Date post: | 19-Oct-2014 |
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OECD, Directorate for Employment, Labour and Social Affairs
Divided We Stand: Why inequality keeps rising
December 14, 2011
2/13
Source: OECD 2011, Divided we Stand. Note: Incomes are net incomes of the working-age population.
Huge country differences in levels of income inequality
Income gap between poorest and richest 10%
3/13
Income inequality is at a record high in the OECD area
Source: OECD 2011, Divided we Stand. Note: Incomes are net incomes of the working-age population.
1975
1976
7778791980
818283841985
868788891990
919293941995
969798992000
1 2 3 4 2005
2006
2007
2008
2009
2010
0.22
0.26
0.30
0.34
0.38
0.42Trends in income inequality (Gini coefficient)
4/13
• Income inequality increased in both high- and low-inequality countries alike;
• Income inequality increased during both recession and boom periods;
• Income inequality increased despite employment growth.
So what happened?• Developments in labour earnings and labour
markets are the main driver.
Some surprising facts
5/13
At the upper end, the share of very high incomes increased
Source: OECD 2011, Divided we Stand
6/13
At the lower end, lower-skilled people tended to fall behind
• Changes in working conditions: part-time work and non-standard labour contracts increased;
• Changes in technology: technical progress was more beneficial for high-skilled workers;
• Changes in working hours: many countries saw an increasing divide in hours worked between high- and low-wage workers.
7/13
Accounting for part-timers and self-employed increases earnings inequality
Earnings inequality among full-timers, part-timers and all workers, OECD average
Source: OECD 2011, Divided we Stand
8/13
• Globalization had little impact on wage inequality trends per se but put pressure on policies and institutional reforms;
• Trends in globalization and policies affect wages but also employment and unemployment.
• A number of regulatory reforms aimed at promoting growth and productivity……also had a positive impact on employment…
…but at the same time have been associated with increased wage inequality;
• Skill-based technical progress is a source of rising wage inequality
• Upskilling was the most important counterweight, reducing inequality and increasing employment
What were the main drivers of rising inequality?
9/13
Redistribution through taxes and benefits plays an important role in moderating market
income inequalityMarket incomes are distributed more unequally than household net
incomes: taxes and benefits reduce inequality by a quarter
Source: OECD 2011, Divided we Stand. Note: Data refer to the working-age population.
10/13
.. but redistribution became weaker in many countries
How much of the increase in market income inequality was offset by income taxes and cash transfers?
Source: OECD 2011, Income Distribution Database
11/13
• While overall redistribution has increased, this was not enough to offset growing market-income inequality;
• Changes in overall redistribution were mainly driven by benefits: those became more redistributive during the 1990s but less effective since then;
• Spending levels have been a more important driver of these changes than tighter targeting;
• Spending shifted towards “inactive” benefits, leading to reduced activity rates and higher market-income inequality.
Why have tax/benefit systems become less successful at reducing inequality?
12/13
• Government transfers (cash and in-kind) have an important role to play to safeguard low-income households;
• Scope for reviewing some existing tax provisions in light of increased “tax capacity" among top-income households;
• “More and better jobs”: Increasing employment may contribute to sustainable cuts in income inequality, provided employment gains occur in jobs that offer career prospects;
• Facilitate and encourage access to employment for under-represented groups: address labour market segmentation;
• Promote up-skilling of the workforce: better training and education for the low-skilled;
Both redistribution and inclusive employment policies matter.
Policy lessons for OECD countries
13/13 www.oecd.org/els/social/inequality
More Information…