OECD Report Says Economic Growth Hindered not by Rich getting Richer, but by Bottom 40% Losing Ground

Tuesday, January 06, 2015
(photo: CBS/AP)

The economic threat of income inequality to a nation’s well-being lies primarily with the large bottom segment of society not advancing, more so than its wealthy enjoying a disproportionate share of the income, according to a new report (pdf).

 

The study conducted by the Organization for Economic Cooperation and Development (OECD) looked at the gap between the rich and poor in 21 countries since 1990. It found that gap to be the widest it’s been in 30 years, with the top 10% of society earning nearly 10 times as much as the bottom 10%.

 

Due to that inequality, the economic growth of nearly all those 21 countries has suffered, according to the report. It also noted that the income gap damages skill development in children, particularly those in low-income families. Ultimately, said the researchers, a country’s economy is hurt by the poorest citizens being denied access to long-term quality education.

 

Of the nations examined in the study, Mexico was found to have the highest level of income inequality. New Zealand had the potential to achieve 44% economic growth between 1990 and 2010, but only reached 28% due to the wealth gap.

 

Nine other countries that missed out the most in terms of growth are Britain, Finland, Norway, the United States, Italy, Sweden, Spain, France and Ireland.

 

For policymakers looking to rectify this situation and improve economic growth, the focus should be on lifting up the bottom 40% of society, which includes much of the struggling middle class, says the study’s author, Federico Cingano.

 

“Many social policies are aimed at poverty alleviation,” Cingano wrote. “[However,] it is not just poverty (i.e. the incomes of the lowest 10% of the population) that inhibits growth.”

 

“…Policymakers need to be concerned about the bottom 40% more generally,” he continued, “including the vulnerable lower middle classes at risk of failing to benefit from the recovery and future growth. Anti-poverty programmes will not be enough,” Cingano wrote.

-Noel Brinkerhoff, Danny Biederman

 

To Learn More:

Trends in Income Inequality and its Impact on Economic Growth (by Federico Cingano, OECD Library) (abstract) (pdf)

How Corporations Are Cheating Millions of School Children Out of Billions in Education Funds (by Paul Buchheit, AlterNet)

How Inequality Made These Western Countries Poorer (by Rick Noack, Washington Post)

U.S. Income Inequality Reaches Record Extreme (by Noel Brinkerhoff, AllGov)

Comments

Nicko Thime 1 year ago
Things that make you go "Hmmmm?" Just last year, this very same group said the very opposite thing. http://www.oecd.org/newsroom/inequality-hurts-economic-growth.htm "Reducing income inequality would boost economic growth, according to new OECD analysis. This work finds that countries where income inequality is decreasing grow faster than those with rising inequality." What do you know, the paper I linked to and the "study" the author points to seem to contradict each other. What is even stranger is that BOTH seem to have been made public on December 9, 2014. Do you suppose they could be the very same study? What are the odds? The difference is that I quoted what OECD actually said about their findings, that "Reducing income inequality would boost economic growth", this author just might not have.

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