Over the two decades prior to the onset of the global financial crisis, real disposable household incomes increased an average of 1.7% a year in the 34 countries represented by the Organisation for Economic Co-operation and Development. As this rise in earnings occurred, however, so too did a rise in income inequality — a pattern that raises questions about imbalances in growth around the world.

A 2011 paper from the organization, “Growing Income Inequality in OECD Countries: What Drives It and How Can Policy Tackle It?” sought to examine this issue and propose policy options for governments seeking to combat rising inequality.

The report’s findings include:

• Across OECD countries, the average income of the richest 10% of the population is nine times that of the poorest 10%. Additionally, with the exceptions of only France, Japan and Spain, wages of the 10% best-paid workers have risen relative to those of the 10% least-paid workers.
• The differential between the top and bottom 10% varies greatly: “While this ratio is much lower in the Nordic countries and in many continental European countries, it rises to around 14 to 1 in Israel, Turkey and the United States, to a high of 27 to 1 in Chile and Mexico.”
• Finland, Germany, Israel, New Zealand, Sweden and the United States all saw income inequality rise significantly.
• The three main reasons for the increasing disparities are globalization and skill-biased technological advances; changes in family formation and household structures; and changes to tax and benefit systems that redistribute household incomes.

The authors conclude that though redistributive tax policies may be helpful in slowing this inequality, ultimately countries must facilitate access to employment for under-represented groups, creating new jobs that enable people to avoid and escape poverty.

Tags: financial crisis, Asia, Europe