What role for policies in tackling inequality?

Abstract

In recent years, the BCIS governments have incorporated the goal of reducing poverty and inequality into their approaches to more sustainable growth and have enacted some reforms in that direction. Tackling inequality traps requires improving economic opportunities for all, and this covers a variety of policy actions. Labour market and social policies have an important role to play, as they directly or indirectly affect household incomes. In countries with significant labour market segmentation between formal and informal employment, policies and measures directed exclusively at the formal labour market have a small influence, limiting their impact on reducing poverty and inequality. But, labour market policies can have a considerable impact on maintaining this labour market duality by making employment expensive and favouring underemployment and informality. In this kind of configuration, they could even become counterproductive with respect to reducing poverty and inequality.