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Divided We Stand
Why Inequality Keeps Rising
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- Table of Contents
- Foreword
- Acronyms, Country ISO Codes and Conventional Signs
- Editorial: Mind the gap
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An Overview of Growing Income Inequalities in OECD Countries: Main Findings
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1. The big picture: inequality on the rise in most OECD countries
- Table 1. Household incomes increased faster at the top
- Figure 1. Income inequality increased in most, but not all OECD countries
- Figure 2. Inequality increased in most countries over the long term, but recently fell in some high-inequality countries
- Box 1. A roadmap: the analytical framework and structure of the report
- Analytical framework for the analysis of income inequality used in the report
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2. What drives growing earnings and income disparities?
- + Is globalisation the main culprit in higher wage inequality?
- + The impact of regulatory reforms
- + Changes in hours worked favour higher-wage earners
- + Do changes in household structure matter for inequality?
- + Beyond earnings: the impact of capital and self-employment income
- + Have income taxes and benefit systems become less effective in redistributing income?
- + How redistributive are non-cash transfers from public services?
- + Rising top-income shares: what implications for tax policy?
- 3. Lessons for policies
- Notes
- References
- + Trends in Different Income Inequality Measures
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1. The big picture: inequality on the rise in most OECD countries
- + Special Focus: Inequality in Emerging Economies (EEs)
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Chapter 1.
Trends in Wage Inequality, Economic Globalisation and Labour Market Policies and Institutions
- 1.1. Introduction
- + 1.2. Trends in wage dispersion
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1.3. Globalisation: recent trends in global economic developments
- + Trade integration
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International financial flows
- Figure 1.6. Cross-border liabilities by components (% of GDP), OECD average, 1980-2007
- Figure 1.7. Cross-border assets by components (% of GDP), OECD average, 1980-2007
- Figure 1.8. Inward (liabilities) foreign direct investment stock to GDP ratios, 19802008
- Figure 1.9. Outward (assets) foreign direct investment stock to GDP ratios, 19802008
- Figure 1.10. Association between trends in wage dispersion and foreign direct investment restrictiveness, 1985-2006
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Technological progress
- Figure 1.11. BERD as a percentage of GDP, 1981-2008
- Figure 1.12. Total patent counts, 1980-2007
- Figure 1.13. Patents per capita (per million persons)
- Figure 1.14. Shares of ICT investment in non-residential gross fixed capital formation
- Figure 1.15. Share of ICT employment in business sector employment
- Figure 1.16. Association between trends in wage dispersion and R&D intensity, 1985-2007
- Figure 1.17. Association between trends in wage dispersion and ICT intensity, 1985-2007
- + 1.4. Trends in labour market policies, institutions and regulations
- + 1.5. Summary and conclusions
- Notes
- References
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Chapter 2.
The Impact of Economic Globalisation and Changes in Policies and Institutions on Rising Earnings Inequality
- 2.1. Introduction
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2.2. Effects of economic globalisation, technological change, and changes in policies and institutions on wage inequality
- Regression analysis of trends in within-country inequality
- + Baseline specification
- + The impact of trade integration on wage inequality
- + The impact of international financial integration on wage inequality
- + The impact of policies and institutions on wage inequality
- + Quantifying the contribution of changes to wage inequality
- + 2.3. Effects on the top and the bottom of the wage distribution: tailsensitive analyses
- + 2.4. Summary and conclusions
- Notes
- References
- + Data Sources and Variables
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Changes in the Skill Wage Gap and the Role of Sectors
- Box 2.A2.1. Constructing ratios of hourly wages by skills
- Figure 2.A2.1. Increased gap between the wages of high and low-skilled workers, 1985-2005
- Figure 2.A2.2. Wage gaps and trade openness by sector, 1985-2005
- Table 2.A2.1. Changes in the share of high-skilled workers wages, 1985-2005
- Figure 2.A2.3. Wage gaps and technological change by sector, 1985-2005
- Figure 2.A2.4. Wage gaps and trade in intermediate inputs, 1995-2005
- Figure 2.A2.5. Changes in wage gaps and outward FDI, 1995-2005
- Table 2.A2.2. Data sources, country and sector coverage
- Notes
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Chapter 3.
Inequality Between the Employed and the Non-employed
- 3.1. Introduction
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3.2. Earnings inequality among the whole working-age population
- Box 3.1. Framework on earnings dispersion among the working-age population
- Lorenz curves and changes in inequality among the employed and among the whole working-age population
- Figure 3.1. Change in employment rate needed to compensate change in wage inequality among workers, in order to keep earnings inequality among the whole working-age population unchanged
- + Contributions of the wage and employment effects to earnings inequality among the whole working-age population
- + Country-specific counterfactuals
- Accounting for the value of non-market activities
- + 3.3. Linking globalisation and developments in policies and institutions to changes in earnings inequality among the working-age population
- + 3.4. Globalisation, regulatory reforms and changes in overall earnings inequality: bringing together the evidence
- + 3.5. Summary and conclusions
- Notes
- References
- + Data for the Analyses in Section 3.2
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Additional Tables and Figures
- Table 3.A2.1. Simulation of the wage and employment effects by country, entire working-age population
- Table 3.A2.2. Wage and employment effects on overall inequality among the working-age population: alternative scenario
- Figure 3.A2.1. Contributions of wage and employment effects to overall earnings inequality among the working-age population: alternative scenario
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Chapter 4.
Hours Worked, Self-Employment and Joblessness as Ingredients of Earnings Inequality
- 4.1. Introduction
- + 4.2. Trends in inequality among full-time workers and all workers
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4.3. Compositional changes and their impact on trends in earnings inequality
- + The role of self-employment in earnings inequality
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Working hours: the role of changing employment “quantities” among paid workers
- Figure 4.4. Inequality of hourly wages versus inequality of annual earnings, all paid workers
- Box 4.1. Decomposing income inequality by sources
- Table 4.1. Decomposition of the variance of log annual earnings, paid workers, mid-2000s
- Figure 4.5. Changes in annual hours worked and in hourly real wages by earnings quintile, mid1980s to mid-2000s
- + 4.4. Earnings inequality and joblessness
- 4.5. Summary and conclusions
- Notes
- References
- + Additional Tables
- + Accounting for the Effect of Joblessness on Earnings Inequality Among the Whole Working-Age Population
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Chapter 5.
Trends in Household Earnings Inequality: The Role of Changing Family Formation Practices
- 5.1. Introduction
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5.2. Levels and trends in household earnings inequality
- Figure 5.1. Inequality (Gini coefficient) of annual earnings among individuals and households, all working-age households (including individuals and households with no earnings)
- Figure 5.2. Inequality (Gini coefficient) of annual earnings among individuals and households, workers and working households
- Figure 5.3. Evolution of equivalent household earnings inequality (Gini coefficient)
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5.3. The determinants of changes in household earnings inequality: labour market and demographic factors
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5.4. Explaining changes in household earnings inequality
- 5.5. Summary and conclusions
- Notes
- References
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Additional Tables and Figures
- Table 5.A1.1. Labour market and family formation factors impacting on household earnings inequality
- Table 5.A1.2. Factors influencing on changes in household earning inequality, robustness test
- Figure 5.A1.1. Working wives’ annual earnings by husband’s earnings decile, couple households, mid-1980s and mid-2000s
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Chapter 6.
From Household Earnings to Disposable Household Income Inequality
- 6.1. Introduction
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6.2. Inequality: trends in the distribution of market and disposable income
- + How does the distribution of household income compare across countries?
- + How has the distribution of household income changed over time?
- + How important are income components in terms of their share of total income?
- + How are income components allocated across the distribution?
- + The concentration of components of market income
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6.3. How much of inequality is explained by each of the income sources?
- Box 6.1. Decomposing income inequality by sources
- Figure 6.6. Decomposition of income inequality by income source, average of 14 OECD countries, mid-2000s
- + Wages and income from self-employment
- + Capital income and occupational pensions
- + Social transfers
- + Taxes
- Summing up the changing role of income sources to overall inequality
- + 6.4. Redistributive effects of marginal increases in individual income components
- 6.5. Summary and conclusions
- Notes
- References
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Additional Tables
- Table 6.A1.1. Gini coefficients from the OECD Database on Household Income Distribution and Poverty and from the LIS dataset
- Table 6.A1.2. Decomposition of (disposable) income inequality by income sources, countries reporting gross incomes
- Table 6.A1.3. Decomposition of (disposable) income inequality by income sources, countries reporting net incomes
- Table 6.A1.4. Marginal effects of changes in income components
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Chapter 7.
Changes in Redistribution in OECD Countries Over Two Decades
- 7.1. Introduction
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7.2. Measured changes in redistribution
- Figure 7.1. Overall amounts of taxes paid and benefits received in the mid-2000s
- + The size of the redistribution system: aggregate expenditures and revenues
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Changes in the extent of redistribution: evidence from household income data
- Table 7.2. Redistribution: general country trend
- Table 7.3. Redistribution trends: detailed results by country
- Figure 7.2. Redistribution tends to be higher when incomes are more unequal
- Table 7.4. A higher degree of redistribution at the bottom than at the top of the income distribution1
- Box 7.1. Measuring redistribution achieved by individual parts of the tax-transfer system
- Figure 7.3. Drivers of redistribution: progressivity and size of transfers and taxes
- + 7.3. The role of policy reforms
- + 7.4. Summary and conclusions
- Notes
- References
- + Additional Tables and Figures
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Chapter 8.
The Distributive Impact of Publicly Provided Services
- + 8.1. Introduction
- + 8.2. Defining public social services
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8.3. The overall distributive impact of publicly provided services on the distribution of income
- Box 8.2. Allocating in-kind benefits to individuals and households
- Figure 8.2. Income-increasing effect of in-kind benefits from public services, 2007
- Table 8.1. Income-increasing effect of in-kind benefits from public services by quintile, OECD27 average, 2007
- Table 8.2. Summary inequality indicators for cash income and extended income (imputing total public services), 2007
- Figure 8.3. Income poverty rates before and after including total of public services (floating poverty line), 2007
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8.4. The distributive impact of particular public services
- + 8.5. The distributive impact of public services over time
- 8.6. Summary and conclusions
- Notes
- References
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How to Account for Publicly Provided Services in Household Income: Conceptual and Methodological Issues
- Table 8.A1.1. Allocation methods applied for different public services
- Table 8.A1.2. Imputation of education services in household income for a typical lowincome family with two children, example with three alternatives
- Figure 8.A1.1. Gini coefficient before and after inclusion of all types of public services, comparing three equivalence scales for extended income
- Notes
- + Additional Tables and Figures
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Chapter 9.
Trends in Top Incomes and Their Tax Policy Implications
- 9.1. Introduction
- + 9.2. Data on top incomes
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9.3. Trends in the share of top incomes
- + 9.4. Explanations of the trends in top incomes
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9.5. Tax policy implications
- Introduction
- + The effects of taxes on top income recipients
- + Top marginal income tax rates
- Effects of raising marginal personal tax rates
- Raising average tax rates by reducing tax expenditures
- Taxation of capital income
- Taxation of wealth and capital transfers
- Property taxes
- High net worth individuals: evasion and aggressive avoidance
- 9.6. Summary and conclusions
- Notes
- References
- + Characteristics and Limitations of Income Data from Tax Returns
- Notes
- + ANNEX 9.A2. Additional Data and Figures
In the three decades to the recent economic downturn, wage gaps widened and household income inequality increased in a large majority of OECD countries. This occurred even when countries were going through a period of sustained economic and employment growth. This report analyses the major underlying forces behind these developments. It examines to which extent economic globalisation, skill-biased technological progress and institutional and regulatory reforms have had an impact on the distribution of earnings. The report further provides evidence of how changes in family formation and household structures have altered household earnings and income inequality. And it documents how tax and benefit systems have changed in the ways they redistribute household incomes. The report discusses which policies are most promising to counter increases in inequalities and how the policy mix can be adjusted when public budgets are under strain.
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Publication year : 2011
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