Chart via OECD
The gulf between the rich and the poor continues to grow exponentially and stands to “unravel the social contract in many countries,” according to a report released Monday by the Organization for Economic Cooperation and Development. In 17 out of 22 countries the OECD measured, income inequality has risen steadily for more than three decades and now sits at the highest levels in recent history. The study found the average income of the richest 10% of a population is nine times that of the poorest 10%. The income gap in “traditionally egalitarian countries” like Demark and Sweden rose from 5 to 1 in the 80’s to 6 to 1 today, and in America, the income gap is a staggering 14 to 1.
Inequality in wages and salaries is the largest contributing factor to the rise in income disparity. Other factors include an increase in part time work and declining collective bargaining agreements between workers and employers; disparity between workers with higher technological skills and those without; and regulatory reforms that created mainly low wage jobs.
In the United States, the richest 1% bring home an average of $1.3 million after taxes. The poorest 20% take in just $17,700. During the same period of time (1980 – 2008), the income tax rate dropped from 70% to 35%. Redistribution of income by taxes and benefits offset less than 10% of market income inequality. While the hours of low wage workers increased by more than 20% over the past decades, overall earnings inequality still rose “moderately” due to the low level of the minimum wage.
Talking heads in conservative circles and other defenders of the world’s richest people have jumped to the barricades to discredit this report and discount the idea that income disparity is so bad, or justify it with trite axiom’s such as “life isn’t fair.” The Wall Street Journal quickly pointed out that most of the stats in the report ended with data from 2007, adding that the top 1% lost (by their estimate) 6% of their earnings in the subsequent years. Townhall called income inequality a “myth of hysterical proportion,” and trotted out the usual Horatio Alger myths involving hard work in an unfair world.
Such criticisms are predictable, since the OECD recommends that governments “review their tax systems to ensure that wealthier individuals contribute their fair share of the tax burden.” In America specifically, the report also recommends things like creating more and better jobs that offer a “real chance” for people to escape poverty and “freely accessible and high-quality public services, such as education, health, and family care.” In other words, the OECD confirms much of what progressive critics have been saying for years and Occupy movements worldwide have highlighted today: if we want to see a real change in income disparity, the wealthiest need to pay their fair share and all people need equal access to higher quality public services. Until we not only recognize but begin to work against such vast income disparity, we can expect the social contract to continue to unravel.
