Giving Compass' Take:

• Ana Revenga and Meagan Dooley lay out changes that could address the rising inequality in the United States. 

• How can funders best take action to make changes to reduce inequality? 

• Learn about addressing wealth inequality through community networks

In order to tackle rising inequality, we need to invest in policies to make market-driven growth more pro-poor and inclusive. First, we must reduce inequality of opportunity and its intergenerational transmission. Second, we need new policies to correct the failure of the labor market to provide decent employment and earning opportunities to a growing swath of the workforce in many countries. Third, we need progressive taxation and spending, but as a complement to—not a substitute for—policies that address the two core drivers of inequality.

In practice, this means:

1. Policies to develop the human and physical assets of the bottom 40 percent. One example: Early Childhood Development policies to promote physical, socio-emotional, and cognitive development in the early years. Children in poor households need this the most but get it the least.

2. Policies to ensure that markets work fairly for everyone. This means reducing market power concentration and rent-seeking behavior among firms. In some countries, this may mean less business regulation in order to foster a more business-friendly environment. In others, it may mean the opposite.

3. Policies to “build a strong and resilient middle class.” In order to protect workers and the existing or emerging middle class from shocks, social protection programs must adapt to the changing nature of employment relationships—in effect, de-linking social benefits from employment contracts. This is especially important in countries with large informal sectors.

4. Development of effective training programs. The demand for skills is changing, yet existing training programs are ill-equipped to reskill older workers. Emerging evidence suggests that experiential, on-the-job training is more effective than classroom instruction. More flexible options for post-secondary schooling are also needed, allowing for greater movement between the labor market and school.

5. Mobility policies and support for lagging regions. Large spatial disparities in labor market opportunities exist in many countries. Policies such as targeted college scholarships, housing credits, and portable social benefits can help facilitate movement to more productive areas. Some economists have also argued for renewed place-based policies to support opportunities in lagging regions.

6. Expansion of progressive transfers. In more formalized settings, in-work, earned-income tax credits or graduated social assistance can be combined with activation measures to support re-employment. In developing countries, transfers need to fit the local context: Worker tax credits are feasible in some settings, while unconditional or conditional cash transfers may be better in others.

7. More effective use of tax policy. Governments will need to raise additional revenue in order to finance a more progressive social safety net. There is room to both broaden the tax base while reducing exemptions that favor top earners. Corporate income taxes represent a potentially large source of revenue, but international cooperation is required to combat tax evasion and capital flight. Taxes on environmental externalities could also help fund social safety nets.

Read the full article about address rising inequality by Ana Revenga and Meagan Dooley at Brookings.