TUAC - TRADE UNION ADVISORY COMMITTEE TO THE OECD

11/04/2008

Levels of income inequality and poverty in the mid-2000s

 

 
 
Note: Countries are ranked in increasing order of the Gini coefficient of income inequality. Data refer to the distribution of household disposable income in cash across people, with each person being attributed the income of the household where they live adjusted for household size.
Source: OECD 

The report “Growing unequal” has been prepared by the OECD Directorate in charge of Employment, Labour and Social Affairs in a response to a Ministerial Council mandate on “establishing the facts and examining trends in income inequality”. The evidence analysed and the main patterns identified have been summarized by the OECD under three headings as follows: 

Features characterizing the distribution of household income in OECD countries

• Some countries have income distributions much more unequal than others regardless of the way in which inequality is measured. Changes in the measure used generally have little effect on country rankings.
• Countries with a wider distribution of income also have higher relative income poverty, with only a few exceptions. This holds regardless of whether relative poverty is defined as having income below 40, 50 or 60 percent of household median income.
• Both income inequality and poverty have risen over the past two decades. The increase is fairly widespread, affecting 2/3 of the countries. The rise is moderate but significant (around 2 points for the Gini coefficient and 1.5 points for the poverty headcount based on 50 per cent of median income), but is much less dramatic than is often portrayed in the media.
• Income inequality has risen significantly since 2000 in Canada, Germany, Norway and the United States, and declined in the United Kingdom, Mexico, Greece and Australia.
  Inequality has risen because rich households have done particularly well in comparison to middle-class families and those at the bottom of the income distribution.
• Income poverty among the elderly has continued to fall, while poverty among young adults and families with children has increased.

Factors that have driven changes in income inequality and poverty over time

• Changes in the structure of the population are one of the causes of higher inequality. However, this mainly reflects the rise in the number of single-adult households rather than population ageing per se.
• Wages have become more dispersed but their effect on income inequality has been offset by higher employment. However, employment rates among less educated people have fallen and household joblessness remains high.
• Capital income and self-employment income are very unequally distributed, and have become even more so over the past decade. These trends are a major cause of wider income inequalities.
• Work is very effective at tackling poverty. Poverty rates in jobless families are almost 6 times larger than those in working families.
• However, work is not sufficient to avoid poverty, as more than half of all poor people belong to households with some earnings. Achieving larger progress in reducing poverty requires lowering in-work poverty.
  

Lessons learned by looking at broader measures of poverty and inequality

• Public services such as education and health are distributed more equally than income, so taking these into account lowers income inequality, though with few changes in the ranking of countries.
• Taking into account consumption taxes widens inequality, though not by as much as the narrowing due to taking into account public services.
• Household wealth is distributed much more unequally than income, with some countries with lower income inequality reporting higher wealth inequality. This conclusion depends, however, on the measure used, on survey design, and the exclusion of some types of assets (whose importance varies across countries) to improve comparability.
• Across individuals, income and net worth are highly but not perfectly correlated. Income-poor people have fewer assets than the rest of the population, with a net worth generally about under a half of that of the population as a whole.
• Material deprivation is higher in countries with high relative income poverty but also in those with low mean income. This implies that income poverty underestimates hardship in the latter countries.
• Older people have higher net worth and less material deprivation than younger people. This implies that estimates of old-age poverty based on cash income alone exaggerate the extent of hardship for this group.
• The number of people who are persistently poor over 3 consecutive years is small in most countries but more have low incomes at some point in that period. Countries with higher poverty rates based on annual income fare worse on the basis of the share of people who are persistently poor, or poor at some point.
• Entries into poverty mainly reflect family- and job-related events. Family events are very important for the temporarily poor, while lower transfers are more important for those who are poor in two consecutive years.
• Social mobility is generally higher in countries with lower income inequality, and vice versa, implying that, in practice, equality of opportunity requires equality of outcome.
  

TUAC will notify its affiliates when the full report has been published.

 

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