The rise of income inequality amongst rich countries

Within rich countries, the wealthiest 10% households have an average standard of living nine times higher than the poorest 10%. Income inequalities have increased almost everywhere.

Over the past 25 years, income inequality [1] of OECD countries increased from 0.29 to 0.32 between the mid 1980s and late 2000s. This is a historic reversal amongst these countries, which since the Second World War seemed to progress towards more equal income distributions. For many this reversal results from an inability to reduce unemployment and create quality jobs for all. But this trend reflects different changes in depending on which countries are considered.

1 - Countries where income inequality reduced

Income inequality declined in two countries: Turkey and Greece. In Turkey the Gini coefficient declined from 0.43 in the mid 1980s to 0.41 in the late 2000s. In the mid-1990s, the richest 10% had an average disposable income 21.9 times that of the poorest 10%, this ratio fell to 14.5 by the late 2000s. In Greece, inequalities are smaller than those in Turkey: the Gini coefficient decreased from 0.33 in late 1990s to 0.31 in the late 2000s. In Greece the ratio of disposable income of the richest 10% to the poorest 10% has decreased from 9.7 in the mid 1990s to 7.4 fifteen years later.

Trends in Income inequality in OECD countries
Countries where Income inequality reduced

Unity: Gini Coefficient. Source: OECD

198519901995200020052008
Greece-0.33**0.34*0.34*0.32*0.31
Turkey0.43-0.49-0.43*0.41

* Previous Year ** Year 1998

Ratio between the average disposable income of the 10 % richest and the 10 % poorest: Countries where Income inequality reduced

Unity: %. Source: OECD

Middle of the 1990sMiddle of the 2000sEnd of 2000s
Greece9.78.57.4
Turkey21.917.314.5

Lecture: In End 2000s in Greece, the 10 % the richest had an average disposable income 7.4 more high than of the 10 % the poorest

2 - Countries where income inequality remained stable

According to the OECD, France, along with Hungary and Belgium, is among the countries in which inequality has not changed significantly over the past 25 years. The Gini coefficient stabilized at around 0.27 in Hungary, and in Belgium the coefficient declined since the mid-1990s to 0.26.

Since 1985, the Gini coefficient in France has been roughly 0.30. Yet this overall stability hides other trends: there was a significant reduction in income inequality between 1985 and 1995, followed by an equally significant rise since 1995 (see chart above). Thus by the late 2000s, the richest 10% had an average disposable income 6.8 times that of the poorest 10%, the equivalent number was 6.1 in the mid-1990s. In fact, that France is not amongst the countries where income inequalities have increased over the last 25 years is mainly due to the decrease in inequality which ended 15 years ago... Since then there has been a net increase in inequality in France.

Trends in Income inequality in OECD countries:
Countries where income inequality remained stable

Unity: Gini Coefficient. Source: OECD

198519901995200020052008
France0.300.29**0.280.290.290.29
Hungary-0.27**0.29-0.290.27*
Belgium--0.290.290.270.26

* Previous Year ** Year 1998

Ratio between the average disposable income of the 10 % richest and the 10 % poorest: Countries where Income inequality little varied

Unity: %. Source: OECD

Middle of the 1990sMiddle of the 2000sEnd of 2000s
France6.16.66.8
Hungary6.56.66
Belgium8.15.85.4

Lecture: In End 2000s in France, the 10 % the richest had an average disposable income 6.8 more high than of the 10 % the poorest

h3 – Countries where income inequality increased significantly

In the majority of rich countries income inequality has increased over the past 25 years. Not surprisingly this is the case in the Anglo-Saxon countries: in the United States, the Gini coefficient rose from 0.34 in 1985 to 0.38 in 2008, and in the United Kingdom from 0.32 to 0.34. The ratio of the disposable income of the richest 10% to that of the poorest 10% has increased in the United States from 12.5 to 15.1; in the United Kingdom this ratio increased from 7.1 to 10.1.

Amongst the countries where inequality has increased over the past 25 years, some show a reduction in inequalities during recent years. This is particularly true of Mexico, the most unequal OECD member country, where the ratio of average living standards between the richest and poorest was 33.5 in the mid 1990s compared to 27 in the late 2000s. More surprisingly, income inequality also declined in recent years in the United Kingdom, Italy and Portugal, but not back to levels seen during the 1980s.

There is a new feature of inequality: it is increasing in the most egalitarian of rich countries, the Nordic countries of Europe. In Sweden the Gini coefficient increased from 0.21 to 0.26 in 25 years; the ratio of disposable incomes between the richest and poorest declines increased from 4.1 to 5.8. Inequality has also increased in Germany, so that inequalities are now higher than in France (see chart above).

Trends in Income inequality in OECD countries:
Countries where Income inequality increased significantly

Unity: Gini Coefficient. Source: OECD

198519901995200020052008
Anglo-Saxon countries
United-States0.340.350.360.360.380.38
United-Kingdom0.320.370.350.360.330.34
Australia--0.300.310.310.34
Canada0.290.290.290.320.320.32
North of Europe
Finland-0.220.22*0.250.27*0.26
Sweden0.210.210.21*0.240.24*0.26
Denmark0.220.230.210.230.230.25*
Norway0.220.230.240.250.280.25
West of Europe
Portugal-0.330.360.360.370.35
Italy0.31*-0.350.340.35*0.34
Germany0.250.260.270.260.300.30
The Netherlands0.260.290.280.290.280.29
Austria0.24**-0.240.250.260.26
Other countries
Mexico0.45*0.500.50*0.510.490.48
Japan0.30-0.32*0.340.33**-

* Previous Year ** Year 1998

Ratio between the average disposable income of the 10 % richest and the 10 % poorest: Countries where Income inequality increased

Unity: %. Source: OECD

Middle of the 1990sMiddle of the 2000sEnd of 2000s
Anglo-Saxon countries
United-States12.515.515.1
United-Kingdom7.18.910.1
Australia7.77.79.3
Canada7.28.89
North of Europe
Norway5.46.65.9
Sweden4.14.75.8
Finland4.25.25.5
Denmark44.65.2
West of Europe
Portugal10.512.410.1
Italy11.510.79.7
The Netherlands5.36.67.2
Germany66.67.1
Austria4.965.6
Other countries
Mexico33.525.827
Japan10.210.110.3

Lecture: In End 2000s in Sweden, the 10 % the richest had an average disposable income 5.8 more high than of the 10 % the poorest

4 – What is the situation today?

The differences between OECD countries remain significant. The most equal countries are still in northern Europe (Norway and Denmark have a Gini coefficient of 0.25, Sweden and Finland are at 0.26). The most unequal country is Mexico (0.48), followed by Turkey (0.41), the United States (0.38), Portugal (0.35) and the United Kingdom (0.34). With a Gini coefficient of 0.29, France is below the OECD average of 0.32. France is one of the most equal countries after Northern Europe. On average among OECD countries, the richest 10% have a disposable income about 9 times greater than the poorest 10%. This ratio is less than 6 in the Nordic countries, 15 in the United States, and 27 in Mexico.

However we must be cautious, the most recent data refers to 2008, before the economic crisis ... We do not have more recent figures on inequality, which are necessary to know the repercussions of the economic crisis . Whilst some countries have published more recent data, it is not possible to draw conclusions about trends across the OECD. This is particularly true of the United States where inequality continued to increase between 2008 and 2010 (see our article, Income inequality rising again in the U.S., in French).

Everywhere the crisis is straining the social fabric of rich countries and this primarily affects the poor. In countries such as Greece or Spain, unemployment, which primarily affects the less skilled and the poor, is remarkably high. Further, poverty rising in most rich countries. However, the fall in stock prices - and the wider financial crisis - has also impacted upon the incomes of the wealthiest in proportion to their reliance on income from interest on capital. Albeit that the consequences of the financial crisis are considerably less severe for these wealthy households ...

Footnotes

[1All data report disposable income, that is income after taxes and benefits. The OECD data should be interpreted with caution, as that accounting varies between countries. Further, data on very high incomes is known to be of poor quality. ] has increased amongst rich countries, according to the latest report published by the Organisation for Economic Cooperation and Development (OECD), Divided we stand: Why Inequality Keeps Rising. The average Gini coefficient[[The Gini coefficient compares real income distribution with a theoretical perfect equality (everyone has the same income). The closer the Gini is to zero, the more equal the distribution is. The closer the Gini is to one, the more unequal the distribution is. A Gini of 1 could mean a single individual receiving all the income and everyone else getting nothing.


- Article published in French on Observatoire des inégalités Website on the 13th of December 2011, translation by Anna Barford, from The Equality Trust.

- See also our interview with Michaël Förster from OECD, "Income inequalities have reached a level not seen for the past 30 years".


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6 February 2012

Themes : • Income • Summary Data

Data

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