income distribution and poverty in oecd countries

OECD | Whether the burden of any recession is felt by some social groups and countries more than others depends largely on public policy. Will government step up to the plate? New actions are needed, and a new report spells out the issues.

The world has seen recent decades of rapid growth. This has been most obvious in newly-industrialising countries, notably China and India, but has been shared by OECD countries. Yet the fruits of this economic growth have not been equally divided–either between countries or within countries. As it is put in the introduction to a new OECD report, Growing Unequal?, “there is widespread concern that economic growth is not being shared fairly” (page 15, see references). A rising tide does not necessarily raise all boats. Or, to use another liquid metaphor, we cannot rely on trickle-down.

This major OECD report assembles a wealth of evidence about changes in income inequality and poverty over the period from the mid-1980s to the mid-2000s, covering all 30 developed countries of the OECD. The sober statistics provide a much needed counterpoint to what the authors call the “Hello magazine effect” that highlights the super rich. The statistics show that few OECD countries have reduced inequality over the past 20 years. The past five years saw growing inequality and poverty in two-thirds of OECD countries. The report quotes the US president, George W. Bush in his 2007 State of the Economy speech: “our citizens worry about the fact that our dynamic economy is leaving working people behind”.

The OECD report has growth in its title, but the time of its publication inevitably leads the reader to ask: what will happen if the next decade is one, not of world growth, but of world recession? If a rising tide does not lift all boats, how will they be affected by an ebbing tide? Recession–if it comes–does not sound like good news for those on the margins of the labour force. Small savers, as well as bankers, are affected by the financial crisis. Is it a case of “heads, the rich gain; tails, the poor lose”?

Many commentators on the current economic crisis say that it is unprecedented in the post-war period; they are harking back, not 20 years to 1987, but some 80 years to 1929. In considering the distributional implications, too, we need to go back in time. Here the data are sparse, but we can say something, particularly about the upper part of the income distribution. In our book, Top Incomes over the Twentieth Century, Thomas Piketty and I have brought together studies for a number of OECD countries that show how the share of the top 1% changed following the Great Crash of 1929. This did indeed affect the rich, who had prospered in the Roaring ‘20s. In a number of countries, top income shares fell: in the US, the shares of the top 0.1 and 0.01% were reduced by between a quarter and a third. Top income shares fell in Australia, France, the Netherlands and the UK. But they did not fall universally, and, as the Great Depression ensued, other income groups were seriously affected.