Income Inequality is still growing

The Organization for Economic Co-Operation and Development has released a new survey of income inequality in the developed world. The OCED report says that again income inequality has grown even during the global recession.

From the OCED press release is a summary of the key findings of the report. You can download this media fact sheet which also provides a good summary to the report.

Why is the gap between rich and poor growing?

In most countries the gap is growing because rich households have done significantly better than middle-class and poor households. Changes in the structure of the population and in the labour market over the past 20 years have contributed greatly to this rise in inequality.

* Wages have been improving for those people who were already well paid.
* Employment rates have been dropping among less-educated people.
* And, there are more single-adult and single-family households.

Who is most affected?
Statisticians and economists assess poverty in relation to average incomes. Typically, they take the poverty line to be equivalent to one-half of the median income in a given country.

* Since 1980, poverty among the elderly has fallen in OECD countries.
* By contrast, poverty among young adults and families with children has increased.
* On average, one child out of every eight living in an OECD country in 2005 was living in poverty.

What does this mean for future generations?
Social mobility is generally higher in countries where income inequalities are relatively low. In countries with high income inequalities, by contrast, mobility tends to be lower.

* Children living in countries where there is large gap between rich and poor are less likely to improve on the education and income attainments of their parents than children living in countries with low income inequality.
* Countries like Denmark and Australia have higher social mobility, while the United States, United Kingdom and Italy have lower mobility.

What can be done?
In some cases, government policies of taxation and redistribution of income have helped to counteract widening inequalities, but this cannot be their only response. Governments must also improve their policies in other areas.

* Education policies should aim to equip people with the skills they need in today’s labour market.
* Active employment policies are needed to help unemployed people find work.
* Access to paid employment is key to reducing the risk of poverty, but getting a job does not necessarily mean you are in the clear. Growing Unequal? found that over half of all households in poverty have at least some income from work.
* Welfare-in-work policies can help hard-pressed working families to have a decent standard of living by supplementing their incomes.