In most countries, the gap between rich and poor is at its highest level since 30 years. Today, in countries, the richest 10% of the population earn 9,6 times the income of the poorest 10%. In the 1980nthis ratio stood at 7:1 rising to 8:1 in the 1990s and 9:1 in the 2000s. In several emerging economics, particularly in Latin America, income inequality has narrowed, but income gaps remains generally higher than in OECD countries. During the crises, income inequality continued to increase, mainly due inequality. However, at the lower end of the income distribution, real household incomes fell substantially in countries hit hardest by the crises.
Much of the recent debate surrounding inequality has focused on top earners, especially the “top 1%”. Less well understood is the relative decline of low earners and low income household’s – not just the bottom 10% but the lowest 40%. This report places a special focus on these households, investigating some of the factors that have weakened their economic position, and the range of policy options that can address increasing inequality.
Higher inequality drags down economic growth and harms opportunities.
Beyond its impact on social cohesion, growing inequality is harmful for long-term economic growth. The rise of income inequality between 1985 and 2005, for example, is estimated to have knocked4,7 percentage points off cumulative growth between 1990 and 2010, on average across OECD countries for which long term series are available. The key driver is the growing gap between lower-income household – the bottom 40% of the distribution – and the rest of the population.
A main transmission mechanism between inequality and growth is human capital investment. While there is always a gap in education outcomes across individuals with different socio-economic backgrounds, the gap widens in high-inequality countries as people in disadvantaged households struggle to access quality education. This implies large amounts of wasted potential and lower social mobility.
Rising non-standard work can create job opportunities but also contribute to higher inequality.
Temporary and part-time work and self – employment now account for third of total employment in OECD countries. Since the mid-1990s, more than half of all job creation was in the form of non-standard work. Many non-standard workers are worse off in many aspects of job quality, such as earning, job security or training. In particular low – skilled temporary workers face substantial wage penalties, earning instability and slower wage growth.
Households that are heavily dependent on earnings from non-standard work have much higher income poverty rates (22% on average), and the increase in the number of such households in the OECD countries has contributed to higher overall inequality.
Non-standard work can be a “stepping stone” to more stable employment – but it depends on the type of work and the characteristics of workers and labor market institutions. In many countries, younger workers, especially those with only temporary work contracts have a lower chance of moving on to a more. Career job.
More women in the workforce lowers inequality
Women have made substantial progress in narrowing the participation, pay and career gap with man and this has put a brake on rising inequality. But they are still 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 level 20 to 25 years ago, income inequality would have increased by almost 1 Gini point more on average. The impact of a higher share of women working full – time and higher relative wages for women added another brake of 1 point.
High wealth concentration limits investment opportunities
Wealth is much more concentrated than income: on average, the 10% of wealthiest households hold half of total wealth, the next 50% hold almost the other half, while the and/or low asset holding affect the ability of the lower middle class to undertake investments in human capital or others. High wealth concentration can weaken potential growth.
Designing policy packages to tackle high inequality and promote opportunities for all.
Policy makers have a range of instruments and tools at hand to tackle rising inequality and promote opportunities for all. For such policy packages to be successful, solid trust in institutions and effective social dialog are essential. Reducing the growing divide between rich and poor and promoting opportunities for all requires policy packages in four main areas:
Women´s participation in economic life: governments need to pursue policies to eliminate the unequal treatment of men and women in the labor market and to remove barriers to female employment and career progression. This includes measures for increasing the earning potential of women on low salaries and to address the glass ceiling.
Employment promotion and good-quality jobs: policies need to emphasize access to job and labor market integration. The focus must be on policies for quantity and quality of jobs; jobs that offers career and investment possibilities, jobs that are stepping stone rather than dead ends. Addressing labor market segmentation in an important element of enhancing job quality and tackling inequality.
Skills and education: A focus on the early years as well as on the needs of families with school children, is crucial in addressing socio-economic differences in education. More must be done to provide youth with the skill they need to get a good start in the labor market. With a rapidly evolving economy, further efforts, with the close involvements of business and unions, should be made in promoting a continuous up-grading of skills during the working life.
Tax-and-transfer system for efficient redistribution: Adequately designed redistribution via taxes and transfers is a instrument to contribute to more equality and more growth. In recent decades, the effectiveness of redistribution weakened in many countries due to working-age benefits not keeping pace with real wages and taxes becoming less progressive. Policies need to ensure that wealthier individuals but also multinational firms pay their share of the tax burden. Large and persistent losses of low-income groups underline the need for well-designed income-support policies and counter-cyclical social spending.