LSE Institute of Global Policy
If You Care About Poverty, Do You Have to Worry About Inequality Too?
John Hills
Richard Titmuss Professor, Social Policy and Chair of the Centre for Analysis of Social Exclusion (CASE) and at the London School of Economics
John Hills

While some people see reducing inequality as important in itself, for others eradicating poverty is what matters, and inequality in itself is unimportant.

But can one, in fact, be concerned about poverty but indifferent to inequality? As a corollary, does tackling poverty also require policies to reduce inequality?

For some in the philosophical debate, inequality is in fact the prime concern, with poverty a consequence. But for others, poverty is the starting point and inequality of concern just for instrumental reasons, if it leads to or exacerbates poverty.

For many, though, the concerns are not exclusive. Both are relevant for human deprivation and violate human dignity. They can also reinforce each other. A pluralist approach suggests one can prioritise poverty while also allowing that inequality matters, both in itself and instrumentally.

There is therefore a core empirical issue: in practice are poverty and inequality linked? There are two competing propositions:

That high inequality is associated with high rates of poverty, either through a causal relationship, with higher inequality leading to greater poverty, or through the same factors driving both, so tackling one is likely to reduce the other.
That high inequality is good for poverty reduction, measured against a fixed standard at least, through the incentives it creates leading to economic growth, benefiting poor people in absolute terms, even if they are left behind relative to others. China over the last 30 years could be an example.
Across the EU and other industrialised countries, higher income inequality is also associated with higher relative poverty. We do not see countries with high income inequality and low relative poverty.

Precise definitions matter, so you need to look at a variety of measures of both inequality and poverty—any observed relationship could simply be the mechanical result of the definition used.

That said, the empirical evidence LSE colleagues and I review in recent research shows an association between higher income inequality and higher poverty in industrialised countries that is not the result of a simple arithmetical link.

Over the last fifty years in the UK, years with comparatively low inequality had lower relative poverty, and those with high inequality had higher poverty rates (although falls in relative poverty from the early 1990s to 2010 were not matched by similar falls in inequality).

Across the EU and other industrialised countries, higher income inequality is also associated with higher relative poverty. We do not see countries with high income inequality and low relative poverty. However, there is no consistent pattern in how the income shares of the very top of the distribution relate to poverty.

Wider indicators of material deprivation and multi-dimensional poverty are also significantly associated with income inequality in EU countries. These relationships are not simply the result of the other underlying factors separately associated with both poverty
and inequality.

We also looked at the evidence for the competing proposition—that income inequality may be good for poverty reduction, against fixed standards. But we saw the opposite. In Europe recent increases in inequality were associated with slower reductions (or faster increases) in poverty against even an anchored standard.

Maybe this should not be a surprise. While one economic tradition suggests a trade-off between equality and growth, given the incentives for work, investment and risk-taking that go with wider inequalities, other economists suggest reasons why inequality damages growth.

Higher income inequality is also associated with higher relative poverty

The empirical evidence is also divided, with some studies suggesting inequality helps growth, but many finding the opposite. This suggests that the positive links between greater inequality and greater poverty should remain the main focus, rather than concerns that lower inequality would reduce growth.

There are several explanations supported by other evidence. Labour market factors, such as discrimination, may drive both poverty and inequality. Inequality at one time—and especially in one generation—reinforces both inequality and poverty in the next. Even if market incomes are unequal, governments can break the link with poverty, but there are limits to what redistribution can achieve when inequality is high. If inequality means less knowledge of how others live and geographical polarisation, popular demands for something to be done about poverty may be reduced. Media control and political funding are often dominated by those with greatest resources, while high inequality and lack of involvement may lead to lower turnout amongst those who might gain from redistribution.

The range of potential drivers means that public policies matter, not just social security, taxation and anti-discrimination legislation, but also education, housing, regional investment, policy rhetoric, and factors affecting culture and social norms, and democratic safeguards.

The evidence suggests that for those whose primary concern is to tackle poverty, it is hard to do this without simultaneously reducing inequalities, given the strong empirical associations between them, and the ways in which inequality can itself drive of poverty. At the same time, for those for whom both poverty and inequality are concerns, the links between them mean policies to tackle either can have a double dividend.

John Hills is Richard Titmuss Professor of Social Policy and Chair of the Centre for Analysis of Social Exclusion (CASE) and at the London School of Economics. His research interests include the distribution of income and wealth, the welfare state, social security, pensions, housing and taxation. Recent books include Good Times, Bad Times: The welfare myth of them and us (Policy Press, second edition 2017), Social Policy in a Cold Climate (co-editor, Policy Press, 2016) and Wealth in the UK (co-author, Oxford, 2013). He was a founding Co-Director of the LSE’s International Inequalities Institute, Chair of the UK government’s National Equality Panel (2008-2010), and was one of the three members ofthe UK Pensions Commission from 2003 to 2006.