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Society at a Glance 2009: OECD Social Indicators
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branch Equity Indicators
  branch Income inequality

Definition and measurement

Measures of income inequality are based on data on people's household disposable income. Disposable income is gross household income following deduction of direct taxes and payment of social security contributions. It excludes in-kind services provided to households by governments and private entities, consumption taxes, and imputed income flows due to home ownership and other real assets. People are attributed the income of the household to which they belong. Household income is adjusted to take account of household size by assuming a common equivalence scale of 0.5. The main indicator of income distribution used is the Gini coefficient. Values of the Gini coefficient range between 0 in the case of "perfect equality" (each person gets the same income) and 1 in the case of "perfect inequality" (all income goes to the share of the population with the highest income). An inter-decile income ratio, the ratio between the upper limit of the 9th decile and that of the 1st decile, is also used.

The data used here are provided to the OECD by national consultants. They are based on common methodologies and definitions applied to national micro data sets. While this approach improves cross-country comparability, national data sets do differ from one another in ways that are not readily standardised.

 

Income inequality varies considerably across the OECD countries. In the mid-2000s, the Gini coefficient of income inequality was lowest in Denmark and Sweden and highest in Mexico and Turkey (Figure EQ1-1). The Gini coefficient for the most unequal country is double the value of the most equal country. The P90/P10 inter-decile ratio also shows large disparities, with the income top decile less than three times higher than that of the bottom decile in Denmark, Sweden and Norway but around six times higher in the United States, Portugal and Turkey, and more than eight times higher in Mexico. The correlation between the two summary measures of income inequality used in Figure EQ1-1 is high (above 0.95).

Income inequality has generally been rising. From a policy perspective changes in income distribution across countries, rather than level comparisons, are more relevant. Figure Figure EQ1-2 shows point changes in the Gini coefficient over three different time periods. Over the entire period from the mid-1980s to the mid-2000s (right panel of Figure EQ1-2), inequality rises in 19 out of 24 countries where data were available. Rising inequality is strongest in Finland, New Zealand and Portugal. Declines occur in France, Greece, and Turkey, as well as Ireland and Spain (where data are limited to 2000) . The OECD average increase in the Gini coefficient is equivalent to a hypothetical 4% transfer of average income from people in the lower half of the distribution to people in the upper half. Overall, this growth in inequality is moderate but significant.

Income inequality rose during the period from the late 1980s to the mid-1990s across many countries, and thereafter the pattern was more diverse. The centre and left panels of Figure EQ1-2 show significant differences in inequality trends across both countries and periods. In the decade from the mid-1980s to the mid-1990s (left panel), the dominant pattern of rising inequality is especially evident in Mexico, New Zealand and Turkey, as well as in several other countries. There is more diversity in inequality change in the following decade (central panel). Higher inequality is found in many countries - especially in Canada, Finland, Germany, Norway, Portugal, Sweden and the United States. Over that period there have been large inequality declines in Mexico and Turkey and smaller ones in Australia, Greece, Ireland, the Netherlands and the United Kingdom.

Further reading

OECD (2008), Growing Unequal - Income Distribution and Poverty in OECD Countries, OECD, Paris (www.oecd.org/els/social/inequality).

Figure notes

Figure EQ1-1: Countries are ranked, from left to right, in increasing order in the Gini coefficient. The income concept used is that of disposable household income in cash, adjusted for household size with an elasticity of 0.5.

Figure EQ1-2: In the first panel, data refer to changes from around 1990 to the mid-1990s for the Czech Republic, Hungary and Portugal and to the western Länder of Germany (no data are available for Australia, Poland and Switzerland). In the second panel, data refer to changes from the mid-1990s to around 2000 for Austria, the Czech Republic, Belgium, Ireland, Portugal and Spain (where 2005 data, based on EU-SILC, are not deemed to be comparable with those for earlier years). OECD-24 refers to the simple average of OECD countries with data spanning the entire period (all countries shown above except Australia); OECD-22 excludes Mexico and Turkey.

Indicator in PDF Acrobat PDF page

Figures
EQ1-1. Income inequality varies considerably across OECD countries Figure in Excel
Income inequality varies considerably across OECD countries
EQ1-2. Income inequality has generally been rising Figure in Excel
Income inequality has generally been rising