Creating more equal societies what works? : evidence review

Income inequality has increased within many EU countries over the past 40 years and a lot of research has been conducted trying to understand the causes behind this increase. Many of the causes are thought to be global in nature (a demand shift favouring highly skilled workers in advanced nations, technological change and international trade patterns) but the fact that inequality has not increased in every country or to the same extent, or even during the same time periods, suggests that policy and institutions play an important role. With an unprecedented consensus on the need to tackle economic inequality and generate the conditions favourable for inclusive growth, the timing is perfect for an assessment of the evidence on what policies are likely to be the most effective in ensuring that the gains from future economic growth are shared fairly. Given the lack of any strong evidence that inequality reduction hampers growth or that growth per se leads to a reduction in inequality in mature market-based democracies, it is right for these societies to focus on how to maximise the potential for the fruits of future growth to be more evenly distributed and to explore how policies could redistribute the gains from historical growth. There is now a considerable body of research on economic inequalities but much of this research has focused on mapping inequality trends, examining cross-country differences, investigating the root causes of inequality, and estimating the impact of inequality on a range of outcomes. More recently attention has started to shift to exploring the effectiveness of different social and economic policies on relieving inequality pressures or reducing inequality. The aim of this review is to assess the evidence on a selected number of policy areas to provide an assessment of policy effectiveness. The review examines three key policy areas: education due to the importance of educational attainment in the determination of wages; wage setting institutions given their role in shaping the distribution of wages; and, welfare states, in particular their role in redistribution through cash transfers