The International Monetary Fund argues that “widening income inequality is the defining challenge of our time”. Despite improving living standards for most people in the last few decades, the income and social inequality gap remains wide. It is time that we dealt with this unfairness by building a new Republic of Fairness.
A University of Malta study entitled Inequality Dynamics in Malta: Cracks, Blips and Long-term Trends identifies a number of causes behind Malta’s persistent wide gaps in income. Understandably, this study aims to “relate inequality trends explicitly to factors without passing value judgements”.
One headline finding of this study is that, in 2018, the wealthiest 20 per cent received 4.3 times more disposable income than the poorest 20 per cent. In this respect, Malta’s income distribution is marginally better than the EU average but still too high to claim that fairness is the bedrock of our society.
The causes behind the broadening incomes gap in Malta are not so different from those in other parts of the developed world. Flawed political goals, tax avoidance, poor educational achievement, lack of innovation and low living quality are some of the challenges that hinder the have-nots in our society from climbing up the social ladder.
It is worrying that some of the better-off members of the community see inequality as “a reward for education, hard work and the development of skills”.
A strategy to build a new Republic of Fairness must start with a clear understanding of what promotes income and social inequality, followed by acknowledging the consequences of that growing inequality.
Income and social inequality impact the health of those affected. It gives rise to social tensions, frustrations, crime, substance abuse and poverty. It destroys the motivation of young people to engage in educational programmes that may be available to help them avoid falling into the poverty trap.
Three decisive steps need to be taken to reduce the income and social gap.
The new economy is characterised by technological progress and the resulting skills premium that employers are prepared to pay to qualified workers. Despite various efforts made in the past few decades to improve the achievement levels of Maltese students, Malta still has one of the highest levels of early and unskilled school leavers.
Educational incentives must be more focused on those who have no family safety nets to protect them from being unemployable because of poor educational achievement. Our financial incentives for encouraging students to pursue their studies are still modelled on the one-size-fits-all approach.
Policymakers also need to understand the drivers of low educational achievement better and focus on addressing shortcomings in the education system and the distressing social context that some students have to cope with.
This could include more affordable housing, better health care and financial support for single-parent families and families living on social assistance or low income.
Social transfer policies also need to be recalibrated to ensure that strategies for more social inclusion can be financed in a sustainable way. This may necessitate more emphasis on taxing wealth rather than work.
The income inequalities challenge should not be considered as a mirage designed by do-gooders. The complementarities between economic growth and income inequality objectives suggest that raising living standards and educational achievement can also impact income distribution and promote a fairer social fabric.