1. Overview

The COVID-19 crisis has exposed and accentuated inequalities, although the short-term effect on income inequality are mixed thanks to governments’ interventions. The shocks it has dealt to the labour-market have caused highly asymmetrical effects across the population (OECD, 2020[1]; OECD, 2021[2]). However, governments across the OECD have moved swiftly with measures that eased the impact of the shock on vulnerable workers and households. As a result, inequality in disposable income has not risen by much and may have even declined in some countries (Brewer and Gardiner, 2020[3]; Chetty et al., 2020[4]; Almeida et al., 2020[5]; Clark, D’Ambrosio and Lepinteur, 2020[6]; European Commission, 2020[7]; Carta and De Philippis, 2021[8]).

The pandemic has lent weight to the argument in favour of offsetting unequal shocks in order to prevent social tensions (Baldwin, 2020[9]). Inequalities were already high before the pandemic, and COVID-related measures did not enough to address them. Almost all OECD countries have experienced rises in income inequality in the last 30 years (OECD, 2015[10]; OECD, 2011[11]), social mobility has stalled (OECD, 2018[12]), and the middle class has been squeezed by rising costs, employment uncertainty and stagnating income (OECD, 2019[13]). Equality of opportunity has come under pressure with many children of low-earning parents enjoying less opportunities to realize their full potential (OECD, 2018[12]).

Recovery packages offer a great chance to introduce reforms that address the long-standing disparities and lack of opportunities which affect many in the population (Boone et al., 2020[14]; OECD, 2020[1]; OECD, 2020[15]). The successful implementation of such reforms requires strong buy-in from citizens. Support should be wide enough to sustain the momentum of reform over time and achieve long-term objectives.

Even prior to the crisis, a large majority of OECD citizens were indeed concerned about economic disparities and demanded more equal distribution of income. Approximately 80% of people living in OECD countries felt that income disparities in their country were too wide, according to 2017 data from the International Social Survey Programme (ISSP) and the Eurobarometer. Seven in ten users of the OECD’s Compare Your Income (CYI) web-tool consider that the income share which goes to the richest 10% is five or more percentage points larger than it should be.1

There are also indications that the ongoing crisis has heightened awareness of inequality. Respondents to the 2020 OECD Risks that Matter survey (OECD, 2021[16]) who have experienced health-related problems or economic hardship during the pandemic perceive income inequality to be greater and social mobility lower than other respondents. They are also more likely to want more government intervention and more progressive taxation to narrow the differences between rich and poor. Similarly, respondents affected by job loss during the crisis demand higher public spending on social protection (OECD, 2021[16]).

People from OECD countries are generally in favour of interventions that would reduce current levels of inequality. Most respondents (slightly more than 6 out of 10) to the 2020 OECD Risks that Matter survey believe their government should do more to reduce income differences between rich and poor by collecting taxes and providing social benefits (Figure 1.1). Furthermore, a similar share also believe that, to support the poor, governments should tax the rich more than they currently do. Demand for such redistributive policies is particularly strong in countries where people perceive that income inequality is high and social mobility low.

Yet public support in favour of inequality-reducing policies cannot be taken for granted. Does the widespread demand for more equality imply demand for any government intervention? Which concrete policies are people more likely to support? How people’s concern about inequality and demand for redistribution have evolved over the last three decades offers important insights into those questions. Since the late 1980s, concern over income disparities has generally risen across the OECD, mirroring the rise in income inequality recorded by conventional, or “objective”, statistical indicators.2 However, support for redistributive government interventions has not risen to the same extent. In fact, in several countries, a sizeable share of people is concerned about income disparities, but does not think that it is the state’s responsibility to tackle them (Figure 1.2).

Analysing concern over inequality and demand for redistribution may help design widely supported reforms that tackle long-standing disparities. To do so, it is important to underpin concern and demand to act. National support for inequality-reducing reforms stems from both people’s concern over inequality and their preferences as to the extent and forms of such reforms (Box 1.1).

On the one hand, concern depends on both perceived and preferred levels of inequality.3 On the other hand, people’s support for redistributive policies depends on their view of the role governments should play in reducing economic disparities. Such views differ extensively across countries. Furthermore, different combinations of perceptions of income or earnings inequality and intergenerational mobility might prompt support for different policy mixes. Perceptions of greater income or earnings inequality could give more weight to policies that directly affect outcomes, such as unemployment benefit, while perceived intergenerational persistence might boost support for pro-opportunity action such as educational policies.

Furthermore, people within the same country often hold different views on what to do about inequality. Even if emergency welfare measures in the wake of the pandemic currently enjoy a rather broad consensus, recent years have seen polarisation in opinions of redistributive and welfare policies (Alesina, Miano and Stantcheva, 2020[17]), with different groups in society expressing views that are hard to conciliate. And even when most people evince concern over inequality, country averages mask wide differences in perceived and preferred levels of inequality among citizens. Analysing the distribution of perceptions and how it evolves over time helps shed light on the polarisation of public debate.

Across countries, where indicators from the OECD and other sources show higher income inequality and less social mobility, people also generally perceive greater inequality and lower mobility (Table 1.2 and Chapter 2). The finding suggests that perceptions, despite being based on incomplete information, do reflect real evidence of economic inequality in the society.

Nevertheless, perceptions and conventional indicators may differ widely in some countries. Some countries rank lower in terms of perceptions than conventional indicators – i.e. people perceive to live in a more equal society than they actually are – either with regards to income inequality (Israel, Lithuania and the Netherlands), intergenerational persistence (Canada, Switzerland and the United States), or both (France and Italy). In other countries the ranking in terms of perceptions outstrips the one in conventional indicators – i.e. people perceive to be in a less equal society than they actually are – either for income inequality (Austria, Belgium, Canada and Finland), intergenerational persistence (Turkey and Spain), or both (Greece).

Concern over income disparities and conventional estimates of inequality have moved consistently over time. The share of people who strongly agree that income disparities are too wide has risen at least since the late 1980s (Figure 1.4), in line with the increase in income inequality measured by conventional statistical indicators (OECD, 2011[11]). In countries where conventional estimates of income inequality grew the most, so did people’s concern over inequality. The trend suggests that people have generally incorporated into their perceptions the factual information about trends in income disparities.

The rise in concern has been driven by the rise in perceived disparities. Perceived top-bottom earnings disparities – for which data are available on a long period of time – have widened substantially in recent decades in the countries studied. In 2019-20, people perceived top earners – doctors and CEOs of large national corporations – as earning an average of eight times more than bottom earners, i.e. unskilled workers in a factory (Figure 1.5). This perceived earnings ratio was a steep increase over the late 1980s and early 1990s, when it was around 5/1, before reaching its peak during the global financial crisis.

Tolerance of earnings inequality increased slightly, as people adapted to higher levels of earnings inequality over time. Preferred levels of inequality are considerably lower than perceived levels in all OECD countries. However, preferences evolved over time: between the late 1980s and the global financial crisis preferred earnings disparities rose in all the countries studied, more steeply in those where perceived disparities grew the most. Preferred disparities then declined in the most recent decade, 2010-19, though they nevertheless remained wider than in the late 1980s and early 1990s.

On average, the increase in preferred earnings disparities offset the sharp growth in perceived disparities by almost one-half. As a consequence, rising perceived inequality in earnings did not fully translate into greater concern over inequality. Yet, despite the growing preference for wider earnings inequality, demand for greater earnings equality has also grown in recent years.

A rise in the perceived importance of hard work for getting ahead in life between the early 1990s and the global financial crisis may partly explain people’s increased tolerance of inequality (Figure 1.6). People who believe that hard work matters more than luck or other circumstances beyond an individual’s control for getting ahead in life are more accepting of income inequality, because they believe that high earning disparities are the reward for differences in individual effort. However, among the countries observed up to 2019, the perceived importance of hard work fell between the early and late 2010s. The trend suggests that people are becoming more unsure that differences in income and earnings are due to differences in individual effort.

Perceptions of and concern over inequality are important drivers of demand for redistribution. Concern over income disparities in all countries correlates closely with the share of the population who agree that it is the state’s responsibility to narrow income differences (Figure 1.7). Increases in inequality – as measured by conventional statistical indicators – are associated with greater demand for redistribution only insofar as people’s concern about inequality rises accordingly (see Chapter 3).

Both perceived inequality of outcomes and of opportunities drive preferences for inequality-reducing policies. Even when people believe that social mobility is high, greater perceived income inequality is associated with stronger demand for redistribution. However, perceptions of income inequality and social mobility can be associated with different policy preferences. Greater perceived income inequality, for example, is more closely associated with demand for more progressive taxation, as one would expect. On the other hand, perceived income inequality and intergenerational mobility influence to almost equal degrees demand for greater public expenditure on education system and healthcare (Figure 1.8).

People’s demand for inequality-reducing policies falls as own income rises: higher-income individuals prefer wider disparities, even if they perceive similar levels of inequality of outcomes and opportunities. Differences in preferences for inequality reflect “pocketbook considerations” – redistribution costs for the rich, but benefits the poor. The higher demand for redistribution among low-income individuals points to the fact that, when inequality rises, people who become poorer than the average increase their support for redistributive policies.

However, the link between own income and demand for inequality-reducing policies depends on people’s perception of where they belong in the income distribution. Across OECD countries, a disproportionally high share of people believe they are part of the middle class. The experimental evidence suggests that giving people the facts increases demand for redistribution among those who discover that they are poorer than they thought, while it reduces it among those who find out that they are better-off (Ciani, Fréget and Manfredi, forthcoming[20]).

Yet, demand for redistribution also depends on people’s social preferences and beliefs about the drivers of inequality. At the individual level, perceptions of the overall level of inequality and intergenerational mobility matter as much as own income for explaining preferences for redistribution. Furthermore, a climb in inequality also increases demand for redistribution among the rich: as inequality grows, their social preferences for narrower disparities outweigh their personal gains and losses from redistribution (Rueda and Stegmueller (2019[21]) and Section 3.3). In fact, although redistribution comes at a cost for them, the rich can still support it either because of purely altruistic motives or because they believe that higher inequality might harm them through other channels – e.g. through decreased national productivity or increased crime. Finally, independently from own income, people are more supportive of inequality-reducing policies if they believe that existing disparities are the result of circumstances outside an individual’s control.

Even if perceptions of and concern over inequality are key drivers of redistributive preferences, stronger demand for more equality does not always spell widespread support for government intervention. Over time, preferences for income redistribution in OECD countries have, on average, risen less than concerns. Conventional statistical indicators also suggest they have also been less responsive to changes in observed income inequality (as tracked by conventional statistical indicators). In most countries, the share of respondents who believe that it is the state’s duty to reduce income disparities is lower than the share who feel that such disparities are too wide (Figure 1.9). In some countries there is a sizeable share of respondents who believe it is the job of private companies, trade unions or individuals themselves to reduce income differences, rather than the government.

The perceived effectiveness of policies drives support for inequality-reducing policies. People demand more redistribution through the tax and benefit system if they believe that the benefits are effective and well targeted. Indeed, evidence from the OECD Trustlab survey shows that people are less in favour of progressive taxation if they believe that petty corruption is widespread among public officials, prompting the misuse and misallocation of public benefits. By contrast, experimental evidence shows that they do support redistributive policies if they perceive that those policies effectively reduce inequality and poverty.

Even if people agree on the need for policy action, they may disagree on what measures to take. Countries – and people – differ as to their perceptions of the scale of inequality of outcomes (bottom or top inequality) and obstacles to intergenerational mobility, like parental education or wealth. Similarly, people in different countries associate “redistribution” with different types of intervention, ranging from progressive taxation and income support to increased government expenditure on housing and healthcare.

People’s perceptions of current levels of income inequality may also vary widely within countries, with some people perceiving it as fairly low and others extremely high (Figure 1.10). In some countries – as in the OECD average – there is no single prevailing perception, but a wide variation. In others, like the United States, perceptions tend to polarise in groups with starkly different views. In only a few countries do most people tend to perceive broadly similar levels of income inequality – either low, as in Denmark, or high, as in Greece. Perceptions of earnings disparities and social mobility are similarly dispersed (see Chapter 4).

Different individuals are more likely to agree on the “ideal” level of income inequality than on what they think the current level of income inequality actually is. In fact, in all countries, the preferred share of income held by the top 10% vary less than perceived levels. People disagree with each other as to how much income inequality should be reduced, but mostly because they perceive different levels of inequality, rather than because they have different preferred levels.

Perceptions and preferences about earnings disparities have become considerably more dispersed in recent decades (Figure 1.11), indicating increased levels of disagreement. In some countries, there are also signs of mounting polarisation. Two schools of opinion have emerged: one believes current earnings disparities are more acceptable, and the other that they are extremely wide. People tend to disagree particularly about what levels of top earnings are and should be. Their steep rise in the last three decades, as documented by conventional statistical indicators (OECD, 2011[11]), is associated with a more divided public opinion.

Disagreements over the extent of inequality can be wide even among people with similar socio-economic characteristics. Such disagreements have increased over the years. Perceptions of income inequality and social mobility vary by income, educational attainment, employment status, gender, age, and household type, but those disparities are comparatively mild. No more than 10% of the total dispersion in perceptions reflects differences between socio-economic groups – the remaining 90% represents differences in perceptions among people with very similar profiles. Also the rise over time in the dispersion of perceptions of and concern over earnings disparities mostly reflects greater within-group dispersion.

The COVID-19 crisis has exposed the vulnerability of large segments of the population in OECD countries. As emergency measures gradually fade, governments are set to implement reforms that will address that vulnerability and enhance equal opportunities. To that end, the report argues that getting citizens and governments on the same page when it comes to reducing inequality and promote social mobility requires understanding how people form their perceptions and opinions. Perceptions of, preferences for and concern over inequality all respond to changes in measured inequality. Eventually, however, it is how they combine that determines public support for reforms to tackle persistent disparities. Perceptions, preferences and concerns differ from one country to another and evolve over time. Data on people’s views of inequality can, therefore, inform policy design and so increase the chances that proposed reforms garner the necessary public support.

Most people across the OECD believe that the current level of income inequality is too high. Perceptions of income inequality and low social mobility determine this concern. Furthermore, people are more concerned about income inequality when and where they believe that hard work is not a factor in getting ahead in life. In other words, they care about inequality of both outcomes and opportunities. They perceive them as interrelated, and both matter in demand for government intervention to reduce income differences. Reforms that tackle both are therefore more likely to receive support.

Nevertheless, the widespread demand for more equality does not mean that people are in favour of any government intervention, as perceptions and preferences differ from country to country. First, perceptions and preferences of outcomes and opportunities vary across societies. Consequently, how much importance people accord to outcomes rather than opportunities changes across countries, so influencing public support for policy mixes. Some focus on redistributing outcomes, like raising tax rates on high incomes, others on fostering equal opportunities, such as improving access to high-quality education. Second, people’s perceptions and opinions may also be shaped by other considerations – whether top earnings are too high or bottom earnings are too low, or which obstacles to intergenerational mobility (like parental education or wealth) are more challenging. To garner sufficient public support, policy makers should take into account these national differences in designing reform packages.

Considering the scale of public resources that governments have mobilized during the pandemic, growing attention is being paid to the costs and benefits of incoming reforms. Importantly, policy effectiveness matters to the general public. People’s support for certain policies is stronger when they are seen to be effective in reducing inequality. Hence the need to carefully design redistributive and welfare reforms, learning from best practices and assessments of previous action. However, it also shows the importance of facilitating people’s understanding of the functioning and impact of the policies. To that end, governments should thoroughly evaluate existing interventions and clearly explain their redistributive effects, as well as collect the open data that would allow such an evaluation. They should draw on independent research from academia and non-governmental or international institutions, to guarantee transparency and facilitate people’s confidence and trust.

Introducing reforms can be hard even when most people support them if different groups hold hard-to-reconcile views. In fact, public opinion is often divided about the extent of actual inequality and what to do about it. This division complicates the public debate around the need for inequality-reducing policies, because different groups often hold very different views. Importantly, such division goes past the class struggle: the strong division in the public opinion is only partly explained by differences in opinions between the rich and the poor or between socio-demographic groups. Policies focusing on just one main interest group – as defined along traditional lines (e.g. the young or the working class) – might fail to reach sufficient consensus even within that target group.

Experimental evidence shows that informing people about inequality changes their perceptions, although it has only a minor effect on redistributive preferences. High-quality information about inequality of outcomes and opportunities could help lessen the widespread dispersion of perceptions across the population. It could provide common ground for public debate, even if it would not necessarily ease differences of opinion about policies.

Lastly, the interpretation of data on people’s perceptions requires careful analysis and measurement. Improving comparability between countries and over time calls for standards and guidelines on how to measure perceptions, preferences and opinions pertaining to inequality. The recently created OECD Expert Group on New Measures of the Public Acceptability of Reforms aims at contributing to this effort. This report also highlights a series of evidence gaps related to important factors that influence how people think about inequality.

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The literature, as well as public debate, uses a wide range of measures to study people’s views on inequality. They may be classified as belong to three broad dimensions:

  • Domain. Inequality of outcomes (e.g. income disparities) or inequality of opportunities (e.g. chances of climbing the social ladder).

  • Perspective. Views of the overall distribution of outcomes and opportunities in the population in a given country, or views of the individual’s own position in that distribution.

  • The state of the world. Surveys may ask people about their perception of the current situation as it is, or what they would like it to be. Alternatively, they might ask them to express their concern about the current state of the world – a reflection of the gap between what they perceive and what they wish. The International Social Survey Programme, for instance, has been asking since 1987 whether respondents agree or not with the statement “Income differences in [your country] are too large”. Agreement with the statement measures the tension between what people think existing disparities are and what they think they should be.

A simple conceptualization, summarized in Annex Figure 1.A.1 and inspired by Alesina, Miano and Stantcheva (2020[17]), helps connect the different elements discussed in the report:

  • People formulate perceptions about the distribution of outcomes and opportunities in their society, and about their position in this distribution (Hauser and Norton, 2017[22]). The perceptions are shaped by experience – such as personal history of success (Piketty, 1995[23]; Gärtner, Mollerstrom and Seim, 2021[24]), shared historical experience (Corneo and Grüner, 2002[25]), and information acquired from media or other sources (Diermeier et al., 2017[26]; Perez-Truglia, 2019[27]; Phillips et al., 2020[28]). People also hold beliefs about the role of luck, merit or circumstance in explaining income disparities. These beliefs are crucial in explaining different attitudes towards redistribution and are closely tied to perceptions (as such, they are classified along perceptions in Table 1.1). However, they are actually a combination of perceptions and concerns, because they tend to conflate a positive statement (about the actual source of disparities) with a normative one (which relates to people’s meritocratic attitudes).

  • Individuals have preferences as to what extent of inequality in outcomes and opportunities might be acceptable (Clark and D’Ambrosio, 2015[29]). Preferences might be transmitted through generations (Luttmer and Singhal, 2011[30]) and depend on national history (Corneo and Grüner, 2002[25]; Alesina and Fuchs-Schündeln, 2007[31]). They are also shaped by experience. The evidence shows that people might become more accepting of inequality (or believe in stronger meritocracy) when they live in a more unequal society (Benabou and Tirole, 2006[32]; Trump, 2018[33]; Mijs, 2019[34]). Having experienced hardship, though, seems to make them less willing to accept wider inequality (Giuliano and Spilimbergo, 2013[35]). Perceptions may also influence preferences. First, those who perceive themselves as relatively rich are less likely to be concerned by inequality for motives of self-regard (Hvidberg, Kreiner and Stantcheva, 2020[36]). Second, extensive literature has shown that people are at least partly prepared to accept disparities in income if they believe that equal opportunities are available, or that higher incomes are the result of effort rather than circumstance or sheer luck (Piketty, 1995[23]; Alesina and Giuliano, 2011[37]). It is also possible that preferences and other related subjective factors (e.g. political views) in turn influence perceptions, shaping the way people interpret and weigh information and experience (Alesina, Miano and Stantcheva, 2020[17]; Phillips et al., 2020[28]).

  • People’s concern about inequality arises from the distance between their perceptions and their preferences. Their scale of concern may depend on whether they perceive that the current level of inequality is greater than they would prefer it to be.

  • Concern about inequality might lead individuals to prefer more redistribution and demand policies designed to reduce disparities. However, preferences for redistribution depend also on their perceptions of policy effectiveness, as well as on their personal gains and costs – i.e. benefits and taxes, or “pocketbook considerations”. Perceived gains and costs hinge on individuals’ perceived position in the distribution (Cruces, Perez-Truglia and Tetaz, 2013[38]), as well as on expectations of future mobility (Piketty, 1995[23]; Benabou and Ok, 2001[39]).

  • Preferences for redistribution and how they relate to perceived and actual inequality also depend on people’s views of the role of government in narrowing disparities (Osberg and Bechert, 2016[40]). For instance, perceived inequality might not translate into more support for redistribution if people have limited confidence in the effectiveness of policies.

Annex Figure 1.A.1 assumes that some of these dimensions do not influence each other. In reality, the framework may well be more complicated. For instance, preferences might shape people’s experience (by changing their social network) and how they gather information (e.g. by influencing which sources they deem trustworthy). The report does not address these further considerations, as its focus is on how actual income inequality shapes perceptions of inequality, and how those perceptions influence demand for redistribution.

Notes

← 1. As users of CYI are not representative of the population, the figures are estimated using a re-weighting procedure that makes the CYI sample similar to the general population on the basis of age, gender, household size and disposable income (Balestra and Cohen, 2021[42]).

← 2. In this report, the term “conventional statistical indicators” indicates the estimates of inequality based on household income data (such as the Gini index derived from the OECD Income Distribution Database), in order to distinguish them from people’s perceptions, which refer to a subjective factor. It should be noted, however, that inequality indices have a normative interpretation (Atkinson, 1970[41]) and, therefore, also the use of different statistical indices can correspond to different social preferences.

← 3. As a result, cross-country differences in average levels of concern do not always align with conventional statistical estimates of inequality: not only might people perceive a level of inequality that differs from the statistical measures, but people’s preferred levels of inequality are also likely to differ from one country to another.

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