Record Gap Between Rich and Poor

(CC) OECD

The gap between rich and poor has widened in most OECD countries over the past 30 years according to the just-published report “Divided We Stand: Why Inequality Keeps Rising.”

The most worrying thing is this occurred when countries were going through a sustained period of economic growth, before the Great Recession. What will happen now that 200 million people are out of work worldwide and prospects of growth are weak?

New OECD analysis says that the trend to greater inequality is not inevitable: governments can and should act.

Today in advanced economies, the average income of the richest 10 percent of the population is about nine times that of the poorest 10 percent. Even in traditionally egalitarian countries – such as Germany, Denmark and Sweden – the income gap between rich and poor is expanding – from 5 to 1 in the 1980s to 6 to 1 today. It’s 10 to 1 in Italy, Japan, Korea, Spain and the United Kingdom, rising to 14 to 1 in Israel, Turkey and the United States and reaching more than 25 to 1 in Mexico and Chile.

The study reveals a number of surprising findings: 

1. Globalization had little impact on both wage inequality and employment trends.

2. Technological progress has been more beneficial for workers with higher skills.

3. Regulatory reforms and institutional changes increased employment opportunities but also contributed to greater wage inequality.

4. Part-time work increased, atypical labor contracts became more common and the coverage of collective-bargaining arrangements declined in many countries.

5. The rise in the supply of skilled workers helped offset the increase in wage inequality resulting from technological progress, regulatory reforms and institutional changes.

6. Changing family structures make household incomes more diverse and reduce economies of scale.

7. The distribution of non-wage incomes has generally also become more unequal.

8. Tax and benefit systems have become less redistributive in many countries since the mid-1990s.

The full text is available for the IESE Community here.