Divided We Stand

Divided We Stand

Why Inequality Keeps Rising You do not have access to this content

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Author(s):
OECD
Publication Date :
05 Dec 2011
Pages :
388
ISBN :
9789264119536 (PDF) ; 9789264111639 (print)
DOI :
10.1787/9789264119536-en

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In the three decades to the recent economic downturn, wage gaps widened and household income inequality  as measured by GINI increased in a large majority of OECD countries. This occurred even when countries were going through a period of sustained economic and employment growth. This report analyses the major underlying forces behind these developments. It examines to which extent economic globalisation, skill-biased technological progress and institutional and regulatory reforms have had an impact on the distribution of earnings. The report further provides evidence of how changes in family formation and household structures have altered household earnings and income inequality. And it documents how tax and benefit systems have changed in the ways they redistribute household incomes. The report discusses which policies are most promising to counter increases in inequalities and how the policy mix can be adjusted when public budgets are under strain.

"Analyses rely on simple statistical techniques that are accessible to a large readership... the graphic and charts are of great help to gain a quick visual grasp of the various issues addressed."

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    Foreword
    Concerns of growing income inequality loom large in public debate and policy discussion. Indeed, in most OECD countries and many emerging economies, the gap between rich and poor has widened over the past decades. This occurred even when countries were going through a period of sustained economic growth prior to the Great Recession. Today, the economic crisis is putting additional pressure on the distribution of incomes. Greater inequality raises economic, political and ethical challenges as it risks leaving a growing number of people behind in an ever-changing economy.
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    Editorial: Mind the gap
    The landmark 2008 OECD report Growing Unequal? showed that the gap between rich and poor had been growing in most OECD countries. Three years down the road, inequality has become a universal concern, among both policy makers and societies at large. Today in advanced economies, the average income of the richest 10% of the population is about nine times that of the poorest 10%.
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    An Overview of Growing Income Inequalities in OECD Countries
    This overview summarises the key findings of the analytical chapters of this report. It sketches a brief portrait of increasing income inequality in OECD countries and the potential driving forces behind it. It reviews changes in these driving forces and examines their relative impact on inequality. In particular, it looks at the role of globalisation and technological changes, regulatory reforms in labour and product markets, changing household structures, and changes in tax and benefit regulations. It assesses what governments can do about increasing inequality and concludes by examining possible specific policy avenues.
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    Special Focus
    Emerging countries are playing a growing role in the world economy. It is a role that is expected to be even greater in the future. It is important, therefore, that any comprehensive assessment of inequality trends worldwide considers the emerging economies. This chapter discusses inequality patterns and related issues in the biggest emerging economies. It begins with a brief overview of such patterns in selected countries, before going on to examine in greater detail the main drivers of inequality. The following section outlines the key features and challenges of underlying institutional settings. Finally, the chapter sets out some key policy challenges that the emerging economies need to address to improve income distribution and curb inequalities, while promoting more and better jobs.
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  • Expand / Collapse Hide / Show all Abstracts How Globalisation, Technological Change and Policies Affect Wage and Earnings Inequalities

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      Trends in Wage Inequality, Economic Globalisation and Labour Market Policies and Institutions
      This chapter affords an overview of longer-term and recent trends in wage inequality, examines developments in various aspects of economic globalisation and technological change, and looks at changes in product and labour market regulations and policies. It also supplies empirical evidence as to the association between, on the one hand, changes over time in wage inequality and, on the other, growing globalisation, technological progress and developments in policies.
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      The Impact of Economic Globalisation and Changes in Policies and Institutions on Rising Earnings Inequality
      This chapter analyses possible causes of the increase in wage inequality among fulltime workers recorded in OECD countries during the past 25 years. It looks at the impact of economic globalisation that has come with trade and financial integration, together with the effects of technological change and developments in the fields of product and labour market regulations and institutions. It examines the interplay between these factors and separately considers shifts in the lower and upper halves of the wage distribution. It also addresses trends in sector-based wage disparities between skilled and unskilled workers.
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      Inequality Between the Employed and the Non-employed
      This chapter considers trends in the earnings distribution across the whole workingage population, i.e. workers and non-workers taken together. It examines and quantifies the respective impacts of two forces: changes in wage disparities among workers and changes in non-employment rates. The chapter relates such inequality dynamics to macroeconomic developments. It analyses the effects on employment of globalisation, evolving technologies, and institutional and policy changes, and combines the results of the analysis with findings on the determinants of wage inequality trends. The chapter then estimates the overall effect of each determinant on changes in earnings inequalities across the whole working-age population.
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  • Expand / Collapse Hide / Show all Abstracts How Inequalities in Labour Earnings Lead to Inequalities in Household Disposable Income

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      Hours Worked, Self-Employment and Joblessness as Ingredients of Earnings Inequality
      This chapter broadens the focus from wage inequality among full-time workers to earnings inequality among all workers. It accounts for the effects of adding parttime workers and the self-employed and includes both groups in analyses of levels of and trends in the distribution of earnings. The chapter first identifies the contribution of self-employment and its distributional patterns to inequality of annual earnings. It then examines whether trends in "prices", i.e. trends in hourly wage rates, have a lesser or greater impact on levels of and changes in inequality than trends in "quantities", i.e. trends in hours worked. In a second step, the chapter broadens the focus to the whole working-age population and analyses to what extent shifts in joblessness affect estimates of an "overall" earnings distribution, i.e. including workers and the jobless.
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      Trends in Household Earnings Inequality
      This chapter looks at the transmission of earnings inequality from individual to household. There are a number of factors at play. Some are related to labour market trends, such as the increasing polarisation of male earnings and changes in men’s and women’s employment rates. Other factors relate to changes in the composition of households, such as increases in single-headed households or growing marital sorting. The chapter begins with an overview of the development of individual and household earnings inequality, and then examines patterns of change in its labour market and family formation drivers over the past 20 years. Finally, it analyses and assesses the relative contributions of labour market and demographic factors to the increase in overall household earnings inequality.
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      From Household Earnings to Disposable Household Income Inequality
      This chapter provides an overview of levels of and trends in household income distribution for the working-age population. It compares the size of the different components which make up total household income across countries and over time: wages and salaries, self-employment income, capital income, and taxes and benefits. The chapter examines the relative contributions of these various income sources to levels of and trends in overall household income inequality. It also identifies whether particular income sources influence overall inequality primarily through changes in their shares in total income or through changes in the way they are distributed.
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  • Expand / Collapse Hide / Show all Abstracts How the Roles of Tax and Transfer Systems Have Changed

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      Changes in Redistribution in OECD Countries Over Two Decades
      This chapter takes stock of tax and transfer redistribution policies in OECD countries over the two decades preceding the global downturn in 2008. It begins by looking at evidence for the inequality-reducing effects of taxes and benefits. It considers trends in aggregate spending and revenues, shows how different components of taxes and benefits have evolved over time, and briefly discusses the influence of cyclical factors on the observed patterns. The chapter then uses household-income data to produce and compare a range of commonly used redistribution and progressivity indicators. Finally, it summarises policy changes and offers a detailed analysis of the role of policy in driving observed redistribution trends.
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      The Distributive Impact of Publicly Provided Services
      This chapter examines how the income distribution in countries changes when it includes the value of publicly provided services in disposable household income. The chapter considers five types of public services, which it begins by overviewing and defining. It provides estimates for the income-increasing effect for households of inkind benefits from public services. The chapter goes on to look at the empirical results for the services' overall distributive effects. It then does the same for the five major services taken separately. Finally, before drawing its conclusions, the chapter explores whether and how the redistributive effect of services changed between the early and late 2000s.
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      Trends in Top Incomes and Their Tax Policy Implications
      This chapter uses data derived from tax returns to analyse trends in the share of pre-tax personal income going to top income recipients. It begins with a discussion of its data sources, explaining why it has taken tax returns rather than household survey data. It then sets out the statistics behind the trends in top incomes during the three decades to 2008. In the following section it seeks to explain the top income trends, before considering their implications for tax policy. The last section concludes..
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