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issue 40
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Is the
U.S. a Good Model for Reducing
Social Exclusion in Europe? John
Schmitt and Ben Zipperer
[Center for Economic and Policy Research, USA] Introduction Sustained,
high levels of unemployment in the majority of Europe's largest economies
have led many Europeans to look to the United States as a possible
alternative economic model. The political right and center
in Europe have emphasized what they see as the flexibility and dynamism of
the U.S. economy. Much of the left, meanwhile, have argued that high
unemployment in Europe, which is often concentrated in specific geographic
regions or demographic groups, is the driving force behind "social
exclusion" in Europe today. This has led many Europeans – even some in
the continent’s social democratic parties – to the reluctant conclusion that
the United States may be a good model for reducing social exclusion there. This
paper reviews several international indicators of social exclusion to assess
how well the United States has done in using its apparently greater
flexibility and dynamism to reduce social exclusion. On most measures of
inequality, poverty, health, education, crime, and punishment, the United
States does not fare well compared to the much-better-funded welfare states
in Europe. The gap between U.S. and European performance in many of these
dimensions is striking, and not fully acknowledged in the current debate
around promoting U.S.-style reforms in Europe. What is more surprising,
however, is that the United States, in fact, performs poorly in two areas
where U.S. superiority is usually simply taken for granted: incorporating
traditionally disadvantaged groups into the paid labor
force and providing opportunities for economic mobility. Income inequality We
start with what is probably the most basic indicator of social exclusion –
household income inequality. Table 1 presents
data on income inequality for 28 OECD countries in various years during the
1990s and the year 2000 from Smeeding (2004). (All
tables are located here.) The final column of
the table, which reports data on the Gini
coefficient1, the most common measure of income inequality, shows
that the United States (0.37) had the second highest Gini
coefficient among the countries with available data – only Mexico (0.49) had
higher income inequality by this measure. The United Kingdom (0.35) was the
European country with the next highest level of income inequality, followed
by Ireland and Italy (both 0.33), with most of the remaining countries in
Europe below 0.30. The countries with the lowest Gini
coefficients were Denmark (0.24), Belgium (0.25), Finland (0.25), Germany
(0.25), the Netherlands (0.25), Norway (0.25), and Sweden (0.25).2
Another
basic measure of income inequality is the distance between the 10th, the
50th, and the 90th percentiles of the national income distribution. The greater
the distance between points in the distribution, the greater the overall
inequality. The first column of Table 1 demonstrate that, in the United
States, the 10th percentile household earned about 39 percent of what the
median household earned, while the 90th percentile household (see column two)
earned about 210 percent of the median. The 10th percentile earner in the
United States was further below the median than was the case in every other
country in the table except Mexico (28 percent). In every European country
except Italy (44), Ireland (46), and the United Kingdom (47), the 10th
percentile household made at least 50 percent of median earnings. Among the
major OECD economies, 10th percentile households fared best in Norway (57),
Sweden (57), and the Netherlands (56).
Meanwhile, the 90th percentile household
in the United States (210) was further above the median than in almost every
other country in the table. Only Mexico (328), Luxembourg (215), and the United Kingdom (215) had larger gaps
between the 90th percentile and the median. Incomes at the top were closest
to the median in Denmark (155), Slovakia (162), Finland (164) , and the
Netherlands (167). The
third column in the table calculates the ratio of the 90th and 10th
percentile earnings, as an additional measure of income inequality (see Figure
1). Mexico (11.55) had, by far, the highest FIGURE 1. Household
income inequality (ratio of 90th to 10th percentiles)
Source: Smeeding (2004) inequality using this simple gauge of
inequality. The United States (5.45) was next, well ahead of the United
Kingdom (4.58), Australia (4.33), and Canada (4.13). The countries with the
lowest "90-10" gap were Norway (2.80), Denmark (2.85), Slovakia
(2.88), Finland (2.90), and the Netherlands (2.98). By most measures, the United
States is the most unequal of the major OECD countries, with a higher Gini coefficient, lower relative incomes at the 10th
percentile, and a bigger gap between the incomes of rich and poor households
than in any of the countries in Western Europe. Whatever capacity the United
States might have for using its labor-market
flexibility and dynamism to create jobs and channel potential workers into
employment (which we examine below), this capacity has not avoided the
emergence of substantial levels of income inequality with the resulting
potential for heightened levels of social exclusion. Poverty Income inequality is, in and of
itself, a cause for social concern,3 but poverty – extreme
relative or absolute deprivation – is generally seen as a more important
indicator of potential social exclusion. As Townsend (1979) argues: those in
poverty have “resources... so seriously below those commanded by the average
family or individual that they are in effect excluded from ordinary living
patterns, customs and activities.”4 Table 2
presents data
from Scruggs and Allan (2005) on relative and absolute measures of poverty at
different points in time over the years 1990 to 2000 for a subset of the
countries in the earlier figures on income inequality. The first column of
Table 2 contains data on the relative poverty rate, defined as the share of
the population in households with incomes below 40 percent of the median
(which is obviously closely related to income inequality). Consistent with
the earlier results for income inequality, the United States (10.7 percent)
had the highest rate of relative poverty, followed by
Ireland (8.0) and Italy (7.3). Relative poverty was lowest in Finland (2.1),
Norway (2.8), Belgium (3.2), France (3.3), and Sweden (3.6). FIGURE 2. Absolute Poverty Rate (percent
of population)
Source: Scruggs and
Allan (2005) With
respect to absolute poverty (see column two of Table 2 and Figure 2),
defined here as earning at least 40 percent of the inflation-adjusted 1986
median income in the United States (converted to local currencies using
purchasing power parity exchange rates), the United States, which has a much
higher GDP per capita than most of the other countries in the sample,5
does substantially better. About 8.7 percent of the U.S. population was
living in poverty by these criteria, well below rates in Italy (18.8), Australia
(16.4), Ireland (15.4), and the United Kingdom (11.8). The United States also
does somewhat better than France (10.0). The rest of the European countries
in the table, however, have lower absolute poverty rates, despite also having
income levels that are 70 to 80 percent of U.S. levels. Norway (which has a
GDP per person close to that of the United States) had an absolute poverty
rate of only 2.6 percent; the rate in Switzerland was 3.5 percent.6
Education Education is arguably the single
most important tool available to combat social exclusion. Table 3 shows the educational attainment rates,
standardized by the OECD, for our sample of OECD countries for 2003. The
first two columns examine the share of the adult population with at least an
upper-secondary education (roughly the equivalent of a high-school degree in
the United States). The first column gives the figures for all adults age 25
to 64. The United States had the highest share of high-school-equivalent
graduates, with 88 percent. Norway (87) and Slovakia (87) trailed close behind.
In most of the rest of Western Europe between 60 and 80 percent of 25-to-64
year olds had completed the equivalent of high school. The biggest exceptions
in Europe were Portugal (23), Spain (43), Italy (44), and Greece (51). European countries do considerably
better, however, when we focus on just 25-to-34 year olds (see the second
column of Table 3). High-school completion rates for this younger group are
generally much higher than for the full 25-to-64 year olds, while rates are
almost identical across the two age ranges in the United States (87-88
percent). Nevertheless, the United States generally still does better than
European countries do. The exceptions are Finland (89), Sweden (91), Czech
Republic (92), Slovakia (94), and Norway (95); while Austria (85), Germany
(85), and Denmark (86) do not lag far behind the United States. The last two columns of the same
table show the share of the adult population with roughly the equivalent of a
four-year college degree or more. Once again, the United States, with 38
percent of 25-to-64 year olds with college degrees (see column three), does
well compared to Western Europe. Only Denmark (31), Norway (31), and Sweden
(33) have at least 30 percent of their adult populations with college
degrees. Most Western European countries fall in the 20-30 percent range,
with several in the teens. When we look just at 25-to-34 year
olds (see column four), many European countries do almost as well or better
than the United States (39 percent) with respect to college graduates:
Denmark (35), France (37), Ireland (37), Spain (38), Belgium (39), Finland
(40), Norway (40), and Sweden (40). Several Western European countries,
however, still lag far behind the United States: Italy (12), Austria (15),
Portugal (16), Germany (22), and Greece (24). Attainment rates are only one way
to measure the potential for educational outcomes to contribute to social
exclusion. Table 4 presents results
tabulated by the OECD from an international standardized test of mathematics
administered to 15-year-olds. In Western Europe, only Greece (445), Italy
(466), and Portugal (466) scored, on average, lower than the United States
(483) (see Figure 10). Switzerland (527), Belgium (529), the Netherlands
(538), and Finland (544) did the best in Western Europe (see Figure 3).
For purposes of social
exclusion, however, we may be particularly interested in the scores of the
poorest-performing students. The first column of Table 4, therefore, also
shows the 10th percentile test scores in each country. In Western Europe,
only Greece (324), Italy (342), and Portugal (352) scored lower than the
United States (356). The best performers in Western Europe with respect to
students at the 10th percentile were Ireland (393), Denmark (396), Iceland
(396), Switzerland (396), Netherlands (415), and Finland (438). (For
completeness, the last column in the table displays the results at the 90th
percentile.) Table 5
demonstrates that
the United States does poorly at both the mean and the 10th percentile7
despite spending substantially more on education at the primary ($8,049 per student)
and secondary ($9,098) level than almost every other country in the OECD.
Only Luxembourg spends more at both levels ($10,611 for primary and $15,195
for secondary), and Norway more at the secondary-school level ($10,154). (The
data in the next-to-last column demonstrate that at the tertiary level, the
United States does spend substantially more per student per year ($20,545)
than all other European countries except Switzerland ($23,714). These
expenditures, of course, have no direct impact on test scores of
15-year-olds.) As Table 6 makes clear, the
vast majority of these expenditures at the primary and secondary level in the
United States are in public schools (3.8 percentage points of U.S. GDP in
2002), not in private schools (only 0.3 percentage points of GDP in the same
year).8 FIGURE 3. Mathematics performance among
15-year olds, 2003 (PISA mathematics
Source : OECD Health The United States spends much more
on health care than any other country in our sample. Table
7 lists total expenditures on health care in 2003, separately for the
public and private sectors, based on calculations by the OECD. The first
three columns express expenditures as a share of national GDP. The United
States spent 15.0 percent of its GDP on health care in 2003 (see Figure 4).
The next closest countries were Switzerland (11.5) and Germany (11.1); only
three other countries spent more than ten percent (Iceland, 10.5; Norway,
10.3; and France, 10.1). Since U.S. GDP per capita is substantially higher
than most of the countries in our sample, the gap between U.S. expenditures
and those in other countries are even greater when we express health-care
costs in terms of expenditures per person per year, which we do in the last
three columns of the table. On average, the United States spends about $5,635
on health care per person per year. Of the remaining countries, only four
others spend more than $3,000 per person per year: Norway ($3,807),
Switzerland ($3,781), Luxembourg ($3,705), and Canada ($3,001). FIGURE 4. Annual health-care expenditures,
2003 (percent of GDP)
Source: OECD Table 7 also breaks down health-care
expenditures by whether they are in the public or private sector. The United
States is the only country, except Mexico, in which expenditures in the
private sector (8.3 percent of GDP) exceed those in the public sector (6.7).
Greece and Switzerland are the only other countries where private-sector
health expenditures exceed 40 percent of the total. Even though private
expenditures represent the bulk of health expenditures in the United States,
public-sector health costs in the United States still fall in about the
middle of the range for public expenditures in Western European countries.
Denmark (7.5), France (7.7), Sweden (8.0), Norway (8.6), and Germany (8.7)
spend more in their public sectors, but Austria (5.1), Finland (5.7), Greece
(5.1), Ireland (5.8), Italy (6.3), the Netherlands (6.1), Portugal (6.7),
Spain (5.5), Switzerland (6.7), and the United Kingdom (6.4) all spend the
same or less than the United States does. The data in Table 7 establish that
the United States spends considerably more on health care than other rich
countries do, but other data suggest that the United States nevertheless
suffers from high levels of social exclusion with respect to health care. The
most obvious element of this exclusion is the high share of the U.S.
population without health insurance. The United States and Mexico are the
only countries in Table 7 that do not provide essentially universal
health-care coverage. In 2003, 15.6 percent of the U.S. population (about 45
million people or roughly the population of Spain) was without any form of
health insurance, public or private, throughout the entire year.9
An additional 12 percent of the U.S. population lacked health insurance for
any part of the year.10 Data on many of the most common
health indicators also suggest that the U.S. health-care system is highly
inefficient, yielding poor outcomes despite high levels of expenditures. Table 8 provides details on several broad
measures of health outcomes compiled by the OECD. Only Mexico and the
transition economies of Eastern Europe have a lower overall life expectancy
than FIGURE 5. Life expectancy (years)
Source: OECD the
United States (77.2 years, identical to Denmark, see column three of Table 8
and Figure 5.) On average, residents of Spain (80.5), Switzerland
(80.4), and Sweden (80.2) – the three countries with the longest life
expectancies in our sample – live three full years longer than residents of
the United States. Among the major OECD economies, the United States also has
the highest rate of infant mortality (7.0 per 1,000 live births, see column
four). The next-highest rate in Western Europe is in the United Kingdom
(5.3), while Norway (3.4), Finland (3.1), and Sweden (3.1) have rates that
are less than half of those in the United States. The United States also
fares poorly with respect to maternal mortality (see column five). At the
turn of the century, the United States had 9.1 maternal deaths per 100,000
births, the fourth- highest rate in the table behind Mexico (70.7), Denmark
(11.1), and Luxembourg (10.9).11 As with infant mortality, many
Western European countries had maternal mortality rates that were less than
half those in the United States: Ireland (3.1), Italy (3.1), Austria (3.6),
Greece (3.9), Spain (4.2), Sweden (4.2), and Germany (4.3). The United States also has a much
higher share of its population that exceeds the medical standard of obesity
(a body mass index, BMI, of 30 or greater). Just over 30 percent of adults in
the United States are obese, compared to 23.0 percent in the United Kingdom,
the Western European country with the highest rate of obesity; meanwhile,
Switzerland (7.7), Norway (8.3), Italy (8.5), Austria (9.1), France (9.4),
Denmark (9.5), and Sweden (9.7) all have obesity rates below ten percent. Public-health
campaigns against smoking, however, have apparently been much more successful
in the United States than they have been in most of Europe. Only 17.5 percent
of U.S. adults smoke cigarettes daily (see the last column of Table 8). In
Western Europe, only Sweden (17.5) has a rate as low. Most of Western Europe
has smoking rates around 25 percent, with rates above 30 percent in the
Netherlands (32.0), Greece (35.0), and Austria (36.3). The
United States spends markedly more on health care (as a share of GDP or in
dollars on a per person basis) than any other country in the world. Yet, more
than 15 percent of its population typically finds itself without health
coverage – private or public – throughout the entire length of any given
year, with 27 percent lacking coverage at some point during the year. The
additional U.S. expenditures on health care are also associated with
substantially worse outcomes for basic health indicators including life
expectancy, infant and maternal mortality, and obesity. The United States,
however, has succeeded in lowering rates of adult smoking to the lowest level
among the rich, industrialized countries. Crime and Punishment Another
potential dimension of social exclusion is crime. Table
9 summarizes some basic indicators of both the prevalence of criminal
activity, as well as the associated incarceration rates. The
most reliable crime data are for murders, since murders are generally reported
and accurately recorded. The first column of the table gives the murder rate
for our list of countries, based on data compiled by the UK Home Office. The
United States, at 5.6 murders per 100,000 people, has by far the highest
murder rate in the sample of countries in the table. Finland (2.9) is next,
followed by Slovakia (2.6), the Czech Republic (2.5), and New Zealand (2.5).
The U.S. murder rate is about five times higher than the rate in the safest
Western European countries: Austria (1.2), Germany (1.2), Portugal (1.2),
Spain (1.1), Sweden (1.1), Switzerland (1.1), and Denmark (1.0). The
United States does substantially better with respect to self-reported
victimization rates, falling near but not at the top of the countries in
Table 9. The second column of the table shows criminal victimization rates,
expressed as reported offences per 100 people, from the 2000 International
Crime Victims Survey.12 In Western Europe, Switzerland (42.6 per
100 per year), Sweden (45.6), the Netherlands (48.1), and the United Kingdom
(54.5) had higher victimization rates than the United States (39.5), while
Denmark (35.1), France (33.9), Belgium (33.3), Austria (31.4), Finland
(28.6), and Portugal (25.8) were all below the U.S. rate. Given that the United States has high, but not the highest
overall, victimization rates, all else constant, we might expect the United
States to fall somewhere near the top, but not at the top of the sample of
countries when it comes to the portion of its population that is incarcerated.
The last two columns of Table 9, which report prison-population rates from
the International Center for Prison Studies,
demonstrate however, that the United States has a prison-population rate (724
per 100,000) that is five to ten times higher than rates in Western Europe,
where incarceration rates range from 68 in Norway to 143 in Spain and
Luxembourg and 144 in the United Kingdom. Most of Western Europe, in fact, has incarceration rates below 100, including Finland
(75), Denmark (77), Sweden (78), FIGURE 6. Prison population rate (number
of prisoners per 100,000 people)
Source: International Centre for Prison
Studies (2006) Switzerland (83), Ireland (85), France (88), Belgium (90),
Greece (90), Germany (97), and Italy (97) (see Figure 6). The magnitude of the incarcerated
population in the United States is sometimes difficult to comprehend. In
2004, U.S. prisons and jails held 2.1 million inmates, about 90 percent of
whom were men.13 Given that the adult male workforce age 16 and
older in the same year was about 78.7 million,14 this implies that
a staggering 2.3 percent of the adult male population of the United States
was in prison or jail in 2004. Labor Market Based on the evidence reviewed so
far, the U.S. economic and social model appears to generate a considerable
degree of social exclusion, with high levels of income inequality, high
relative and even absolute poverty rates, poor and unequal educational
outcomes, poor and unequal health outcomes, and high rates of crime and incarceration.
The U.S. model maintains its appeal in the face of poor performance in these
areas, however, because supporters believe that the United States offers two
compensating advantages: a flexible economy that yields high employment
rates, and high income mobility that, in principle, compensates for greater
inequality. As the
first column of Table 10 demonstrates, the
U.S. experience with overall unemployment (5.6 percent in 2004) is good, and
certainly far better than in Germany (9.9), France (9.6), and Spain
(11.0). At the same time, several
Western European countries, with decidedly less “flexible” labor markets in the usual sense of that term, had
unemployment rates in 2004 that were the same or lower than the United
States: Ireland (4.4), Switzerland (4.4), Norway (4.5), the Netherlands
(4.7), the United Kingdom (4.7), Austria (5.3), and Denmark (5.3). Despite the alleged superiority of
U>S.-style flexibility, the United States does not do much better when it
comes to unemployment rates for typically marginalized groups such as young
people and those with less education, the kinds of groups most likely to
benefit from greater wage flexibility, for example. The third column of Table
10 reports the unemployment rate for 15-to-24 year-olds. The rate in the
United States (11.8 percent) is well below rates in France (21.3), Italy
(23.5), and Spain (22.0), but above rates in Switzerland (7.7), Denmark
(7.8), the Netherlands (8.0), Ireland (8.1), the United Kingdom (10.9),
Austria (11.0), Germany (11.7), and Norway (11.7). (The unemployment rate,
and even the employment rate, for youth does not necessarily paint an
accurate picture of how well the labor-market is
performing for young people, since many young people are probably best off in
school. We will examine this issue below.) The fourth column shows a similar
pattern for those with the equivalent of less-than-a-high-school education.
The U.S. unemployment rate for this group (in 2002) was 9.9 percent, higher
than the corresponding rates in Norway (3.9), Portugal (5.7), Sweden (6.1),
Switzerland (6.1), Ireland (6.3), Greece (6.6), United Kingdom (6.9), Denmark
(7.2), and Austria (7.9). The unemployment rate, however, is
not the only measure of labour-market performance. The next four columns of Table 10 give the
employment-to-population rates for different demographic groups. Among
15-to-64 year olds, the United States does manage to incorporate more of the
population into jobs (71.2 percent) than is the case in several major
European economies, most notably France (62.8), Germany (65.5), Italy (57.4),
and Spain (62.0) (see Figure 7). Nevertheless, many smaller,
"less flexible" Western European economies have higher employment
rates than the United States: the United Kingdom (72.7), the Netherlands
(73.1), Sweden (73.5), Norway (75.6), Denmark (76.0), and Switzerland (77.4).15
The United States has done
well in incorporating women into the paid labor
force. But, the data in column six
show that many Western European countries have also succeeded in this
respect. In 2004, 65.4 percent of U.S. women ages 15-to-64 were employed.
This was substantially higher than the corresponding rates in Italy (45.2),
Spain (49.0), France (56.9), and Germany (59.9). The U.S. rates, however, are
not as high as those in many European economies: Finland (65.5), the
Netherlands (65.7), the United Kingdom (66.6), Switzerland (70.3), Sweden
(71.8), Denmark (72.0), and Norway (72.7). Employment rates for youth (column
seven) repeat the now familiar pattern.
The United States does better than the large, high-unemployment
economies, but not as well as a host of smaller European economies. For
youth, employment rates in the United States were 53.9 percent in 2004, well
above the rates in Italy (27.2), France (29.5), Spain (38.4), and Germany
(41.9), but not as high as rates in Norway (54.4), the United Kingdom (60.1),
Denmark (61.3), Switzerland (62.0), and the Netherlands (66.2). FIGURE 7. Employment-to-population
rate (percent employed, all individuals ages 15-64)
Source: OECD With respect to employment rates
for the less-educated, the United States actually underperforms when compared
with much of Western Europe. In 2003, 58 percent of the less-educated
population in the United States was in work. This rate was near or below
rates in Ireland (57), Spain (57), Finland (58), Greece (58), France (59),
Denmark (61), Norway (62), Switzerland (66), Sweden (68), and Portugal (72). Earlier, we mentioned that using
the unemployment rate (and even the employment rate) to measure social
exclusion among youth may be misleading. From a societal perspective, we may
be just as concerned about whether young people are in school as we are about
whether they are in work. The last three columns of Table 10, therefore,
report OECD data for 2002 on the share of young people ineach
country that were neither in work nor in employment. The United States does
not do particularly well among either 15-to-19 year olds or 20-to-24 year
olds. For the younger group, only Hungary (8.0), the United Kingdom (8.6),
Italy (10.5), and Finland (14.8 percent) had a higher share of young people
out of both work and school (the U.S. rate was 7.5 percent). For the
next-older age group, the United States (15.6) does better than some Western
European economies – Germany (15.9), Belgium (17.4), Finland (18.8), Greece
(22.0), and Italy (24.3) – but not as well as Denmark (7.3), the Netherlands
(7.9), Norway (9.7), Switzerland (9.7), Ireland (10.8), Sweden (11.2),
Austria (11.7), Portugal (12.0), France (14.4), Spain (15.1), and the United
Kingdom (15.3). The review of these data
suggests that U.S. labor-market performance is
generally – though not always – better than that of the four, large,
high-unemployment European economies (France, Germany, Italy, and Spain).
Nevertheless, the United States consistently underperforms relative to many
of the smaller Western European economies whose labor
markets are conventionally seen as much more rigid than those of the United
States. Economic Mobility Advocates of the U.S. model also
maintain that the country's economic dynamism produces a level of economic
mobility that compensates for high levels of inequality and poverty. Economic
and social distances may be much greater in the United States than they are
in Europe, but, the argument goes, those at the bottom have a much greater
chance to get ahead than they do in Europe. In this final section, we briefly
review some international evidence on economic mobility both within and
across generations. Table 11
and Figure
8 present OECD data on short-term income mobility for a subsample of 14 countries. The table gives the share of
low-income families (where low-income was defined as earning less than half
of the national median income) that managed to escape from low-income status
over a three-year period in the mid-1990s.16 Contrary to the view
that the United States offers substantial mobility, the United States has the
lowest share of low-income workers that exit their low-income status from one
year to the next (29.5 percent). The corresponding rates in several European
countries are greater than 50 percent: Ireland (54.6), the Netherlands
(55.7), the United Kingdom (58.8), and Denmark (60.4). FIGURE 8. Income mobility, late 1980s-mid
1990s (percent of low-income families
Source: OECD Table 12
summarizes
the results from three separate studies of longer-term intergenerational
mobility across countries. In all three cases, the studies investigated the
degree of correlation between fathers' and sons' incomes at different points
in time. These intergenerational income coefficients quantify the economic
advantage conferred by parents to their children: the higher the coefficient,
the more likely that children born to poor parents are to remain poor later in
life. Panel (a) summarizes Blanden's (2004) findings for Canada, Germany, the United
Kingdom, and the United States. Blanden found the
lowest level of correlation between fathers’ and sons’ incomes – therefore,
the highest degree of economic mobility-- in Germany (0.12), followed by
Canada (0.18) and the United Kingdom (0.27). Intergenerational economic
mobility was lowest, by a substantial margin, in the United States (0.45). Panel (b) presents similar
correlation coefficients from a review of international studies by Solon (1992).17 The 0.40 coefficient for the
United States is Solon's estimated average based on
research in the United States. According to these data, only South Africa
(0.44) and, in one of two studies, the United Kingdom (0.57), had lower rates
of mobility than the United States (0.40) did. Canada (0.23), Finland (0.13
and 0.22), Germany (0.11 and 0.34), and Sweden (0.13, 0.14, and 0.28) all
appear to have substantially greater economic mobility across generations
than the United States does. Corak's (2004) review (see panel (c)) reaches similar
conclusions. The United Kingdom (0.50) and the United States (0.47) have the
least economic mobility. France (0.41), Germany (0.32), Sweden (0.27), Canada
(0.19), Finland (0.18), Norway (0.17), and Denmark (0.15) all offer greater
economic mobility than the United States. What appear to be small
differences in intergenerational income coefficients actually imply
substantial differences in economic mobility. Take, for example, the case of
a family with earnings that are half of the national average. Other factors
held constant, if a country has a correlation coefficient for parent-child
earnings of 0.20, we would expect that descendants of the poor family would
reach the average national earnings in less than two generations, or about 25
to 50 years.18 In countries with a coefficient of 0.45, a typical
level in the estimates for the United States (and, in some cases, for the
United Kingdom), however, descendants of the poor family would not, on
average, close the income gap with the average family for more than three
generations, or about 75 to 100 years. Conclusion The U.S. economic and social model
is associated with substantial levels of social exclusion, including high
levels of income inequality, high relative and absolute poverty rates, poor
and unequal educational outcomes, poor health outcomes, and high rates of
crime and incarceration. At the same time, the available
evidence provides little support for the view that U.S.-style labor-market flexibility dramatically improves labor-market outcomes. The U.S. labor
market appears to fare consistently better than the four large,
high-unemployment economies in Europe – France, Germany, Italy, and Spain –
but the U.S. does no better and often noticeably worse than many smaller
European economies that have labor markets that are
highly regulated relative to the United States and even relative to the labor markets in the large, high-unemployment countries. The data also appear to contradict
the belief that greater economic mobility in the United States can somehow
compensate for greater levels of inequality and "social exclusion."
Despite popular prejudices to the contrary, the U.S. economy consistently
affords a lower level of economic mobility, both in the short-term (from one
year to the next) and in the longer-term (across generations), than all the
continental European countries for which data are available. Given the high
direct levels of social exclusion in the United States and especially the low
levels of economic mobility across generations, the United States, therefore,
stands as a poor model for a Europe seeking to combat social exclusion. Notes 1. The Gini coefficient varies from zero to one. A Gini coefficient of zero would indicate perfectly equal
distribution of income across all households; a Gini
coefficient of one indicates that all income is concentrated in one
household. 2. The Gini coefficients in the text are
calculated using net disposable income, which subtracts taxes and includes
transfer benefits. When measured using pre-tax income, the United States is
not such an outlier. Using pre-tax income the Gini
coefficient in the United States (0.45) lies well within the European range
of market income inequality (0.39 to 0.50). Progressive taxes and especially
benefits and transfer payments dramatically reduce inequality in most
European nations, with only relatively modest effects in the United States. 3. See, for
example, Groningen Growth and Development Centre and the Conference Board,
Total Economy Database, May 2006, http://www.ggdc.net/. 4. Townsend
(1979), p. 31. 5. See, for
example, Groningen Growth and Development Centre and the Conference Board,
Total Economy Database, May 2006, http://www.ggdc.net/ 6. Smeeding (2006) defines poverty as half of national
median income and finds the pattern of poverty remains largely the same in
the analysis by Scruggs and Allan (2005). 7. The
relative performance of the United States is only marginally better at the 90th
percentile, as Table 4 also shows. 8. In the
United States, private educational expenditures are more important at the
tertiary level, where the country spends about 1.2 percentage points of GDP on
public higher education and 1.4 percentage points on private higher
education. 9. See
Carmen DeNavas-Walt, Bernadette D. Proctor, and
Robert J. Mills, “Income, Poverty, and Health Insurance Coverage in the
United States: 2003,” Washington, DC: U.S. Census Bureau (August 2004), p.
14. 10. The data
refer to 2002, from Boushey (2004). 11. Since
only a very small share of women die in childbirth, the data for maternal
mortality, which are typically presented per 100,000 births, can vary
substantially from year to year. As a result, Table 8 presents maternal
mortality data averaged over the five most recent (available) years. For
small countries with few births per year, even a small number of relatively
bad years can have a relatively long-lasting impact on maternal mortality
rates. 12. Total of
ten crimes: car theft; theft from car; motor-cycle theft; bicycle theft;
burglary; attempted burglary; robbery; personal thefts; and assaults or
threats. 13. See,
U.S. Department of Justice, Office of Justice Programs, Bureau of Justice
Statistics, Bulletin, "Prison and Jail Inmates at Midyear 2004,"
April 2005. 14. Bureau
of Labor Statistics, Current Population Survey home
page, http://www.bls.gov/cps/home.htm, customized tables, series
LNS11000001Q, for second quarter 2004, which corresponds most closely to the
mid-year 2004 prison and jail estimates. 15. Schmitt
and Baker (2006) find that the declining coverage rate of the Current
Population Survey (CPS) in recent decades may lead the CPS, which is the source
of the U.S. unemployment and employment rate figures cited here, to overstate
employment in the United States by about 1.4 percentage points, with the
largest biases for more marginalized groups, especially young black men and
young Hispanic women. To the extent that European surveys do not suffer from
similar problems, the comparison here would overstate the U.S. performance
relative to Europe. 16. The data for
the United States refer to 1987-1989. The OECD notes that: "The time
periods used to study poverty dynamics in the different countries are not
fully comparable. The most important instance of non-comparable time periods
is that poverty dynamics for the United States are studied for an earlier
period ... than that studied for the other countries, due to data consistency
problems in the American data for more recent years. Although the periods
chosen are those for which business cycle conditions in the United States
approximated those in the other countries studied, this difference means that
the results do not reflect the impact on American poverty dynamics of recent
reforms in welfare programmes and more generous in-work benefits (i.e.
expansion of the Earned Income Tax Credit). On the other hand, the PSID data for income years after 1992 show greater
poverty incidence and persistence in the United States, so that the use of
these data would reinforce the comparative results for the United States.
Exclusion of these data can be regarded as representing a somewhat
conservative approach to the assessment of American poverty." 17. Some
countries have more than one study. 18. Intergenerational
mobility coefficients are determined by the regression: ln
Yi,t =
α + βln Yi,t-1 + εi,t, where generations are indexed by t. If Gt = Y1,t/Y2,t and
non-parental income influences are ignored (ε = 0), the income gaps
between two sets of parents, G0, and their respective children, G1,
satisfy G1
= G0β. Similarly, Gn = G0β^n, which implies that n = ln (ln Gn/ln G0)/ln β.
The calculations above assume G0 = 2 (the 200 percent gap
between the mean and half the mean), Gn=1.05 (only a five percent
gap) , and a generation equals 25 years. References Blanden, Jo. 2004. "International
Evidence on Inter-generational Mobility," Centre for Economic
Performance, unpublished paper. Boushey, Heather. 2004. “Analysis of the
Upcoming Release of 2003 Data on Income, Poverty, and Health Insurance,” Center for Economic and Policy Research Briefing Paper,
(January). Corak, Miles. 2004. "Do poor children
become poor adults?" Statistics Canada, unpublished paper. DeNavas-Walt, Carmen, Bernadette D. Proctor,
and Robert J. Mills. 2004. “Income, Poverty, and Health Insurance Coverage in
the United States: 2003,” Washington, DC: U.S. Census Bureau. International
Centre for Prison Studies. 2006. "Entire World - Prison Population Rates
per 100,000 of the national population," http://www.prisonstudies.org/,
downloaded, May 2006. Gordon
Barclay and Cynthia Tavares. 2001. "International comparisons of
criminal justice statistics 2001," London: United Kingdom Home Office,
Research Development and Statistics Directorate (October 24). Kesteren, J.N.van,
P. Mayhew, and P. Nieuwbeerta. 2000. "Criminal
Victimisation in Seventeen Industrialised Countries: Key-findings from the
2000 international Crime Victims Survey," The Hague: Ministry of
Justice. Mauer, Marc. 2003. "Comparative
International Rates of Incarceration: An Examination of Causes and
Trends," paper presented to the U.S. Commission on Civil Rights,
Washington, DC: The Sentencing Project. Navarro,
Vicente. 2002. The Political Economy of Social Inequalities: Consequences for
Health and Quality of Life. Amityville, New York: Baywood
Publishing Company. OECD.
2005. Education at a Glance 2005, Paris: OECD. Schmitt,
John and Dean Baker. 2006. "Missing Inaction: Evidence of Undercounting
of Non-Workers in the Current Population Survey (CPS)," Center for Economic and Policy Research Briefing Paper.
Washington, DC: CEPR. Smeeding, Timothy M. 2004. "Public
Policy and Economic Inequality: The United States in Comparative
Perspective," Luxembourg Income Study Working Paper Series No. 367
(February). ----------.
2006. "Poor People in Rich Nations: The United States in Comparative
Perspective," Journal of Economic Perspectives, vol
20, no. 1 (Winter), pp. 69-90. Solon, Gary. 2002. "Cross-Country
Differences in Intergenerational Earnings Mobility," Journal of Economic
Perspectives, vol 16, no. 3 (Summer), pp. 59-66. Townsend,
Peter. 1979. Poverty in the United Kingdom. Harmondsworth:
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