Income Inequality in US Increased Since 2000
As debate about “spreading the wealth” has become a hot topic in the US Presidential race, the OECD has released a timely report showing that income inequality in the US has increased since 2000 and at a faster rate than in industrialized countries as a group. The gap between rich and poor has grown in more than three-quarters of OECD countries over the past two decades.
As measured by the Gini coefficient, in which a score of 0 represents perfect equality and 1 is perfect inequality, the figure for the total US population stood at 0.381 in the mid 2000s, after taxes and transfers, up from 0.357 in 2000. This compares with 0.316 in the mid 1907s.
- Rich households in America have been leaving both middle and poorer income groups behind. This has happened in many countries, but nowhere has this trend been so stark as in the United States. The average income of the richest 10% is $93,000 in purchasing power parities, the highest level in the OECD. However, the poorest 10% of the US citizens have an income of $5,800 per year – about 20% lower than the average for OECD countries.
- The distribution of earnings widened by 20% since the mid-1980s which is more than in most other OECD countries. This is the main reason for widening inequality in America.
- Redistribution of income by government plays a relatively minor role in the United States. Only in Korea is the effect smaller. This is partly because the level of spending on social benefits such as unemployment benefits and family benefits is low – equivalent to just 9% of household incomes, while the OECD average is 22%. The effectiveness of taxes and transfers in reducing inequality has fallen still further in the past 10 years.
The OECD report Growing Unequal? finds that the economic growth of recent decades has benefitted the rich more than the poor. In some countries, such as Canada, Finland, Germany, Italy, Norway and the United States, the gap also increased between the rich and the middle-class.
“Countries with a wide distribution of income tend to have more widespread income poverty. Also, social mobility is lower in countries with high inequality, such as Italy, the United Kingdom and the United States, and higher in the Nordic countries where income is distributed more evenly, the report says.”
A key driver of income inequality has been the number of low-skilled and poorly educated who are out of work. More people living alone or in single-parent households has also contributed.
Some groups in society have done better than others. Those around retirement age have seen the biggest increases in incomes over the past 20 years, and pensioner poverty has fallen in many countries. In contrast, child poverty has increased. The OECD provides extensive interactive country-by-country data and analysis here.
In an accompanying article, Oxford professor Sir Anthony Atkinson argues for aggressive government action. “Government budgets are under stress, but citizens are going to expect that, if funds can be found to rescue banks, then governments can fund unemployment benefits and employment subsidies.”
If governments can take on the role of lender of last resort, then we should be willing to see government as the employer of last resort. Put bluntly, governments have to step up to the plate, as Roosevelt did in the Great Depression.
Looking back at what happened after the Great Depression, Paul Kedrosky at Infectious Greed, suggests that on the other side of the current weakness, “You can make a strong case that it (the income gap) narrows again, perhaps speedily.”
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