Income Inequality and Poverty Rising in Most OECD Countries

Tuesday, October 21, 2008

The gap between rich and poor has grown in more than three-quarters of OECD countries over the past two decades, according to a new OECD report .
OECD’s "Growing Unequal?" finds that the economic growth of recent decades has benefitted the rich more than the poor. In some countries, such as Canada, Finland, Germany, Italy, Norway and the United States, the gap also increased between the rich and the middle-class.
The Rich Take Off
Countries with a wide distribution of income tend to have more widespread income poverty. Also, social mobility is lower in countries with high inequality, such as Italy, the United Kingdom and the United States, and higher in the Nordic countries where income is distributed more evenly.
Launching the report in Paris, OECD Secretary-General Angel Gurría warned of the dangers posed by inequality and the need for governments to tackle it. “Growing inequality is divisive. It polarises societies, it divides regions within countries, and it carves up the world between rich and poor. Greater income inequality stifles upward mobility between generations, making it harder for talented and hard-working people to get the rewards they deserve. Ignoring increasing inequality is not an option.”
A key driver of income inequality has been the number of low-skilled and poorly educated who are out of work. More people living alone or in single-parent households has also contributed.
Child Poverty Increases
Some groups in society have done better than others. Those around retirement age have seen the biggest increases in incomes over the past 20 years, and pensioner poverty has fallen in many countries. In contrast, child poverty has increased. (The OECD defines poor as someone living in a household with less than half the median income, adjusted for family size.)
Children and young adults are now 25% more likely to be poor than the population as a whole. Single-parent households are three times as likely to be poor than the population average. And yet OECD countries spend 3 times more on family policies than they did 20 years ago.
In developed countries, governments have been taxing more and spending more on social benefits to offset the trend towards more inequality. Without this spending, the report says, the rise in inequality would have been even more rapid.
But new ways of tackling this issue need to be found, Mr Gurría said. “Although the role of the tax and benefit system in redistributing incomes and in curbing poverty remains important in many OECD countries, our data confirms that its effectiveness has gone down in the past ten years. Trying to patch the gaps in income distribution solely through more social spending is like treating the symptoms instead of the disease.”
“The largest part of the increase in inequality comes from changes in the labour markets. This is where governments must act. Low-skilled workers are having ever-greater problems in finding jobs. Increasing employment is the best way of reducing poverty,” he said.
Better education is also a powerful way to achieve growth which benefits all, not just the elites, the report finds. In the short-term, countries have to do better at getting people into work and giving them in-work benefits to provide working families with a boost in income, rather than relying on unemployment, disability and early retirement benefits.

Find the specific data on all OECD countries here.

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