Report: Income inequality rising in most developed countries

May 16, 2013

LONDON — The divide between rich and poor is widening in developed nations, according to a new report released Wednesday by the Paris-based Organization for Economic Cooperation and Development.

According to the new data, economic disparity has risen more from 2007 to 2010 than in the preceding 12 years. Over this period, the OECD has documented increasing income inequality caused by the financial crisis, which it says is “squeezing income and putting pressure on inequality and poverty.”

In 2010, the richest 10 percent of people across 33 OECD member states earned 9.5 times the income of the poorest 10 percent. That factor is up from 9 in 2007. The largest differences among OECD countries were found in Chile, Mexico, Turkey, the United States and Israel, while the lowest were in Iceland, Slovenia, Norway and Denmark.

Levels of income inequality have worsened across three-quarters of all OECD countries since 2007. This gap rose most rapidly in nations where the euro crisis has hit hardest, coinciding with soaring unemployment. For example, in Spain and Italy, the average income of the top 10 percent stayed relatively stable, but the poor became drastically poorer.

Income inequality in the United States and Latin America — particularly Chile and Mexico — has tended higher than in Europe. This trend continued into 2010. The top five most unequal countries (in descending order) were Chile, Mexico, Turkey, the United States and Israel. Portugal, the European nation with the highest income inequality, was ranked sixth.


Source: OECD

Traditionally, OECD countries have had lower levels of inequality than non-OECD nations such as India, China and Russia. Despite the economic downturn, the economies of China and India grew above the OECD average over the past decade and are continuing to develop. Though these emerging economies have reduced levels of poverty, they have also seen increased levels of income inequality.

In most OECD countries, the growing gulf between rich and poor was alleviated slightly by welfare support. While most countries experienced increases in disposable income inequality and relative poverty, the levels in 2010 were only slightly higher than in 2007, perhaps due to the deployment of fiscal stimulus packages.

The OECD report warns that if governments continue to cut benefits programs and pursue austerity policies, levels of inequality could continue to grow. Michael Förster, senior analyst at the OECD social policy division, said that they have taken this report as an opportunity to “raise the red flag” about the necessity for social welfare provisions in softening the blow of the economic downturn.

“At this stage in most countries, including most European countries, the crisis is not over. Just yesterday, France announced that it is in a recession,” Förster said. “The problem is that the focus of governments has shifted from stimulus to austerity measures.”

OECD Secretary-General Angel Gurría explained that governments must find ways of growing their economies while supporting individuals who are most at risk.

“These worrying findings underline the need to protect the most vulnerable in society, especially as governments pursue the necessary task of bringing public spending under control,” Gurría said in a statement. “Policies to boost jobs and growth must be designed to ensure fairness, efficiency and inclusiveness. Among these policies, reforming tax systems is essential to ensure that everyone pays their fair share and also benefits and receives the support they need."

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Max Fisher · May 16, 2013