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 ..
Source: OECD 2011, Divided we Stand.Note: Incomes are net incomes of the working-age population.
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.. and it increased in traditionally
egalitarian countries, too
Source: OECD 2011, Divided we Stand.Note: Incomes are net incomes of the working-age population.
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.. Hungary recorded several episodes in
income inequality development
Source: OECD 2011, Divided we Stand.Note: Incomes are net incomes of the working-age population.
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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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