May 19, 2024

Economix: Inequality Rising Across the Developed World

America isn’t the only rich country dealing with a rise in inequality. Most of the developed world is, too.

A new report from the Organization for Economic Cooperation and Development finds that most of its member countries have seen their richest citizens get much, much richer in the last few decades, leading to a widening income gap.

DESCRIPTIONSource: OECD Income Distribution and Poverty Database. Note: Data for mid-1980s refer to early 1990s for Czech Republic and Hungary.

Today, across developed countries, the average income of the richest 10 percent of the population is about nine times that of the poorest 10 percent, with much bigger multiples in Israel, Turkey, the United States, Chile and Mexico. In these last two countries, the income ratio is 27 to 1.

So what accounts for the growing gulf?

Changes in capital income — which primarily affects wealthier people — have contributed to rising inequality, although the impact has been relatively modest when compared to changes in labor income, the report says. As lower-paid workers have seen their incomes stagnate or even fall, the highest-paid workers have gotten steep raises.

Many factors have contributed to the rising labor income inequality. Globalization has had an impact, as rich countries have been sending more of their commodifiable, generally less-skilled jobs offshore, which has displaced many lower-paid workers in rich countries.

Besides outright layoffs, there have also been cuts in work hours (sometimes voluntary, sometimes not), disproportionately affecting lower-paid employees:

DESCRIPTIONSource: Organization for Economic Cooperation and Development. Note: Paid workers of working-age. Mid-2000s refer to 2000 for Belgium and France. Mid-1980s refer to early 1990s for Austria, Czech Republic, France, Greece, Hungary and Ireland.

Technological improvements have also disproportionately benefited the pay of high-skilled workers. Regulatory changes, like loosening protections for temporary (and less-skilled) workers and lower unemployment benefits, may have also had an effect.

The report notes that changing courtship patterns may also be contributing to the widening income gap.

Over the years people have become more and more likely to marry mates who have similar incomes. “Today, 40 percent of couples in which both partners work belong to the same or neighboring earnings deciles, compared with 33 percent some 20 years ago,” the report says.

Surely to some extent this has to do with more women having earnings, period, and therefore having more women’s earning matching what their husbands make. But in any case if poor marry poor and rich marry rich, that magnifies the income gap effect. After all, if poor married rich, the result would be more evenly distributed wealth.

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