OECD report cites rising income inequality

Income inequality is increasing across much of the developed world, a trend that will continue unless governments move aggressively to arrest it, according to a report released Monday by the Organization for Economic Cooperation and Development.

The widening gap between rich and poor is being driven in part by a growing disparity in wages, as skilled workers command a disproportionate share of the bounty made possible by technological progress, the report said.

In addition, a surge in foreign direct investment and a looser regulatory regime that has reduced employee protections have led to a wage premium for high-skill financial jobs and fewer rewards for workers at the bottom, the report said.

The result is the highest level of income inequality in more than three decades, according to the Paris-based OECD, whose members include 34 developed countries and whose mission is to promote policies for improving economic and social well-being.

The report comes as rising dissatisfaction with economic inequality has spilled over into street protests in dozens of cities around the world.

“The social contract is starting to unravel in many countries,” OECD Secretary General Angel Gurria said in a statement. “This study dispels the assumptions that the benefits of economic growth will automatically trickle down to the disadvantaged and that the greater inequality fosters greater social mobility. Without a comprehensive strategy for inclusive growth, inequality will continue to rise.”

The average income of the richest tenth of the population in OECD countries is about nine times that of the poorest tenth, the report said.

The United States, Turkey and Israel have among the largest ratios between the incomes of those at the top and the bottom, roughly 14 to 1. Germany, Denmark and Sweden have among the lowest — 6 to 1 — but the ratios are up from the 1980s. The gaps in Chile and Mexico have been declining but remain the highest among OECD members, at more than 25 to 1.

Overall, inequality among working Americans has risen 25 percent since 1980, the report said. In 2008, the average annual income of the top 10 percent of Americans was $114,000, nearly 15 times higher than that of the bottom 10 percent.

That finding is consistent with other studies documenting the widening economic gulf, which has become a growing political issue in the United States.

The share of income going to the nation’s richest 1 percent more than doubled between 1980 and 2008, rising from 8 percent to 18 percent, the report said. The richest 1 percent of Americans make an average of $1.3 million in after-tax income, compared with $17,700 for the bottom 20 percent.

Meanwhile, the top federal income tax rate has fallen from 70 percent in 1981 to 35 percent, the report said.

The report covers a period between the 1980s and early 2000s and compares long-term economic data among the 22 OECD nations where information was available. The OECD used the Gini coefficient, a standard measure of income inequality, to gauge the income gap. The scale ranges from zero to one. At zero, an entire population would have equal incomes; at one, all income would go to one person. The coefficient stands at about 0.316, the report said, 10 percent higher than in the mid-1980s.

To reverse the trend, the report said, countries should implement tax and social policies that extract more from top earners while offering more support to those at the bottom. But the opposite has been happening: As many countries wrestle with sluggish economies and burdensome debt, they generally have been pushing to cut government spending while reducing taxes in hopes of stoking economic growth.

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Michael A. Fletcher is a national economics correspondent, writing about unemployment, state and municipal debt, the evolving job market and the auto industry.
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