Tackling global inequality through research

June 21, 2016

Since 1912, social scientists have used the Gini coefficient as the most common measure of global inequality. The coefficient uses the income distribution of a nation as a key indicator of economic and social disparity.

Gini coefficient world map

More than a century after its creation, however, this model can no longer offer a complete and accurate picture of how wealth and power are distributed. In a world where global financial markets operate outside national borders, wealth concealment is a multi-billion dollar international industry, and one percent of people own half the world’s wealth, it’s clear that newer, more advanced methods are needed to properly study and solve global inequality.

Seeking to go beyond the Gini coefficient to find a more nuanced and multifaceted understanding of inequality in the world, the Buffett Institute for Global Studies and the Institute for Policy Research (IPR) co-organized the Global Inequality Workshop on May 12-13, 2016. Both research institutes stand to benefit from one another’s strengths—Buffett from IPR’s more policy-relevant mindset, and IPR from Buffett’s wider global focus. 

The 19 faculty presenters from Canada, Denmark, Singapore, the United States, and other countries constituted an interdisciplinary, “academic dream team,” said Bruce Carruthers, director of the Buffett Institute and John D. MacArthur Chair of Sociology.  

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

Global Inequality Workshop at Northwestern

Six panels covered varying perspectives of inequality, starting with a global overview that was followed by discussions of education, health, organizations, labor and compensation, and innovative ways to measure inequality.

“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 David Figlio, director of IPR and Orrington Lunt Professor of Education and Social Policy and of Economics. “At the same time, there are US domestic policies that are relevant in other countries.”

Organizers hope that the intimate workshop environment set the stage for a more comprehensive joint event in the future. Panelists converged around the idea that rigorous social science research was key to addressing the many issues—and more is needed.

Sharing research to address global problems

Here are some highlights of the research presented at the workshop:

Max Planck anthropologist Chris Hann called for caution in linking social inequality to increasing social complexity, asking scholars to rethink the idea that “when you open up to markets, you are bound to wind up with a democracy.” He recounted the transition of some socialist countries to open-market economies, whose citizens today “hold deep regrets” about some of their lost socialist benefits, offering lessons for other countries that are on the cusp of transition, such as Cuba. 

EDGS Director Jeffrey Winters at the GIQ WorkshopJeffrey Winters, director of the Buffett Institute’s Equality Development and Globalization Studies (EDGS) program asked, “Why does wealth inequality continue to increase despite having more freedom and democracy in the world?” While governments closely track pay, he explained, very few 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 and accountants.

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

Olivier Godechot, co-director of MaxPo, a joint Max Planck/Sciences Po center that studies economic instability, discussed the trend of “financialization,” where nonfinancial firms and even households adopt and engage in risky financial practices common to the finance industry, such as acquiring more credit and debt. He described how when households engage in such practices, it affects those at the top end of the income distribution, too. However, he explained that increasing activity of financial markets is the main contributor to inequality’s rise.

Kellogg sociologist and IPR associate Lauren Rivera explained how companies perpetuate workplace inequality through hiring based on social class. Through a randomized resume audit, she found that companies are “the gatekeepers to social brackets” and were more likely to call back an upper-class male for an interview over equally qualified males from more disadvantaged backgrounds.

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 exploited the variation in court-ordered reforms in US 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.

“SES [socioeconomic status] is the single most powerful determinant of health outcomes,” explained pediatrician Tom Boyce of the University of California, San Francisco. He highlighted how early poverty-related adversity affects long-term developmental and health outcomes by becoming biologically embedded in the body and brain. 

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.

Americas, Development, Europe, Global Health, Human Rights