Why the income gap between different groups of the population is not getting smaller

So, the official data of Rosstat show that according to the results of the first quarter of 2023, the cash income of the 10% of the wealthiest population exceeded the income of the 10% of the poorest by 13.2 times. And in order to understand whether this is a lot or a little, what kind of dynamics is observed here, let’s recall that the corresponding indicator, for example, in 1996 was 13. It turns out that for almost thirty years there has been no progress in terms of reducing the socio-economic differentiation of the population. Sad but true.

If you really try to find something positive, you can, of course, pay attention to the fact that in some years of this century the figure has reached more than 15 times, but this does not change the essence of the matter: the differentiation of the population by income remains very high in Russia , there has been no significant progress in solving this problem in recent decades.

But you can compare not only with what we had before. It can be compared with what is in economically developed countries. There are, of course, methodological differences in how they and we consider the differentiation of the population in terms of monetary income, but if you try to eliminate them, it turns out that in Russia the differentiation is approximately twice as high.

By the way, just to complete the picture: in 1990, on the eve of radical market transformations, the income differentiation coefficient (the so-called fund coefficient) was only 4.4 times in our country. By citing this statistical fact, I don’t want to say at all how good everything was then and how bad everything is today. The formation of new economic relations objectively could not but lead to the emergence of a layer of owners, top managers and other rich people. But some kind of obvious overlap turned out …

Now the question is: why, in fact, is it bad if the differentiation of the population in terms of income is very high? Nobel laureate economist Joseph Stiglitz gives his answer to this question: “Extreme equality inhibits economic growth, especially when it leads to social and political instability.” It would seem, without a doubt, that it is so. However, not everything is so unambiguous, therefore, forgive me, dear Nobel laureate, I want to slightly correct his thought.

I propose to pay attention to the fact that in Moscow, a prosperous and developed region by Russian standards, the differentiation of the population by income is the highest. In some years in the 2000s, the cash income of the 10% of the wealthiest citizens exceeded the total cash income of the 10% of the poorest citizens by more than 50 (!) times. Thus, in 2003, the ratio of funds in Moscow was 51.8 times, while in Russia as a whole this figure was then at the level of 14.3 times. Then, of course, the Moscow indicator decreased, but still remained significantly higher than the national one. And what, Moscow, with such a differentiation of the population in terms of monetary income, turned out to be an outsider in terms of economic growth? Yes, nothing like that – rather, on the contrary! So, not everything is so simple.

The explanation for the fact that a high differentiation of the population in terms of income does not always lead to a slowdown in economic growth is seen as follows. The poor in the capital are completely different poor compared to the same group of people in some other poor Russian region. They, forgive me for the inconsistency of the wording, are simply richer. And in this case, it matters much more both from the point of view of economic growth prospects and from the point of view of socio-economic stability (which is exactly what Joseph Stiglitz is worried about). It is necessary to take this circumstance into account.

And yet rich countries do not have a significant socio-economic differentiation of the population. As the economy grows, providing the wealth of the country and people, economic and institutional mechanisms are being improved that contribute to a more even distribution of wealth. A more correct structure of the incomes of the population is taking shape: an increasing share in it is beginning to be occupied by income from entrepreneurial activity and from property. Accordingly, the shares of wages and social benefits in the overall structure of the population’s income are decreasing.

A more equitable system of taxation of citizens’ incomes is being formed. Yes, yes, I’m talking about the very progressive taxation, the need for the introduction of which in Russia has been rejected for more than two decades.

A healthy corporate culture is emerging, in which the majority of employees are not trying to pay the minimum, and their loved ones (owners and tops) – the maximum. Plus, the rich spend a lot of money on charity, and this is not a simple tribute to fashion.

Surely there are other mechanisms for reducing the socio-economic differentiation of citizens, but it is worth dwelling in more detail on the role that a change in the structure of the population’s monetary income can play in this. In Russia in the 21st century, the share of income from entrepreneurial activity and from property in the total cash income of the population was declining, but the share of social payments was steadily growing. If in 2000 the share of social payments in total cash income was, according to Rosstat, less than 14%, then by the end of 2022 this figure was already 21%. At first glance, this is good, the state is doing a good job of taking on more and more care for citizens. Well, it’s good, but at the same time, the share of income from entrepreneurial activity in the total cash income of the population decreased from 15.2% in 2000 to 6.2% in 2020 (by 2.5 times!), while the share of income from property decreased over this period from 6.8% to 5.3% respectively. And at the same time, we state that the problem of poverty remains relevant, the socio-economic differentiation of the population by income is high.

But then we simply have to conclude that the problem cannot be solved only by increasing various kinds of social payments. This is a dead end path. No, social payments, of course, need to be increased, but at the same time, income from business and property should grow even more.

It must be recognized that the more income from entrepreneurial activity in the income structure of the population, the less dependent on the state people will be. From my point of view, this is good, but I understand that there are enough of those who think otherwise. If people are independent, they are less manageable, not everyone and not always satisfied with this. When people are independent, they are much more proactive, they are the ones who move the economy and society forward in the first place. However, for obvious reasons, independent people are inconvenient for those in power.

If we talk specifically about what needs to be done to increase the share of income from the same entrepreneurial activity in the total income of the population, then this is the stimulation and support of business (organizational, financial, personnel, etc.). Entrepreneurship is not a tribute to the market economy, not some decoration of it, but its basis, and this is how it should be treated.

It must be admitted that a significant socio-economic differentiation of the population in terms of income is not an obstacle, by quickly removing which we will ensure high rates of economic growth. Alas, it won’t be that easy. We will have to ensure high rates of economic development, while at the same time solving the problem of income differentiation of the population. But high economic growth is hardly possible in the foreseeable future. But this is another story, and therefore it remains to state: in this very future, a significant differentiation of the population in terms of income will continue.