Divided we stand - Why inequalities keep rising

8/2/2019 Divided we stand - Why inequalities keep rising

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OECD, Directorate for Employment, Labour and Social Affairs

Divided We Stand:

Why inequality keeps rising

Michael Frster,

OECD Social Policy Divisionwww.oecd.org/els/social/inequality

Press Conference,

2012 March 22,

Budapest, Eurpa Kvhz

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Inequality is no longer a pure social

policy concern

Rising inequality is one of the

major risks to our future prosperity

and security (OECD Chief

Economist Pier Carlo Padoan); People feel they are bearing the

brunt of a crisis for which they have

no responsibility, while those on

high incomes appear to have been

spared. Addressing the question of

fairness is a condition-sine-qua-

non for the necessary restoring of

confidence today (OECD SG Angel

Gurra)
http://www.oecd.org/els/social/inequalityhttp://www.oecd.org/els/social/inequality


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Source: OECD 2011, Divided we Stand.Note: Incomes are net incomes of the working-age population.

Huge country differences in levels of

income inequality

Income gap between poorest

and richest 10%

1:9

1:27

1:15

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Perceived and observed inequality: no

correlation but country groupings

Actual inequality (Gini)

Perceived

inequality English speaking countriesNordic countries

Continental Europe,

Eastern Europe I

Southern Europe,

Eastern Europe II


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Income inequality increased in most

OECD countries ..


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.. and it increased in traditionally

egalitarian countries, too



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.. Hungary recorded several episodes in

income inequality development


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Income inequality increased in both high- and

low-inequality countries alike;

Income inequality increased during bothrecession and boom periods;

Income inequality increased despite

employment growth up to the recession.

So what happened?

Developments in labour earnings and labour

markets are the main driver.

Diagnosis


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Globalisation, brought by rapid economic

integration;

Skill-biased technological changes;

Institutional and regulatory reforms;

Changes in employment patterns;

Changes in family formation and household

structures;

Changes in tax and benefit systems.

Causes of growing inequalities:

The major strands of explanation

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OECD evidence on main drivers of

inequality

Globalisation (trade, FDI, financial liberalisation) hadlittle impact on wage inequality trendsper se but putpressure onpoliciesand institutional reforms;

Such institutional and regulatory reforms aimed atpromoting growth and productivity while they had apositive impact on employment, at the same timehave been associated with increased wage inequality;

Changes in technology: technical progress was morebeneficial for high-skilled workers

Increases in human capital off-set much of the drive

towards rising inequality.


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Main drivers of changes in earnings

distribution among the w/a-population

Impact of: Employment Wage dispersionEstimated overall

earnings inequality

Trade integration = = =

FDI = = =

Technological progress = + +

Declining union coverage + + =/-

Product market deregulation + + +/ = / -

Weaker EPL for temporaryworkers = + +

Declining tax wedge + + = / -Declining UB for low-wage

workers+ + + / = / -

Up-skilling (increased

education levels)+ - --

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OECD evidence on main drivers of

inequality (cont.)

Changes in working conditions: part-time work and

non-standard labour contracts increased;

Changes in working hours: many countries saw anincreasing divide in hours worked between high- and

low-wage workers;

Changes in household structure: more people living

on their own or with partners in the same earnings

bracket.


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Accounting for part-timers and self-

employed increases earnings inequality

Source: OECD 2011, Divided we Stand

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Hours worked decreased most among

low-wage workers

Trends in annual hours worked by earnings group,mid-1980s to mid-2000s

Source: OECD 2011, Divided we Stand


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Redistribution through taxes and benefits

plays an important role

Market incomes are distributed more unequally than household netincomes: taxes and benefits reduce inequality by a quarter

Source: OECD 2011, Divided we Stand.Note: Data refer to the working-age population.

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.. but redistribution became weaker inmost countries

How much of the increase in market income inequality since

1985 was offset by income taxes and cash transfers?

Source: OECD 2011, Income Distribution Database


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While overall redistribution has increased, this was not

enough to offset growing market-income inequality;

Changes in overall redistribution were mainly driven by

benefits: those became more redistributive during the

1990s but less effective since then;

Spending levels have been a more important driver of

these changes than tighter targeting; Spending shifted towards inactive benefits, leading

to reduced activity rates and higher market-income

inequality.

Why have tax/benefit systems become

less successful at reducing inequality?

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Social services also redistribute income

Education, health, care etc. reduce inequality by a fifth

Source: OECD 2011, Divided we Stand. Note: Services include public services for education, health, social housing, child care and elderly care.


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More and better jobs: Increasing employment may contribute to

sustainable cuts in income inequality, provided employment gains

occur in jobs that offer career prospects;

Facilitate and encourage access to employment for under-

represented groups: address labour market segmentation;

Promote up-skilling of the workforce: better training and education

for the low-skilled;

Guarantee access to high-quality public services;

Government transfers (cash andin-kind) have an important role to

play to safeguard low-income households;

Scope for reviewing some tax provisions beyond effects on

incentives and revenues.

Both redistribution andinclusive employment policies matter.

Policy implications for OECD

countries

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Thank you for your attention !

www.oecd.org/els/social/inequality
http://www.oecd.org/els/social/inequalityhttp://www.oecd.org/els/social/inequalityhttp://www.oecd.org/els/social/inequality


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Overview of income inequality among the

working-age population: a traffic light

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Divided we stand - Why inequalities keep rising