the 1980s that differential dropped to 1.3 times more, partially because the minimum wage expanded to more sectors. The racial earnings gap has since stagnated.

The US racial wealth gap has grown since the 1980s-1990s and the difference between groups is pronounced. In 2019, a typical white family had eight times the wealth of a Black family and five times the wealth of a Hispanic family.

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Technology and trade are factors, but policies determine outcome.

Automation and trade liberalization have profoundly transformed labor markets across advanced economies, giving disproportionate advantages to highly skilled and educated workers, and research shows these forces have played a role in widening inequality. But it is important to emphasize the role of governments in mitigating these effects. The United States and Europe have very different levels of inequality despite similar levels of technological change and trade liberalization. Divergent policies among countries must logically have influenced their disparities in the growth in inequality.

How have technology and globalization widened inequality within the United States?

Economists generally think globalization has contributed marginally to rising US wage inequality but that technology has played a much bigger role. For the last half century, the United States has generated tremendous economic growth and wealth as a result of technological innovations and international trade and investment. Tech giants emerged with the advent of the internet. Businesses tapped global supply chains, technology breakthroughs, and international markets to expand their reach, turning some into multinational powerhouses, generating high-end jobs, and making a whole new range of products affordable for consumers.

But some workers have lost out. US industrial production is still at historically high levels, but automation makes that achievement possible with far fewer workers. The US economy, like many advanced economies, has been driven more by services (information, business and professional services, health care, restaurants, travel, financial services) and less by manufacturing, with consumers spending a smaller percent of their incomes on manufactured goods than they used to.

Technology has reduced demand for certain low- and middle-wage workers, such as in factory assembly lines, and increased demand for high-skilled, higher-paid workers. To cut costs and stay competitive, many businesses outsourced manufacturing production from domestic factories to countries like China, Vietnam, and Mexico, displacing some domestic manufacturing jobs. (A Peterson Institute study finds about 156,000 US manufacturing jobs were lost on net each year between 2001 and 2016 from expanded trade, or less than 1 percent of the workers laid off in a typical year). ¹

Men and workers without a college degree have been hardest hit, especially in factory towns outside major US cities. Many of these workers have dropped out of the labor force. By contrast, highly educated and skilled workers, particularly in urban areas, earned a premium.
Learn more about the effects of trade and investment in this guide, "What Is Globalization?"
Governments have cut top tax rates.

Tax policy is one of the most important factors in determining inequality levels in advanced economies. Taxes in the United States and many other rich countries have become less progressive in the past 50 years, meaning that tax obligations have declined for those with the highest incomes. The top earners used to pay much higher tax rates on their income than they do now. Less progressive taxation has accelerated the growth of top incomes.

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How to Fix Economic Inequality? An Overview of Policies for the United States and Other High-Income Economies An Overview of Policies for the United States and Other High-Income Economies For decades, a gap has been growing between the rich and poor in advanced economies, especially the United States.

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