TUAC - TRADE UNION ADVISORY COMMITTEE TO THE OECD

06/12/2011

OECD: Deregulation of labour and product market have contributed to the rise in inequality
5 December 2011

Growing public concerns about the extent of inequality are substantiated by a new OECD study. “Divided We Stand: Why Inequality Keeps Rising”, published on December 5, revealed that across the OECD the average income of the richest 10% is about nine times that of the poorest 10 %. The income gap has risen even in traditionally more equal countries such as Germany, Denmark and Sweden, from a ratio of 5 to 1 in the 1980s to 6 to 1 today. The gap is 10 to 1 in Italy, Japan, Korea and the United Kingdom and higher still in Israel, Turkey and the United States at 14 to 1. Chile and Mexico have the highest levels of income inequality in the OECD with the income of the richest being 25 times that of the poorest, although this gap has finally started to narrow. 

The OECD analysis downplays the role of trade exposure and financial openness on wage inequality. However, it identifies technological change as being positively correlated. Moreover, the study finds that ‘regulatory reform’ that weakened labour market institutions had a significant impact on wage inequality among full-time workers, in particular through the weakening of employment protection legislation governing the employment of temporary workers, product market deregulation and lower unemployment benefit replacement rates. The study found that declining unionisation rates also contributed to inequality.

Commenting on the findings and policy conclusions of the study, TUAC General Secretary John Evans said, “If the OECD is serious about reducing inequality it should  revisit its structural policy recommendations that have often been aimed at decentralising bargaining systems and weaken labour market institutions. We need stronger unions and stronger collective bargaining systems for fairer societies and, ultimately, stronger economies.”

Referring to the OECD Secretary-General Angel Gurria’s editorial on the new study, which rightly points out that there is nothing inevitable about high and growing inequality, Evans said, “Governments must re-reform tax and benefit systems in order to increase their redistributive effects. This study demonstrates the urgency of strengthening the progressivity of tax systems to ensure that the well-off bear an appropriate share of the tax burden”.

More information on the study on ‘Divided We Stand: Why Inequality Keeps Rising’, including a detailed overview of growing income inequalities in OECD countries, press material, Country notes and data, is available at the OECD web site:

http://www.oecd.org/document/51/0,3746,en_2649_33933_49147827_1_1_1_1,00.html