Workplace Issues

Income Inequality Hits ‘Tipping Point,’ OECD Says

"Inequality in OECD countries is at its highest since records began,” according to the organization's secretary-general.
Matthew HellerMay 21, 2015

The gap between rich and poor in most developing countries has reached its highest level in 30 years, with economic growth disproportionately benefiting higher-income groups while leaving lower-income groups behind, the Organization for Economic Cooperation and Development says in a new report.

EggThe richest 10% of the population in the OECD now earns 9.6 times the income of the poorest 10%, up from 7:1 in the 1980s and 9:1 in the 2000s, the report says.

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“We have reached a tipping point. Inequality in OECD countries is at its highest since records began,” OECD Secretary-General Angel Gurría said in a news release.

“The evidence shows that high inequality is bad for growth,” he continued. “The case for policy action is as much economic as social. By not addressing inequality, governments are cutting into the social fabric of their countries and hurting their long-term economic growth.”

According to the OECD, the increase in the inequality gap has knocked an average of 4.7 percentage points off cumulative growth between 1990 and 2010  across major economies.

“Rising income inequality has a significant impact on economic growth, in large part because it reduce[s] the capacity of the poor segments — the poorest 40 percent of the population — to invest in their skills and education,” the OECD explained.

The report also found that wealth is even more concentrated at the top than income, worsening the overall disadvantage of low-income households. In 2012, the bottom 40% owned only 3% of total household wealth in the 18 OECD countries with comparable data. By contrast, the top 10% controlled half of all total household wealth and the wealthiest 1% owned 18%.

“While the flashy lifestyles and incomes of the top 1 percent are certainly eye-catching, focusing on them exclusively risks obscuring another area of growing concern in inequality — namely the declining situation of low-income households,” the OECD said.

Among major developed countries, the United States had the highest level of inequality as measured by the Gini coefficient, followed by Israel and the United Kingdom. Denmark, Slovenia, and Slovakia had the lowest levels of inequality.

Illustration by Jovel