The gap between rich and poor at an all-time high for 30 years

THE ECO SCAN – An OECD report underlines that income inequalities have reached a record level since the 1980s. The crisis has largely contributed to their worsening.

Inequalities have never been greater around the world and “the gap between rich and poor continues to widen.” The latest report from the world market stresses that the situation has never been so critical. “In most OECD countries, inequalities are now at their peak since data began to be collected,” that is, since the 1980s, says the report. What explains this increase?

• Unemployment has become the main driver of income inequality

Before the crisis, wage inequality was the major component of income inequality. The problem then was not to have a job but to have a well-paid job. The years of crisis, between 2007 and 2011, brought about a change in the factors explaining the rise in inequalities in OECD countries. The massive unemployment induced by the fall in economic activity then becomes the first source of inequalities: the incomes of people without activity are much lower than those who work and the scale of the phenomenon contributes to the sudden increase in inequalities.

At the same time, wage inequalities continue to increase. On average, the Gini coefficient * (index that measures inequality) in OECD countries increased by 1.5% between 2007 and 2011. Even those who have a job are therefore affected by inequalities.

OECD

• Public policies have changed their objective

At the onset of the crisis, governments attempted to keep tax rates at pre-crisis rates so as not to worsen inequalities and strengthened social benefits to contain income inequality. But as the crisis progressed and public deficits worsened, causing national debts to skyrocket, governments revised their priorities. Fiscal consolidation programs have taken precedence over social concerns: taxes have increased and social assistance has been reduced in an effort to reduce public spending. Policies which until then helped to cushion income inequalities have suddenly worsened them.

• The most disadvantaged categories have suffered the most from the crisis

While the crisis could have contributed to reducing inequalities by encouraging companies to reduce the highest wages, it has on the contrary hit the most disadvantaged categories hard. Low-income households have “either lost more during the crisis or benefited less from the recovery than others,” says the OECD report. On average, the income of the poorest 10% has fallen more than that of the richest 10%. This decline was also earlier, occurring from 2008 when the incomes of other households were affected only from 2009. For the OECD, this finding “is particularly worrying, since it underlines a long-term trend”.

* The Gini coefficient is 0 in the case of perfect equality (everyone has the same income) and 1 in a situation of extreme inequality (one person has all the income, the others have nothing).