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Income inequality and
poverty rising in most OECD countries
The
gap between rich and poor has grown in more than three-quarters of
Organization for Economic Co-Operation and Development (OECD) countries over
the past two decades, according to a new OECD report released on October 21,
2008.
OECD’s Growing
Unequal? finds that the economic growth of recent decades has benefitted
the rich more than the poor. In some countries, such as Canada, Finland,
Germany, Italy, Norway and the United States, the gap also increased between
the rich and the middle-class.
Countries with a wide distribution of income tend to have more widespread
income poverty. Also, social mobility is lower in countries with high
inequality, such as Italy, the United Kingdom and the United States, and
higher in the Nordic countries where income is distributed more evenly.
Launching the report in Paris, OECD Secretary-General Angel Gurría warned of
the dangers posed by inequality and the need for governments to tackle it.
“Growing inequality is divisive. It polarises societies, it divides regions
within countries, and it carves up the world between rich and poor. Greater
income inequality stifles upward mobility between generations, making it
harder for talented and hard-working people to get the rewards they deserve.
Ignoring increasing inequality is not an option.”
A key driver of income inequality has been the number of low-skilled and
poorly educated who are out of work. More people living alone or in
single-parent households has also contributed.
Some groups in society have done better than others. Those around retirement
age have seen the biggest increases in incomes over the past 20 years, and
pensioner poverty has fallen in many countries. In contrast, child
poverty has increased. (The OECD defines poor as someone living in a household
with less than half the median income, adjusted for family size.)
Children and young adults are now 25% more likely to be poor than the
population as a whole. Single-parent households are three times as
likely to be poor than the population average. And yet OECD countries spend 3
times more on family policies than they did 20 years ago.
In developed countries, governments have been taxing more and spending more on
social benefits to offset the trend towards more inequality. Without this
spending, the report says, the rise in inequality would have been even more
rapid.
But new ways of tackling this issue need to be found, Mr Gurría said.
“Although the role of the tax and benefit system in redistributing incomes
and in curbing poverty remains important in many OECD countries, our data
confirms that its effectiveness has gone down in the past ten years.
Trying to patch the gaps in income distribution solely through more social
spending is like treating the symptoms instead of the disease.”
“The largest part of the increase in inequality comes from changes in the
labour markets. This is where governments must act. Low-skilled workers are
having ever-greater problems in finding jobs. Increasing employment is the
best way of reducing poverty,” he said.
Better education is also a powerful way to achieve growth which benefits all,
not just the elites, the report finds. In the short-term, countries have to do
better at getting people into work and giving them in-work benefits to provide
working families with a boost in income, rather than relying on unemployment,
disability and early retirement benefits.
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