‘Record gap’ between rich and poor – ‘We have reached a tipping point. Inequality in OECD countries is at its highest since records began.’Posted by Jim at Monday, May 25, 2015
Paris, 21 May 2015 (AFP) - The gap between the rich and poor in most of the world's advanced economies is at record levels, according to an OECD study that also found glaring differences between men and women.
In most of the 34 countries in the Organisation for Economic Cooperation and Development the income gap is at its highest level in three decades, with the richest 10 percent of the population earning 9.6 times the income of the poorest 10 percent.
In the 1980s this ratio stood at 7 to 1, the OECD said in a report [In It Together: Why Less Inequality Benefits All].
The wealth gap is even larger, with the top 1 percent owning 18 percent and the 40 percent only 3 percent of household wealth in 2012.
"We have reached a tipping point. Inequality in OECD countries is at its highest since records began,” said OECD Secretary-General Angel Gurria.
As high inequality harms growth prospects, there are economic as well as social arguments for governments to try to address the issue, he said.
"By not addressing inequality, governments are cutting into the social fabric of their countries and hurting their long-term economic growth," said Gurria.
The study found that the rise in inequality between 1985 and 2005 in 19 OECD countries knocked an estimated 4.7 percentage points off cumulative growth between 1990 and 2010.
An increase in part-time and temporary work contracts as well as self-employment was seen as an important driver of increased inequality, with half of all jobs created in OECD countries between 1995 and 2013 falling into these categories.
The report also found that as inequality rose, there were significant falls in educational attainment and skills among families in lower income groups, thus implying large amounts of wasted potential and lower social mobility.
As wages for women are 15 percent less than for men, ensuring gender equality in employment is one way to reduce inequality.
Redistributive taxes and transfers is another effective option, said the OECD as it noted that existing mechanisms have been weakened in many countries.
"To address this, policies need to ensure that wealthier individuals, but also multinational firms, pay their share of the tax burden," said the OECD, which has been playing a key role in an international effort to crack down on tax avoidance.
It also encouraged countries to broaden access to better jobs and and encourage greater investment in education and skills throughout working life.
The report found inequality to be highest in Chile, Mexico, Turkey, the United States and Israel among OECD countries.
It was lowest in Denmark, Slovenia, Slovak Republic, and Norway. [more]
21 May 2015 (OECD) - Income inequality has reached record highs in most OECD countries and remains at even higher levels in many emerging economies. The richest 10 per cent of the population in the OECD now earn 9.6 times the income of the poorest 10 per cent, up from 7:1 in the 1980s and 9:1 in the 2000s, according to a new OECD report.
In It Together: Why Less Inequality Benefits All also shows that wealth is even more concentrated at the top than income, exacerbating the overall disadvantage of low-income households. In 2012, the bottom 40% owned only 3% of total household wealth in the 18 OECD countries with comparable data. By contrast, the top 10% controlled half of all total household wealth and the wealthiest 1% owned 18%.
“We have reached a tipping point. Inequality in OECD countries is at its highest since records began,” said OECD Secretary-General Angel Gurría, launching the report in Paris with Marianne Thyssen, European Commissioner for Employment, Social Affairs, Skills and Labour Mobility. “The evidence shows that high inequality is bad for growth. The case for policy action is as much economic as social. By not addressing inequality, governments are cutting into the social fabric of their countries and hurting their long-term economic growth."
The report highlights the need to address working conditions. The increasing share of people working part-time, on temporary contracts or self-employed is one important driver of growing inequality. Between 1995 and 2013, more than 50 per cent of all jobs created in OECD countries fell into these categories. Low-skilled temporary workers, in particular, have much lower and instable earnings than permanent workers.
Youth are most affected: 40% are in non-standard work and about half of all temporary workers are under 30. They are also less likely to move from a temporary job into a stable permanent one.
Another key lesson from the report is that more needs to be done to reduce the gender gap. The increase in the number of women working has helped stem the rise in inequality, despite their being about 16% less likely to be in paid work and earn about 15% less than men. If the proportion of households with working women had remained at levels of 20 to 25 years ago, income inequality would have increased by almost 1 Gini point more on average.
Beyond its impact on social cohesion, the report stresses that growing inequality and weak opportunities in the labour market are harmful for long-term economic growth. The rise in inequality between 1985 and 2005 in 19 OECD countries analysed is estimated to have knocked 4.7 percentage points off cumulative growth between 1990 and 2010. In fact, it is inequality affecting the bottom 40% which mainly brings down overall growth. As inequality rises, families with lower socio-economic background experience significant falls in educational attainment and skills, implying large amounts of wasted potential and lower social mobility.
Inequality is highest among OECD countries in Chile, Mexico, Turkey, the United States and Israel and lowest in Denmark, Slovenia, Slovak Republic and Norway. Inequality is even higher in major emerging economies although it has fallen in many including Brazil.
To reduce inequality and boost inclusive growth, the OECD says governments should: promote gender equality in employment; broaden access to better jobs; and encourage greater investment in education and skills throughout working life.
Redistribution via taxes and transfers is also an effective way to reduce inequality. In recent decades, the effectiveness of redistribution mechanisms has been weakened in many countries. To address this, policies need to ensure that wealthier individuals, but also multinational firms, pay their share of the tax burden.
The full report and individual country notes for Australia, Canada, Chile, France, Germany, Italy, Japan, Mexico, Netherlands, Spain, United Kingdom, United States are available here: http://www.oecd.org/social/in-it-together-why-less-inequality-benefits-all-9789264235120-en.htm
To obtain a copy of the report or for further information or comment, journalists should contact the OECD Media Division (tel. + 33 1 45 24 97 00).
To coincide with the release of the report, the OECD has launched a new interactive web-tool, Compare your income. It enables users from different OECD countries to compare perceptions and realities, by looking at where they fit in their country’s income distribution. The tool is based on the most recent data from the OECD Income Distribution Database.