1Why should social and economic inequality matter to us?
2What are the causes of current inequality?
3What are we going to find in this book?
To approach this undertaking, I was invited by the Social Observatory of the “la Caixa” Foundation to coordinate the work of leading specialists in studies on inequality and the social contract, in collaboration with a scientific committee formed by Lídia Brun, Olga Cantó, Sara de la Rica, Víctor Lapuente, Margarita León, Jorge Onrubia and Leire Salazar. The task of this committee consisted of identifying the specific issues upon which the research studies had to be based and supervise the progress.
Five thematic areas were established that served to define the contents of the studies commissioned. These areas can be summarised in the form of a research question: What does the overview of inequality in Spain look like? What inequalities does the market generate and how can they be reduced? How is the welfare state approaching this task? How can the welfare model be funded to enable development of the desired redistribution model? How could Spain’s society be organised to establish a new social contract that enables inequality to be reduced?
With the aim of responding to these questions from different perspectives, the research was commissioned to some of the academics with the greatest experience in this subject. The results of their work are the chapters that make up this volume.
The reader will be able to appreciate in them a common format and a similar tone, marked by the goal of bringing this analysis to an interested but not necessarily specialised audience.
1. Why should social and economic inequality matter to us?
Of the different challenges that contemporary societies are facing, one of the most urgent is the increase in economic differences among the population. These excessive levels of inequality can give rise to significant social problems:
In those countries that have least managed to moderate these differences, social cohesion is also weaker.
When inequality reaches great dimensions, it can erode the quality of the institutions of democratic countries. Furthermore, it leads to greater political polarisation, while the rules of collective decision-making function increasingly poorly.
The inequalities of today represent greater social fragmentation in the future. The transmission of poverty between generations reduces equal opportunities and causes a loss of efficiency, since it prevents the talent of one segment of society from being able to bear fruit.
When inequality reaches a high level, it has a negative effect on economic growth: the most recent data show that the most egalitarian countries grow in a more sustained and stable way.
2. What are the causes of current inequality?
The broad variety of consequences that inequality brings with it makes reflection and debate on the determining factors of the problem more relevant.
Economic and social inequalities can be studied from very diverse angles. Despite the variety of concepts and dimensions, the majority of approaches coincide in showing that the current inequality in wealthy countries is different to what we were familiar with until relatively recently. Its extent has increased and the social elevator appears to have come to a halt. Especially concerning is the fact that situations of greater social vulnerability have become more chronic, and that their incidence is higher among younger age groups. The causes of this new distribution pattern are various:
The globalisation of economic activity, with the intensive growth of international flows of goods and services and of capital and labour, has given rise to important changes in demand – in a downwards sense – of less skilled workers.
This displacement of demand for workers with lower wages has been reinforced by the technological change in production processes and the growing digitalisation of economic activities.
Processes of dysregulation – affecting the labour market, but also other spheres – and the transfer to private initiative of parcels traditionally occupied by the public sector, as is happening with some basic social welfare services, has undermined the corrective function of public intervention.
The redistributive capacity of the system of taxes and benefits has gradually been reduced over time.
In the Spanish case, in addition to all those processes present in the majority of high-income countries, there are some singularities. Among the factors that explain the higher level of inequality in Spain and its persistence over time are the characteristics of its production structure, with a greater weight of activities that require low labour costs to be able to compete, the dual problem of unemployment and underemployment in the labour market, and the weakness of redistribution policies.
3. What are we going to find in this book?
The sum of the different chapters is an accurate portrayal of the extent of inequality in Spain, its determining factors, the policies that could reduce it and the possibilities and limits for establishing social contracts that could enable advances in moderating it. The combination of different studies offers one of the most comprehensive approaches to the problem of inequality in Spain in a synthetic and intuitive way, which undoubtedly will be provide a basic reference work for the social and academic debate. Although the chapters can be read independently of each other, a major advantage with respect to other studies is that they offer a joint narrative.
The volume begins with an overview of half a century of inequality in Spain, a study by Luis Ayala and Olga Cantó. In this first chapter, the data are analysed that explain why Spain has been, in recent decades, one of the European countries with the highest inequality. As the authors explain, its evolution is very much marked by the phases of the economic cycle, with rapid growth in inequality when the economy is in recession and slow reductions when it expands. They also observe that one of the main reasons for the increase in inequality is the reduced redistribution capacity of the system of taxes and social benefits.
The next three chapters are concerned with analysing the inequalities generated by the market and what the strategies could be used to reduce them. The study by Sara de la Rica, Lucía Gorjón and Gonzalo Romero analyses the inequalities related with employment. By focusing attention on the relationship between the labour market and income inequality, with an important accent on the intergenerational perspective, they confirm that part-time employment and unemployment are fundamental for understanding income inequality and that this especially affects women, young people and people with a low education level.
In the third chapter, Manuel Hidalgo deals with the effects that technological change and the production and wage structure have on inequality in Spain. The increase in wage inequality in the years of the Great Recession placed Spain among the countries with the highest levels in Europe. Among other reasons, the increase in temporary and partial contracts stands out, determined in turn by the particularities of the production structure. The author also alerts to the increase in wage polarisation due to the effect of technological change, which could be partially counteracted by an adequate education and training policy better geared towards the market’s needs.
In the fourth chapter, Juan Antonio Módenes studies the instability affecting housing and problems with access to it, difficulties that were also accentuated with the Great Recession of 2008. Spain is one of the European countries where young people have the most problems related with this dimension of wellbeing, mainly in access to housing. However, the main new development is that, in recent years, changes in residential systems have also affected housing stability for more advanced age groups.
The next block of chapters addresses how Spain’s welfare state can reduce market-derived inequalities. Thus, in the fifth chapter, Miguel Requena and Leire Salazar focus on the study of educational inequalities. Although the expansion of the Spanish educational system led to the education and training level of the younger generations increasing, especially in the case of women, the authors find a clear relationship between the socioeconomic conditions of households and diverse educational variables, such as the probability of early schooling, early school leaving or the opportunity to study tertiary courses.
Horacio Levy quantifies, in the sixth chapter, the effect of European social protection systems on inequality. Comparative analysis enables deduction of the smaller size of the Spanish system, more centred on contributory economic benefits, and its lesser contribution to reducing inequality. The different analyses of his research lead the author to recommend structural reforms that place at the centre the most vulnerable groups, such as households with children, young people and women.
A fourth block of chapters is devoted to the study of the role of the tax system in reducing inequality. In the seventh chapter, José María Durán and Alejandro Esteller analyse the demand for income redistribution in Spain and how the fiscal system is adapted to it. The authors show how the combination of lower fiscal pressure and a non-progressive fiscal system mean that the inequality after taxes and benefits is among the greatest in the EU. This reality contrasts with the preferences of Spanish citizens, more favourable than in other European countries towards the Government adopting measures to reduce inequality.
In the eighth chapter, Julio López Laborda, Jorge Onrubia and María del Carmen Rodado analyse the progressive nature and redistribution of taxation in Spain. Within the European context, Spain is in a position bringing up the rear, which is explained by the smaller dimension of its fiscal system. They also point out that the regressive nature of indirect taxes increases inequality and reduces the joint redistributive effect of contributions and of direct taxes, although the consequences are lesser with respect to other countries due to the lower revenue collection weight of indirect taxation.
In the ninth chapter, Sara Torregrosa examines the nature and effects on inequality of fiscal fraud, focusing on income tax (IRPF). Her estimates lead her to conclude that fraud contributes notably to inequality, since it is greater in more significant sources of revenue for taxpayers with higher incomes. As the author points out, the expansion of fraud is causing growing rejection from public opinion and can cause deteriorations in institutional trust, which is so necessary for establishing social contracts.
The last block of the book examines the conditions for securing a new social contract that enables inequality to be reduced. In the tenth chapter, Inés Calzada, Eloísa del Pino and Antonio Manuel Jaime-Castillo study attitudes towards inequality and redistribution. They reveal that social support for redistribution is very widespread and that the majority of the population believes in the need for taxes, but is mistrustful of the justice of the fiscal system. The population also shows its support for health, pensions, education and unemployment policies. No fractures are observed between social groups regarding the need for social and fiscal policies, but there are differences in support for specific measures, and this becomes an obstacle for the reduction of inequality.
In the penultimate chapter, Margarita León, Manuel Alvariño and Llorenç Soler address the study of political conditioning factors for a possible social contract against inequality. In Spain, agreements in spheres such as taxes, unemployment, pensions or minimum incomes have been broad. However, the lines of political division are numerous and polarisation around moral issues pushes in the opposite direction and hinders the reaching of consensus on matters relating to equality. They also warn that a divided public opinion and an institutional design that facilitates governing alone and without agreements also disincentivize the contract.
In the chapter that closes the book, Pablo Simón analyses the importance of culture and institutional quality for establishing social agreements. The shortfalls in these spheres may be a hindrance for redistribution demands to be translated into an effective social contract. The review of the data enables the author to confirm that the satisfaction of Spanish people with the functioning of democracy is low, but at the same time great importance is attached to social justice. With respect to institutional quality, the author highlights the margin for improvement of the efficiency of the Government, a legislative branch with little impact on public policies, a justice perceived as politicised, and a state framework of autonomous regions that requires adjustments in the area of shared government.
This book has been made possible thanks to the support of the “la Caixa” Foundation. We cannot thank the Foundation enough for the efforts it has made, through its Social Observatory, to bring the discussion on inequality to the forefront from a set of solid foundations of knowledge.
Minimum wage, a measure in favour of a social contract
Spain’s minimum interprofessional wage increased by 29.1% between 2019 and 2020. What effects has this increase had on social welfare and on the fight against inequality?
Job uncertainty and income redistribution preferences
The duality between temporary and permanent contracts conditions the labour market in Spain and causes differences in job security and income. What impact does this have on people’s redistribution preferences?
The roots of inequality: intergenerational social mobility and territory
This paper analyses why Spain is one of the European countries where place of birth and parental income most condition people’s earnings.
Disability, inequality and income redistribution
What is the economic impact of disability? This report shows that households with at least one member with disability present lower income levels.