I found this report very interesting since I really wasn’t too aware of the organization or findings. The Organization for Economic Cooperation and Development (OECD) released a study titled “Growing Unequal? Income Distribution and Poverty in OECD Countries.”
Why is the gap between rich and poor growing?
In most countries the gap is growing because rich households have done significantly better than middle-class and poor households. Changes in the structure of the population and in the labour market over the past 20 years have contributed greatly to this rise in inequality.– Key Findings of Growing Unequal
After reading through the country summary (available in PDF format, see links at bottom of article), I was really surprised at the findings. Nearly everyone considers the United States one of the wealthiest and least poor modern countries. However, only Mexico and Turkey has a greater gap in inequality and higher poverty rates (within the OECD countries).
Source: Growing Unequal? , OECD 2008. Income is disposable household income adjusted for household size.
The only time the income inequality decreased was during the mid 1990s to 2000. The poverty rate (% of persons living with less than 50% median income) peaked around the mid-80s at 18%, falling to about 16.5% in the mid-90s, and increased to 17% today (mid-2000).
The United States is the country with the highest inequality level and poverty rates across the OECD, Mexico and Turkey excepted. Since 2000, income inequality has increased rapidly, continuing a long-term trend that goes back to the 1970s.
- 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 US$93,000 US$ in purchasing power parities, the highest level in the OECD. However, the poorest 10% of the US citizens have an income of US$5,800 US$ 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.
- Child poverty that is, children in a household with less than half the median income has fallen since 1985, from 25% to 20% but poverty rates among the elderly increased from 20 to 23%.Both of these trends are in the opposite direction to those of the other countries in the OECD.
- Social mobility is lower in the United States than in other countries like Denmark, Sweden and Australia. Children of poor parents are less likely to become rich than children of rich parents.
- Wealth is distributed much more unequally than income: the top 1% control some 25-33% of total net worth and the top 10% hold 71%. For comparison, the top 10% have 28% of total income.
– Country Note: United States (PDF), OCED 2008
The report has lots of query forms (see below links), Microsoft Excel Spreadsheets, and an interesting gapminder chart.
The income inequality and poverty rates are calculated based on median incomes, so obviously the US is not doing as bad as other countries that have a lower median income. So I believe, it should be looked at relative to each country rather than globally (for example, a poor US citizen is still quite a bit better off than a poor citizen in some other countries).
As somewhat of a fiscal conservative, I’ve always thought that we’ve been spending too much on entitlements (such as welfare, etc.). However, based on this report the United States is only compensating about 9% of the median household income whereas other countries in the study spend about 22% of their median incomes. I still think that the US is doing okay here and that the true problem is that the rich have gotten so rich that they are dramatically skewing all of the numbers, while the middle-class and lower income-class have stayed the same or decreased in income.
“because rich households have done significantly better than middle-class and poor households”
Uh, you think?
[...] percent of our population lives in poverty according to the Census Bureau although I suspect that number to jump for the months to come. We all understand that poverty exists in America, but many people cannot [...]