Thousands protest against government austerity in February 2013 in Madrid. Photo: AFP/Getty Imahes
Inequality increased by more during the first three years of the global financial crisis than in the previous dozen, according to the Organization for Economic Cooperation and Development (OECD). The richest 10% in the OECD’s 33 industrialized member countries earned 9.5 times the income, excluding social transfers and taxes, of the poorest 10% in 2010, up nine times from 2007. The international organization believes the gap has only widened since.
Incomes from labor and capital fell considerably in the three years to the end of 2010. Real household market incomes (total income from employment, trading activities, and financial investment) fell by 2% per year over the period, according to latest figures in the OECD Income Distribution Database.
Market income fell considerably during the crisis in most OECD countries
Higher unemployment and lower real wages brought down household market income. Source: OECD
“As the economic and especially the jobs crisis persists and fiscal consolidation takes hold, there is a growing risk that the most vulnerable in society will be hit harder as the cost of the crisis increases,” says the Paris-based organization. Between 2007 and 2010, during what the organization calls the first phase of the crisis – which one are we in now? – average market income inequality across OECD countries increased by 1.4% points.
Market income inequality rose considerably
Market income inequality increased by more over the last three years than what was observed in the previous 12 years.
The data on the top and bottom 10% of the population in 2007 and 2010 respectively show that lower income households either lost more from income falls or benefited less from the sluggish recovery. The top 10% did better than the poorest 10% in 21 countries out of the OECD 33. Even in bailout candidates Spain and Italy, the income of the top 10% remained stable, while the average income of the poorest 10% in 2010 was much less than in 2007.
Poorer households tended to lose more or gain less
The average income of the top 10% in 2010 was similar to that in 2007. Meanwhile, the income of the bottom 10% in 2010 was lower than that in 2007 by 2% per year.
Recession across the euro zone has extended into its sixth quarter, likely increasing income inequality further. While the mood is swinging against austerity measures, particularly in Europe, “policies to boost jobs and growth must be designed to ensure fairness, efficiency and inclusiveness,” says OECD Secretary-General Angel Gurría. “Reforming tax systems is essential to ensure that everyone pays their fair share and also benefits and receives the support they need.”
Meanwhile, the rich and the poor grow further apart.
