MacroScope

Inequality highest in 30 years, OECD finds

December 5, 2011

Income inequality is at its highest levels in three decades, according to a new report from the Organization for Economic Development and Cooperation. The trend is no accident, the group says, but rather the result of a combination of spending cuts on social programs and lower taxes on the wealthy.

Tax and benefit systems play a major role in reducing market-driven inequality, but have become less effective at redistributing income since the mid-1990s. The main reason lies on the benefits side: benefits levels fell in nearly all OECD countries, eligibility rules were tightened to contain spending on social protection, and transfers to the poorest failed to keep pace with earnings growth. As a result, the benefit system in most countries has become less effective in reducing inequalities over the past 15 years. Another factor has been a cut in top tax rates for high-earners.

“There is nothing inevitable about high and growing inequalities,” said OECD Secretary-General Angel Gurria.

The United States, which has seen a wave of national protests focused on the gap between rich and poor,  did not fare well in the report. Of the 34 nations in the OECD, the U.S. has the fourth highest level of inequality, after Chile, Mexico and Turkey.

Some other findings for the United States:

– The wealthiest Americans have collected the bulk of the past three decades’ income gains. The share of national income of the richest 1 percent more than doubled between 1980 and 2008 from 8 percent to 18 percent.

– The richest 1 percent now makes an average of $1.3 million in after-tax income (compared to $17,700 for the poorest 20 percent). During the same time, the top marginal income tax rate dropped from 70 percent in 1981 to 35 percent in 2010.

–  The rising incomes of executives and finance professionals account for much of the rising share of top income recipients. Moreover, people who achieve such a high income status tend to stay there: only 25 percent drop out of the richest 1 percent in the United States, compared to some 40 percent in Australia and Norway, for instance.

– The main reason for widening inequality in the United States is the growing wage divide. The gap between the richest and poorest 10 percent of full-time workers has increased by almost a third, more than in most other OECD countries.

Comments
2 comments so far | RSS Comments RSS

currently, the wealthy are devoted to making sure that trickle down economics doesn’t work. Well, go ahead. But when you have destroyed the middle class and made poverty the norm, the wealthy will fall into or be toppled into the same hole. Only when the wealthy commit to raising the standard of living for everyone will any kind of economics sustain. Remember, any production is the result of supply from the planet. It doesn’t matter how many itoys you invent, you must have the planet to produce them. The planet belongs to everybody!

Posted by wrongwatch | Report as abusive
 

Of course it is. The CEO’s took all the raises for themselves. Some so large that they had to lay-off people, file for bankruptcy, get bailed out, etc… It hasn’t just been a consolidation of wealth though, it’s been as much of a consolidation of power as anything. Look at the newly un-elected leaders of Greece and Italy, corporate person-hood in America, record price matched with record profits, the markets rise to political power, etc… We’re watching a relatively unchallenged Capitalist take-over of our Democracies unfold. Inequality is to be expected.

Posted by JamesHovland | Report as abusive
 

Post Your Comment

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/