In It Together: Why Less Inequality Benefits All

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21 May 2015
9789264235120 (PDF) ;9789264232662(print)

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The gap between rich and poor keeps widening. Growth, if any, has disproportionally benefited higher income groups while lower income households have been left behind. This long-run increase in income inequality not only raises social and political concerns, but also economic ones. It tends to drag down GDP growth, due to the rising distance of the lower 40% from the rest of society. Lower income people have been prevented from realising their human capital potential, which is bad for the economy as a whole. This book highlights the key areas where inequalities are created and where new policies are required, including: the consequences of current consolidation policies; structural labour market changes with rising non-standard work and job polarization; persisting gender gaps; the challenge of high wealth concentration, and the role for redistribution policies.

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  • Foreword

    The gap between rich and poor keeps widening. In the decades before the Great Recession, economic growth benefited disproportionally higher income groups while lower-income households were left behind. Since the crisis, disparities widened and in many OECD countries inequality is today at its highest since data collection started. This long-run increase in income inequality does not only raise social and political but also economic concerns: income inequality tends to drag down GDP growth, and it is the rising distance of the lower 40% from the rest of society which accounts for this effect. Debates how to best curb this trend and promote opportunities for all have moved to the top of the policy agenda in many countries.

  • Acronyms and abbreviations
  • Executive summary

    In most countries, the gap between rich and poor is at its highest level since 30 years. Today, in OECD countries, the richest 10% of the population earn 9.6 times the income of the poorest 10%. In the 1980s, this ratio stood at 7:1 rising to 8:1 in the 1990s and 9:1 in the 2000s. In several emerging economies, particularly in Latin America, income inequality has narrowed, but income gaps remain generally higher than in OECD countries. During the crisis, income inequality continued to increase, mainly due to the fall in employment; redistribution through taxes and transfer partly offset inequality. However, at the lower end of the income distribution, real household incomes fell substantially in countries hit hardest by the crisis.

  • Overview of inequality trends, key findings and policy directions

    This chapter documents the longer-term trends as well as recent developments in income inequality and summarises the main messages from the in-depth chapters of the report. In particular, it highlights the channels through which inequality affects growth, the impact of women’s employment and of developments in the type of jobs on inequality, and the extent of wealth concentration and indebtedness. It discusses individual measures but especially policy packages that are both equality- and growth-friendly by focusing on four main areas: women’s participation, employment promotion and good quality jobs, skills and education, and taxes and transfers.

  • The impact of income inequality on economic growth

    Drawing on harmonised data covering the OECD countries over the past 30 years, this chapter first explores whether income inequality has an impact on subsequent growth. In particular, it focuses on the growth consequences of income inequality in different parts of the income distribution, using measures of "top" and "bottom" inequality. The chapter then evaluates the "human capital accumulation theory", one prominent channel through which inequality is supposed to affect economic growth. Exploiting micro data from the Adult Skills Survey (PIAAC), it looks at the consequences of income inequality for the skills development of individuals with different parental education backgrounds, both in terms of the quantity of education attained (e.g. years of schooling) and in terms of its quality (e.g. skill proficiency).

  • Income inequalities during the crisis and fiscal consolidation

    This chapter looks at the distribution of income during the recent global financial and economic crisis and subsequent period of fiscal consolidation. In particular, it describes trends in market and disposable income inequality. It analyses drivers of earnings inequality using a decomposition of the employment and wage effects. It examines the redistribution of income via taxes and transfers, their role as automatic stabilisers and impact on income inequality. The chapter also explores trends in relative poverty rates and anchored poverty rates, as well as poverty rates by age groups. Finally, it summarises detailed analyses of tax and benefit reforms in ten OECD countries implemented as part of fiscal stimulus and fiscal consolidation programmes and their impact and incidence on household income.

  • Non-standard work, job polarisation and inequality

    This chapter provides evidence for the implication of trends in non-standard work for individual and household earnings and income inequality. It first presents the sociodemographic characteristics of non-standard workers before discussing the contribution of non-standard work to overall changes in employment. It shows that, in a majority of OECD countries, standard jobs have disappeared in the middle of the distribution in terms of wages and skill, while non-standard jobs have contributed to an increase in jobs at both ends of the distribution. Non-standard jobs tend to pay lower wages than standard jobs, especially at the bottom of the earnings distribution, thereby raising earnings inequality. The chapter then looks at the impact of non-standard work on household incomes and shows that non-standard workers living alone or with other nonstandard workers suffer from higher chances of low income and poverty. Finally, the chapter examines the work incentives and adequacy effects of tax and benefit rules. It finds that some non-standard workers, such as the self-employed, usually face different statutory rules and shows that taxes and benefits reduce poverty gaps for non-standard workers but create work disincentives for moving from inactivity to work.

  • Women, work and income inequality

    This chapter first presents the trends in inequality between men and women in terms of employment and earnings before discussing the earnings dispersion among male workers and among female workers. The analysis shows that inequality in individual earnings is driven primarily by increased wage dispersion among full-time full-year workers. Looking at the household level, the chapter then presents how changes in work intensity and skill level for women have affected the level of household income inequality. The overall effect of changes in women’s employment has been to make the distribution of income more equal.

  • How does the concentration of household wealth compare across countries?

    This chapter describes the distribution of household wealth for 18 OECD countries, using a database collected along a set of commonly agreed conventions and classifications. Both the stocks of household wealth and their degree of concentration are compared across countries. The analysis sheds light on the demographic characteristics of households holding wealth, the composition of their assets, their debt as well as the degree of over-indebtedness among low- and middle-income households. Changes in the wealth distribution since the onset of the crisis are examined for a subset of countries.

  • Inequality and fiscal redistribution in emerging economies

    This chapter looks at income inequality and fiscal redistribution in emerging economies. The first part describes overall levels and trends in inequality as well as in social spending and taxation in selected emerging economies, comparing them to those typically recorded in the OECD area. It also highlights some prominent redistributive policies recently implemented in major emerging economies and OECD key partner countries. The second part of the chapter provides an in-depth analysis of redistribution in seven middle-income countries that are part of the Commitment to Equity (CEQ) project: Brazil, Chile, Colombia, Indonesia, Mexico, Peru and South Africa. Using a common method of fiscal incidence analysis, it examines the redistributive impact and effect on poverty of fiscal policy, comprising direct taxes, cash transfers, net indirect taxes and inkind benefits in the form of education and health services.

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