Income inequalities in Italy: trend over time

Transcription

1 Income inequalities in Italy: trend over time Loris Vergolini Descriptive evidence In this note we aim to deepen the OECD (2011) results that highlight a critical situation for Italy, providing the image of an unequal country. We will consider a long-period trend of income inequalities, giving particular attention to regional differences. Moreover, we will try to comprehend if some social group has been stricken more that others by the economic crisis. Eventually, we will estimate the crisis effect exploiting a counterfactual-like time series analysis. The data used in the analysis come from the Survey on Household Income and Wealth (SHIW) carried out by Bank of Italy from 1997 to The survey questions focus on disposable incomes and Italian households' savings. In order to measure income inequalities, we rely on two indexes: Gini coefficient: provides a single statistical measure of the degree of income inequality. It lies between 0 and 1, with perfect equality at zero and income inequality increasing as the Gini coefficient approaches 1. Income ratio: contrasts the top 10% of earners with the lowest 10%. In this case we have a comparison between two parts of the income distribution (the richest and the poorest). The greater the disparity, the greater the ratio. As figure 1 points out, there was a clear decline in the income inequalities at the end of the Seventies. Ten years later, to the contrary, the Gini index rose dramatically. The results become intelligible if we link them to the Italian economic situation in those periods. The decline correspond with a period of economic expansion characterised by liberal policies (Valli 1999), whereas the rapid increase (1992) coincides with a striking economic crisis, that lead the country close to the bankrupt. Thus, we can expect to find a similar situation after 2008, the year of the beginning of the current financial crisis (the red vertical line in figure one). Our expectations are partially verified: after 2008 there is a slightly increase in the value of the Gini index. These results are confirmed by the income ratio, where the gradient is even greater. To conclude, income inequalities after an economic crisis seems to be more remarkable. 1

2 Figure 1. Trend in Gini index. Italy, Gini index Figure 2. Trend in disposable income according to social class. Italy, Median equivalent income Entrepreneurs White collars Working class Social class Managers and professionals Self employed In order to understand if disadvantaged people have been more damaged by economic crisis than the wealthier ones, we can look at figure 2 that report the evolution of real income. It is interesting to notice that, after 2008, all social classes experienced a decrease in their income, with the only exception of entrepreneurs which showed an opposite trend. Even if we look at the period 2

3 of the crisis in , managers and professionals displayed a huge raise in their real income, while white collars, self employed and working class earnings suffered a reduction. By and large, it is worthwhile to highlight that upper classes tend to have less economic problems during periods of crisis. Looking at regional disparities (figure 3), it emerges clearly that the situation is worse in the Southern areas of the country. The inequalities between North and South started in the Eighties, as a consequence of the second oil crisis, and it is possible to observe their increase both during the economic crisis of 1992 and the one of This empirical evidences point out that the pattern observed for the Italian case persist at the local level, with the Southern regions more affected by the national economic condition than the rest of the country. In summary, in Italy inequalities tend to grow-up during economic crisis and concern specially people from lower social classes and individuals living in the depressed area of the country. Figure 3. Trend in income ratio according to geographic area of residence. Italy, Income ratio Centre-North South and Islands Counterfactual analysis: the crisis effect The evidence presented in the previous section is merely descriptive, now we present some explorative analysis that aim to identify the effect of the recent economic crisis on income inequalities. More precisely, we rely on a counterfactual-like approach exploiting data at macro 3

4 level. Our strategy foresees to look at the income inequalities from 1977 to 2008 and then we interpolate the data by means of a double exponential smoothing model 1 and we use its parameters to predicted the expected values from 2008 to Finally we compared this expected values with those actually observed during the same period. The idea is to answer to the following question: What would have been the level of inequalities if the economic crisis had not took place? In other words, we do not know if the observed increase after 2008 is due to the economic crisis or to some long-period trend. If the two trends will overlap this means that the actual level of income inequalities is not due to the economic crisis, but it could be explained by long-period trend. Figure 4 reports the results of the counterfactual exercise and it clearly emerges that in the absence of the crisis we would have experienced a decrease in income inequalities (red line). In fact, we observe that the actual and the estimated trend diverge after the economic crisis of So, we present some preliminary empirical evidence that connect the present increase in income inequalities with the 2008 economic crisis. Figure 4. Actual and estimated trends in Gini index. Italy, Gini index Actual Estimated 1 To forecast values of enrollment rates, the double exponential smoothing model we specified assigns higher weights to recent observations and takes into account the possible trends underlying the whole set of empirical data. 4

5 Descriptive evidence In this note we show some preliminary analysis regarding the trend in income inequalities in Italy from 1977 to More precisely, we find that in Italy there is a connection between business cycle and economic inequalities, indeed we have always an increase in the Gini index or in the income ratio after an economic crisis, this evidence is partially confirmed by the counterfactual exercise by which we show an increase in inequalities after the 2008 economic crisis. Moreover, we show that the crisis effect are stronger in the less advantages area of the Country, in this sense we find that the South of the Country is characterised by a huge level of income inequalities that has been magnified by the 1992 fiscal crisis. Similarly, we show how people from advantaged social groups (entrepreneurs and managers) are able to benefit from the crisis periods. The overall picture that emerges confirm Italy as an unequal country, in which people living in poorer area and from lower social classes are more vulnerable by the effects of the economic situation. References OECD (2011). Divided We Stand. Why inequality keeps rising? Paris: OECD Publishing. Valli, V. (1999). Politica economica europea. Firenze: Carocci. 5