World Economy

Inequality, Worst in 3 Decades, Harming Growth

Inequality, Worst in 3 Decades, Harming Growth Inequality, Worst in 3 Decades, Harming Growth

The gap between the rich and poor in a range of countries has reached its widest in 30 years and the trend has harmed growth, the OECD said Tuesday.

The Organization for Economic Cooperation and Development (OECD) said in a new report that most of its 34-member countries had seen a widening growth in the inequality gap, AFP reported.

“In most OECD countries, the gap between rich and poor is at its highest level since 30 years,” the report said.

“Today, the richest 10 percent of the population in the OECD area earn 9.5 times the income of the poorest 10 percent; in the 1980s this ratio stood at 7:1 and has been rising continuously ever since.”

The OECD counts both developed and developing countries as members, including nations from the European Union as well as the United States, Turkey, Mexico and Japan. China, Brazil and India are not members.

In the couple of decades leading up to the global economic crisis, average household income grew for all OECD countries by about 1.6 percent annually.


“However, in three quarters of OECD countries household incomes of the top 10 percent grew faster than those of the poorest 10 percent, resulting in widening income inequality,” the report said.

During the recent post-crisis years, average household income stagnated or fell in most member countries, it said.

The gap between the rich and poor varies widely across OECD member states and is often narrower in many Continental European nations and the Nordic countries, according to the report.

But the average income ratio between the richest 10 percent and the poorest 10 percent skyrockets in other member states.

It “reaches around 10 to 1 in Italy, Japan, Korea, Portugal and the United Kingdom, between 13 and 16 to 1 in Greece, Israel, Turkey and the United States, and between 27 and 30 to 1 in Mexico and Chile.”

 Negative Effect

The report argues that expanding income inequality has negatively affected the economies of member countries, estimating that it has knocked more than 10 percentage points off growth in Mexico and New Zealand.

“In the United States, the United Kingdom, Sweden, Finland and Norway, the growth rate would have been more than one fifth higher had income disparities not widened,” it said.

At the same time, according to the OECD’s calculations, greater equality helped boost GDP per capita in Spain, France and Ireland prior to the economic crisis.

The report called for anti-poverty programs along with increased access to high-quality education, training and healthcare.

“The paper also finds no evidence that redistributive policies, such as taxes and social benefits, harm economic growth, provided these policies are well designed, targeted and implemented,” the OECD said in a statement announcing the report.

The west’s leading economic think-tank dismissed the concept of trickle-down economics as it found that the UK economy would have been more than 20% bigger had the gap between rich and poor not widened since the 1980s.

Trickle-down economics was a central policy for UK’s Margaret Thatcher and US’s Ronald Reagan in the 1980s, with the Conservatives in the UK and the Republicans in the US confident that all groups would benefit from policies designed to weaken trade unions and encourage wealth creation.

The authors said: “It is not just poverty (ie the incomes of the lowest 10% of the population) that inhibits growth … policymakers need to be concerned about the bottom 40% more generally – including the vulnerable lower-middle classes at risk of failing to benefit from the recovery and future growth. Anti-poverty programs will not be enough.”

Angel Gurria, the OECD’s secretary general, said: “This compelling evidence proves that addressing high and growing inequality is critical to promote strong and sustained growth and needs to be at the center of the policy debate. Countries that promote equal opportunity for all from an early age are those that will grow and prosper.”