Latest high level broadside on inequality – “In It Together…” from the OECD

Guest post from Oxfam inequality researcher Daria UkhovaDaria

Last month, the OECD published a new flagship report on inequality In It Together: Why Less Inequality Benefits All, continuing a series and building on the findings of the previous reports Growing Unequal? (2008) and Divided We Stand: Why Inequality Keeps Rising (2011). At Oxfam since the launch of our Even It Up campaign, we have been closely monitoring the inequality debate, and OECD’s reports clearly represent important landmarks in its development. So, what have we learnt? And what was missing in the OECD’s new tome?

The report has already received quite a bit of attention in the media, but for those who still have the report sitting unopened in their mailboxes here is a quick summary of the main arguments:

  • Income inequality is rising across OECD countries, with the richest 10% of the population now earning 9.6 times the income of the poorest 10% (in the 1980s, this ratio stood at 7:1 rising to 8:1 in the 1990s and 9:1 in the 2000s)
  • Income inequality and poverty increased during the current crisis (post-2008)
  • Rising inequality holds back economic growth. Between 1990 and 2010, OECD economies lost a whopping 4.7% off cumulative growth.
  • OECD 1Poorest 40% are being increasingly left behind by the growing inequality in terms of their incomes, but also their educational attainment, skills and employment
  • Rise of non-standard work in the past twenty years is one of the key drivers of growing inequality
  • Bringing more women into full-time work with higher relative wages has reduced the growth of inequality measured by the gini index by approximately 1 percentage point
  • Wealth inequality is much higher than income inequality, with the bottom 40% of people across the OECD owning only about 3% of total wealth, compared to the 50% owned by the top 10%

 

To tackle all the above, OECD suggests a focus on increasing women’s economic participation, promotion of employment and creation of good-quality jobs, investing in human capital through better skills and education policies, and, finally, redistribution through taxes and transfers.

If you get to the very end of the report, you will also find a nice small chapter on emerging economies, which leaves some hope that inequality could actually be tackled through the right combination of fiscal policies, an important part of which comprise publicly funded healthcare and education (Unfortunately, that doesn’t warrant a mention in the executive summary)

While all the above might prompt a mild twinge of déjà vu, there are several important aspects of this report – apart from the OECD 2wealth of great new data for which we are always thankful – that I would argue require attention, as potentially crucial for defining the future terms of the debate about inequality.

Inequality, economic growth, and poverty. In the new report, the OECD has tried to establish the links between these three phenomena, which so far have been mostly explored in pairs, as the relationship between inequality and growth and the relationship between inequality and poverty. While confirming previous arguments about the negative impact of inequality on growth and on poverty, the OECD has gone a step further, arguing that the mechanism through which inequality actually undermines growth is through the channel of human capital. Specifically, they find that higher levels of inequality result in worse educational attainment, skills and employment among the poorest 40%, which then translates into lower levels of human capital and lower growth. The report, however, does not explore the underlying causes of this relation. Comparing the low and high income inequality countries in terms of degrees of their educational systems’ privatization or labour market flexibilisation could shed light on the questions re why poor people in more unequal countries ‘invest’ less in their human capital.

Horizontal and vertical economic inequality. By dedicating a whole chapter to looking at how the changes in women’s economic activity in recent decades have affected the dynamic of economic inequality among households, the OECD has done a great job of mainstreaming a debate that until recently was primarily heard only at feminist economics conferences. Looking at how other types of horizontal inequality (ethnic, racial, etc.) affect current trends of vertical economic inequality could become another important step in making mainstream economic debates less gender- and colour-blind.

Precarisation of work and inequality. Although the OECD prefers to refer to this phenomenon as a rise of non-standard work or NSW (under which they include temporary contracts, part-time employment and self-employment), by making an argument about NSW being a primary driver of the recent growth of inequality, the OECD seems to be actually moving away to some extent from its earlier position on the need to flexibilise labour markets. The issue that remains unaddressed by the report is why have the labour markets become so flexibilised in the first place? Addressing this question would probably require a degree of reflexivity by the OECD that the format of such report, unfortunately, does not allow.

OECD 340% vs. 1%: As the authors of the report argue: ‘Much of the recent debate surrounding inequality has focused on top earners, especially the “top 1%”. Less well understood is the relative decline of low earners and low-income households – not just the bottom 10% but the lowest 40%. (…) Just as with the rise of the 1%, the decline of the 40% raises social and political questions. When such a large group in the population gains so little from economic growth, the social fabric frays and trust in institutions is weakened.’ Although the report does have a chapter on increasing wealth concentration and even has some recommendations on taxing the rich (with the purpose of raising more revenue for social protection), it does, indeed, strongly focus on the dynamic at the bottom of distribution. It even goes as far as to show – through a quite complex statistical model – that changes at the top of redistribution have actually had no impact on current inequality increases. As a result, the report fails to explore how the processes at the top and at the bottom of distribution are related – when someone is losing, isn’t it that someone else is gaining? In the end, aren’t we “in it together”?  

And here’s a quick video summary of the report:

[youtube height=”HEIGHT” width=”WIDTH”]https://www.youtube.com/watch?v=xyprxOa1H1s&feature=youtu.be[/youtube]

 

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