Income Inequality Around the World

Or to be more precise, among the 34 countries that make up the Organisation for Economic Co-operation and Development (OECD), a club of mostly industrialized nations (including many of the world’s largest and most developed economies). Its recent report on inequality shows growing and unprecedented disparity of income across the board, albeit at different rates and levels depending on the country.

Mexico, Chile, the United States, and Turkey fare the worst, while Denmark, the Czech Republic, Slovenia, and Finland perform the best. The chart below displays the results, courtesy of Business Insider

Here is an in-depth analysis of this trend straight from the source:

“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.

As the OECD report, titled In It Together: Why Less Inequality Benefits All, stresses, such inequality bodes ill for social well-being and development, and has in fact already done measurable damage:

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.

The solutions seem obvious, though no less politically challenging and controversial:

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.

Basically, more robust public investment and tax collection, something most (though not all) of the least unequal countries have in common. Needless to say, this would not be very palatable in place like the U.S., where bigger government and higher taxation remain anathema. But as the OECD and other economic groups are finding, something is going to have to given; widening and entrenched inequality will lead to even bigger problems down the road, for everyone.

Given all that, perhaps another solution lies in empowering those workers, women, and other disenfranchised groups across the world to take charge of their economic and political destinies — no easy feat, but perhaps no more difficult than convincing wealthy elites and the politicians they support to do their part in paying better wages, creating more socially responsible corporate policies, and the like.

What are your thoughts?

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