Inequality – now at its highest level in decades in many countries – undermines economic growth and well-being, says a new OECD report.
But policies to tackle the widening gap between rich and poor will only succeed if they also look beyond income and address better access to high-quality education, health care and public infrastructure, it adds.
The wealthy have overwhelmingly captured the benefits of growth. The average income of the richest 10 percent of the population in OECD countries was nine and a half times higher than that of the poorest 10 percent in 2010, compared with a level seven times higher 25 years ago.
In the United States, the richest 1 percent took 47 percent of total income growth between 1976 and 2007, compared with 37 percent in Canada and around 20 percent in Australia and Britain. The gap between rich and poor has widened even faster since the financial crisis.
The report reveals the links between income, education and health. Data from 14 OECD countries show that at the age of 30, people with the highest education levels could expect to live on average 6 years longer than their poorly educated peers.
“All on Board: Making Inclusive Growth Happen” provides evidence of the consequences of inequality, sets out a framework for action and allows governments to assess how policies impact different social groups in different ways.
The report is part of an Organisation-wide effort to develop an inclusive agenda for growth and well-being, and is a natural offshoot of the OECD New Approaches to Economic Challenges (NAEC) project to reflect on the causes of the crisis and the lessons for policy. The Inclusive Growth initiative pioneers a multi-dimensional framework that explores new ways of combining strong growth with a better distribution of benefits and outcomes.
“Inequality undermines societies and damages economies,” said OECD Secretary-General Angel Gurría. “It is not enough to put in place policies that harness growth, we must also ensure that the benefits of growth are shared by everyone. This is one of the most pressing challenges we face today.”
Xavier de Souza Briggs, vice president of Economic Opportunity and Assets at the Ford Foundation, a central partner of the OECD’s work on inclusive growth, said: “This important new research adds to a growing body of evidence that economic inclusion is strongly associated with longer and stronger periods of growth. Put simply, reducing inequality is not only a moral imperative, it’s an economic one.”
The report says economic and social policies should be designed to foster both equity and growth. Investing in skills and education, for example, can have far-reaching impact on these twin objectives.
Local government has a key role to play, particularly by investing in quality housing, public transport and in providing training for disadvantaged groups.
The report acknowledges that sound structural policies are a precondition for sustained growth, employment and poverty alleviation, but that there are trade-offs. For instance, reducing regulatory barriers to domestic and foreign competition as well as stepping-up job search support and labour market activation programmes can lift the incomes of the lower middle class faster than the overall rise in GDP per capita through the positive effect on employment. However, a tightening of unemployment benefits for the long-term unemployed reduces disposable incomes at the bottom end of the distribution, an indication of the importance of combining reforms of unemployment income support with a strengthening of active labour market policies.
The report argues that promoting inclusive growth can also help restore citizens’ trust in governments. Today, fewer than one in two people in OECD countries have confidence in their nation’s political leadership.