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OECD: “The benefits of economic growth do not trickle down”

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There’s a new report out from the Organization for Economic Cooperation and Development charting the rise in inequality among wealthy countries. Overall, income inequality is now at its highest level in 30 years. And, while the United States snags a lot of criticism for being the fourth most unequal country in the OECD — after Chile, Mexico and Turkey — inequality is sharply increasing just about everywhere, even in egalitarian hotspots like Sweden and Denmark:

Inequality has been rising rapidly in the United States, as the wage gap between the richest 10 percent and the poorest 10 percent grew by nearly one-third between 1985 and 2008. But inequality has actually risen more quickly in countries like Sweden over this same timeframe.

Meanwhile, there’s a lot of variance in income growth at the bottom among different countries. Incomes for the poorest 10 percent in the United States grew, on average, 0.5 percent annually from 1985 to 2008. That’s better than in Sweden (0.4 percent annually) and Germany (0.1 percent). But it’s weaker than in countries such as France (1.6 percent) and Spain (3.9 percent). Strong income growth on the bottom end helps explain how France and Spain managed to keep income inequality in check over the years.

The OECD report tries to pick through the reasons why inequality is increasing around the world. It rules out the rise of globalization and trade as a factor. But the report does note that technological advances over the years have disproportionately benefited high-skilled, better-educated workers. It also finds that marriage tends to reinforce inequality — high earners marry each other. And there seems to be a factor when comparing hours worked -- the better-educated, higher earners are working longer hours, while lower-earners are seeing their hours cut back and increasingly getting shunted into part-time work.

The report also notes that public policy is doing less and less to mitigate inequality: “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.” The report also points a finger at tax cuts for the wealthiest.

So what’s the bottom line? Here was OECD Secretary-General Angel Gurría on Monday: “The benefits of economic growth DO NOT trickle down,” he said. “This study dispels this assumption.” But, he added, “There is nothing inevitable about high and growing inequalities.”

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