by Ive Marx and Brian Nolan
Much of the rapidly growing scholarship on wealth understandably focuses on the top because that is where the bulk of wealth is held. This is true even in countries with comparatively equal income distributions and extensively redistributive welfare states. Yet even if assets are concentrated among the wealthy, they also matter a great deal for people who are less well off. Some people who are identified as poor or financially needy purely on the basis of income have meaningful assets, but many do not. Whether they have any such assets, or stand to inherit them in the future, can make a critical difference.
The 2021 special issue of the Journal of European Social Policy looks at how wealth matters for social policy scholarship. All the articles included in the special issue shed an innovative light on wealth in relation to a range of topics relevant for social policy researchers.
The first contribution by Sarah Kuypers and Ive Marx looks at how wealth, but also debt, matters for the way we measure poverty within and across countries. The impact of accounting for assets and debt differs by the approach taken but the elderly are generally less likely to be counted as poor once assets are taken into account. For some other groups the opposite is true. Country differences in poverty are also affected by accounting for assets and debt but remain harder to understand.
Richard Rodems and Fabian Pfeffer look more closely at the buffer function that wealth plays in the face of negative life events. They show that, at least in the US case, the level of wealth required to successfully self-insure against such events is remarkably high. Collective income maintenance provisions thus remain quite crucial in buffering against disruptive events causing severe income drops.
But why do low-income households have such little wealth? Salvatore Morelli, Brian Nolan, Juan Cesar Palomino and Philippe Van Kerm show that households on low incomes are also relatively disadvantaged in terms of the wealth transfers they received from the previous generation. They consider the potential impact of a strategy to address the wealth deficits of lower-income households by providing a universal capital endowment on reaching adulthood.
Janet Gornick and Eva Sierminska look in depth at the dynamics of wealth accumulation, notably the role of work careers, thus naturally bringing the gender dimension into the analysis. Gornick and Sierminska demonstrate the importance of work experience for wealth in three countries. They stress the importance of increasing women’s labour market participation and improving their labour market outcomes, notably their earnings, not only as an end itself but also to ultimately bolster women’s capacity for wealth accumulation.
Philipp Lersch, Markus Grabka, Kilian Rüß and Carsten Schröder, in part extending on that theme, add the wealth dimension to what has long been a core research theme in social policy: lone parenthood. The fact that lone parents face a multitude of disadvantages and challenges, not the least in combining work and care, has been well demonstrated. This article shows that this disadvantage also extends to wealth, strengthening once again the case for more adequate support of lone parents.
Taking a different angle, Nora Müller, Klaus Pforr and Oshrat Hochman look at wealth, and more specifically debt, as determinant of life satisfaction. Their main hypothesis is that debt reinforces the impact of negative life events on general life satisfaction but that this is less so in countries where welfare policies buffer events like unemployment, a severe disease, divorce or partner’s death. However, the empirical results suggest that welfare generosity does not reduce the negative impact of debt on wellbeing, but debt-discharge measures seem to do.
Housing wealth is the single most important wealth component for ordinary households in much of Europe and there is widespread concern that young adults are finding it much harder than their parents to get on the housing ‘ladder’. Caroline Dewilde and Lindsey Flynn find that accumulation of housing assets for a growing proportion of young adults has become slow at best and impossible at worst. Moreover, returns on housing investments for homeowners have become more unequal and increasingly concentrated at the top of the income distribution. Dewilde and Fynn argue that policy solutions for the future need to focus on strengthening the rental sector in addition to tax, financial and banking reform aimed at curtailing growing disparities in housing wealth accumulation trajectories.
Ben Ansell and Asli Cansunar, finally, continue on this theme of housing affordability. They look at what the quite substantial growth in house prices in Europe since the 1990s means for support for redistributive and housing policies. They find that house prices have a significant impact on social policy preferences and voting behaviour. Growing unaffordability of home ownership is associated with lower support for government policies to reduce income differences or take responsibility for housing, and consequently, more support for the political right.
What remains to be done
The articles present innovative contributions to a research field that is still in its infancy. The theoretical frameworks underpinning much of the research are in need of significant development. Although some articles in this special issue refer to various theoretical perspectives on wealth accumulation none present a fully developed theoretical framework.
It is also noteworthy that several of the articles present comparative results that are hard to decipher. Clearly, there is still a long way to go in understanding the sometimes surprisingly large and sometimes counterintuitive observed differences between countries.
A significant part of this agenda entails the critical investigation of the data. One well-known problem is that the very wealthy remain underrepresented in much of the data currently being used. Also, one missing or at least imperfectly measured component is social security wealth. These distort international comparisons since such arrangements are more important in some countries than others.
Data issues also bedevil the study of debt. Debt is arguably the major variable most often missing in poverty research. In public perception and indeed in the experience of many social workers debt is one of the most serious problems facing low-income and poor people. Poverty in combination with debt problems can cause intense stress, feelings of shame and isolation. There remains an important role for social policy research in gaining a better understanding of how people in financially dire circumstances cope and how they actually respond to policies to help them.
A final feature to note about the articles in this special issue is that they mostly focus on describing and explaining wealth-related outcomes rather than analysing (social) policy interventions. Exceptions include the article by Morelli et al. in which a capital endowment for young adults is simulated, and Dewilde and Flynn also make concrete policy suggestions. However, research in this field clearly needs to both deepen our understanding of the role played by wealth and also prioritize the elaboration and evaluation of policy interventions across a broad span that may potentially address the wealth deficits and debt problems of low-income households.
Finally, it has become apparent, especially from the groundbreaking research by Gabriel Zucman and colleagues, that some of the wealthy are very successful at avoiding taxation, especially the extremely wealthy. The question of how extreme, undertaxed wealth can co-exist with persistent poverty and inequality of opportunity is obviously a fundamental one, especially for social policy scholars. Wealth taxation, having been in retreat for decades, is now firmly back on the agenda, not least in debating how the costs of the COVID-19 pandemic are to be met and shared.
The special issue does not consider the issue of wealth taxation in relation to poverty alleviation and other social policy goals, but clearly this is central to the policy challenges relating to wealth. If taxing the wealthy (more) is deemed desirable and feasible then a key issue is which functions could then sensibly be financed through wealth taxes. Much work remains to be done!
This blog post is based on a special issue published in the Journal of European Social Policy.
About the authors
Brian Nolan is Professor of Social Policy at the Department of Social Policy and Intervention, at the University of Oxford, Director of the Equity and Growth Programme of the Institute for New Economic Thinking at the Oxford Martin School, the and Senior Research Fellow at Nuffield College Oxford.