Association for Public Policy Analysis & Management

This contribution draws on ongoing work on inequalities and opportunities at the OECD. In most OECD countries, the gap between rich and poor is at its highest level since 30 years. Today, the richest 10 per cent of the population earn almost 10 times the income of the poorest 10 per cent. For comparison, in the 1980s this ratio stood at 7:1; it stood at 8 : 1 in the 1990s and 9 : 1 in the 2000s. Household wealth is even much more concentrated at the top than income, half of total wealth being owned by the 10% wealthiest households while the 40% least wealthy own just 3%. Growth, if any, benefited disproportionally higher income groups while lower-income households were left behind. This long-run increase in income inequality does not only raise social and political but also economic concerns: it tends to drag down GDP growth, and the rising distance of the lower 40% from the rest of society accounts for this effect. Lower-income people cannot realise their human capital potential, which is bad for the economy as a whole. It implies large amounts of wasted potential and lower social mobility. High inequality can indeed jeopardise social mobility: intergenerational earnings mobility is low in countries with high income inequality and higher in countries where income is distributed more evenly. The resulting inequality of opportunities can then have a negative impact on economic performance and well-being. Inequalities go beyond income and wealth, they also concerns non-monetary dimensions such as health and education. Finally, inequality can also fuel protectionist sentiments and raises political challenges because it breeds social resentment and generates political instability. Two important drivers of increased inequality stand out. First, labour markets have been undergoing profound transformations due to globalisation, technological change and policy reforms. Job polarization took place where standard jobs have disappeared in the middle of the distribution in terms of wages and skills while non-standard jobs have contributed to an increase at both ends of the distribution, contributing to higher inequality. Second, reforms of tax and benefit systems prior to the crisis reduced redistribution as benefit levels were cut, access to benefits tightened and transfers failed to keep pace with earnings growth. During the initial years of the crisis, automatic stabilisers and fiscal stimulus measures still cushioned the fall in household income and prevented inequality going from bad to worse. However, as the crisis continued, the effect diminished as entitlements to social benefits expired and many governments implemented fiscal consolidation programmes. The crisis thus added urgency to deal with the policy issues related to inequality as the social compact is starting to unravel in many countries. The contribution will also discuss policy approaches and tools in OECD countries to counter the trend of growing inequality, focusing on: i) promoting employment promotion and good-quality jobs; ii) fostering women's participation in economic life; iii) strengthening investment in skills and education; iv) improving the design of tax and benefit systems for a more efficient redistribution