Ravi Zacharias in conversation : questions answers ideas consequences

390 Pages·2011·3.61 MB·English

Divided We Stand
WHY INEQUALITY KEEPS RISING
Contents
Editorial
An Overview of Growing Income Inequalities in OECD Countries: Main Findings
Special Focus: Inequality in Emerging Economies (EEs) Divided We Stand
Part I. How Globalisation, Technological Change and Policies Affect Wage and Earnings Inequalities
Chapter 1. Trends in Wage Inequality, Economic Globalisation and Labour Market Policies and Institutions
WHY INEQUALITY KEEPS RISING
Chapter 2. T he Impact of Economic Globalisation and Changes in Policies and Institutions on Rising Earnings
Inequality
Chapter 3. Inequality Between the Employed and the Non-employed
Part II. How Inequalities in Labour Earnings Lead to Inequalities in Household Disposable Income
Chapter 4. Hours Worked, Self-Employment and Joblessness as Ingredients of Earnings Inequality
Chapter 5. Trends in Household Earnings Inequality: The Role of Changing Family Formation Practices
Chapter 6. From Household Earnings to Disposable Household Income Inequality
Part III. How the Roles of Tax and Transfer Systems Have Changed
Chapter 7. Changes in Redistribution in OECD Countries Over Two Decades
Chapter 8. The Distributive Impact of Publicly Provided Services
Chapter 9. Trends in Top Incomes and Their Tax Policy Implications
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Divided We Stand
WHY INEQUALITY KEEPS RISING
This work is published on the responsibility of the Secretary-General of the OECD. The
opinions expressed and arguments employed herein do not necessarily reflect the official
views of the Organisation or of the governments of its member countries.
This document and any map included herein are without prejudice to the status of or
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and to the name of any territory, city or area.
Please cite this publication as:
OECD (2011), Divided We Stand: Why Inequality Keeps Rising, OECD Publishing.
http://dx.doi.org/10.1787/9789264119536-en
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FOREWORD
Foreword
C
oncerns of growing income inequality loom large in public debate and policy discussion. Indeed,
in most OECD countries and many emerging economies, the gap between rich and poor has widened
over the past decades. This occurred even when countries were going through a period of sustained
economic growth prior to the Great Recession. Today, the economic crisis is putting additional
pressure on the distribution of incomes. Greater inequality raises economic, political and ethical
challenges as it risks leaving a growing number of people behind in an ever-changing economy.
The 2008 OECD report Growing Unequal? documented and analysed the key features and
patterns of trends in income inequality in OECD countries. This publication Divided We Stand:
Why Inequality Keeps Rising is the follow-up to this report. It analyses the underlying forces and
key drivers of rising inequality and discusses policies which are most promising to counter it.
Divided We Stand examines whether and how trends in globalisation, technological change and
institutions and policies translated into wage and earnings inequality. It analyses how inequality in
labour and capital markets translates into household income inequality, looking also at factors such
as the impact of changing family structures and changes in other income sources. Finally, Divided
We Stand examines the effects of tax and benefit systems as well as public services in smoothing
market-based inequality and how these effects have changed over time.
This book is the outcome of a collective effort and reflects the contribution of a team of analysts
largely from the OECD Social Policy Division of the Directorate for Employment, Labour and Social
Affairs. The overview and summary was prepared by Michael Förster; the special focus on emerging
economies by Alessandro Goglio and Ana Llena-Nozal; Chapters1, 4 and 5 by Wen-Hao Chen and
MichaelFörster; Chapters2, 3 and6 by Wen-Hao Chen, Michael Förster and Ana Llena-Nozal;
Chapter7 by Herwig Immervoll, currently on leave to the World Bank, and Linda Richardson;
Chapter8 by Michael Förster and Gerlinde Verbist (University of Antwerp); and Chapter9 by
Stephen Matthews (OECD Centre for Tax Policy and Administration).
Michael Förster led the team and co-ordinated the project. Monika Queisser, Head of the OECD
Social Policy Division, supervised the preparation of this report and provided useful comments on
various drafts. PaulineFron provided statistical assistance and prepared all tables and figures for
publication. MarlèneMohier prepared the manuscript for publication and KenKincaid contributed to
the editing of the report.
The analyses in this report rely partly on the standardised data on household income distribution
and poverty prepared by national experts, many of whom have also provided advice on country-specific
results. They are too numerous to mention here but details can be found on the OECD inequality
website www.oecd.org/els/social/inequality. The collection of these data has been co-ordinated by
Michael Förster and Maxime Ladaique. The report makes use of many other data, in particular the
OECD earnings database (www.oecd.org/employment/database) and the micro data from the
Luxembourg Income Study (LIS) (www.lisdatacenter.org). Discussions of data methodology and other
supporting material for this report can be found on the website www.oecd.org/els/social/inequality.
DIVIDED WE STAND: WHY INEQUALITY KEEPS RISING © OECD 2011 3
FOREWORD
We are very grateful to John P. Martin and Stefano Scarpetta, Director and Deputy Director of
Employment, Labour and Social Affairs at the OECD for their guidance and extensive comments on
various versions of the report. The report also benefited from comments received by colleagues in and
outside the OECD. We gratefully acknowledge the many suggestions provided by members of the
Working Party on Social Policy and the Employment, Labour and Social Affairs Committee of the
OECD as well as by colleagues from various OECD Directorates: the Development Centre, the
Economics Department, the Directorate for Employment, Labour and Social Affairs, the Directorate
for Science, Technology and Industry and the Trade and Agriculture Directorate. Finally, we are
indebted to Professors Anthony B.Atkinson, Markus Jäntti and Brian Nolan for their comments and
suggestions on the first draft of this report discussed in a peer review seminar in May2011.
4 DIVIDED WE STAND: WHY INEQUALITY KEEPS RISING © OECD 2011
TABLE OF CONTENTS
Table of Contents
Acronyms, Country ISO Codes and Conventional Signs . . . . . . . . . . . . . . . . . . . . . . . . . 15
Editorial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
An Overview of Growing Income Inequalities in OECD Countries: Main Findings . . 21
1. The big picture: inequality on the rise in most OECD countries . . . . . . . . . . . . 22
2. What drives growing earnings and income disparities?. . . . . . . . . . . . . . . . . . . 28
3. Lessons for policies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Annex A1. Trends in Different Income Inequality Measures . . . . . . . . . . . . . . . . 44
Special Focus: Inequality in Emerging Economies (EEs). . . . . . . . . . . . . . . . . . . . . . . . . . 47
1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
2. Inequality patterns in EEs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
3. Economic factors behind inequality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
4. Institutional arrangements shaping redistribution. . . . . . . . . . . . . . . . . . . . . . . 58
5. Policy challenges for tackling inequality while creating more
and better jobs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Annex 0.A1. Main Features of Social Protection Systems in EEs . . . . . . . . . . . . . . . 81
Part I
How Globalisation, Technological Change andPolicies Affect Wage
andEarnings Inequalities
Chapter 1. Trends in Wage Inequality, Economic Globalisation and Labour
Market Policies and Institutions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
1.1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
1.2. Trends in wage dispersion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
1.3. Globalisation: recent trends in global economic developments . . . . . . . . . . . . 88
1.4. Trends in labour market policies, institutions and regulations . . . . . . . . . . . . 99
1.5. Summary and conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106
DIVIDED WE STAND: WHY INEQUALITY KEEPS RISING © OECD 2011 5
TABLE OF CONTENTS
Chapter 2. The Impact of Economic Globalisation and Changes in Policies
andInstitutions on Rising Earnings Inequality . . . . . . . . . . . . . . . . . . . . . . . . 109
2.1. Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
2.2. Effects of economic globalisation, technological change, andchanges
inpolicies and institutions on wage inequality. . . . . . . . . . . . . . . . . . . . . . . . . . 111
2.3. Effects on the top and the bottom of the wage distribution:
tail-sensitive analyses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123
2.4. Summary and conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125
Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128
Annex 2.A1. Data Sources and Variables. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133
Annex 2.A2. Changes in the Skill Wage Gap and the Role of Sectors . . . . . . . . . . . 136
Chapter 3. Inequality Between the Employed andthe Non-employed . . . . . . . . . . . . . 143
3.1. Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144
3.2. Earnings inequality among the whole working-age population . . . . . . . . . . . . 145
3.3. Linking globalisation and developments in policies and institutions
tochanges in earnings inequality among the working-age population. . . . . . 151
3.4. Globalisation, regulatory reforms and changes in overall earnings
inequality: bringing together the evidence. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154
3.5. Summary and conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156
Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159
Annex 3.A1. Data for the Analyses in Section3.2 . . . . . . . . . . . . . . . . . . . . . . . . . . . 161
Annex 3.A2. Additional Tables and Figures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163
Part II
How Inequalities in Labour Earnings Lead to Inequalities
inHousehold Disposable Income
Chapter 4. Hours Worked, Self-Employment andJoblessness as Ingredients
ofEarnings Inequality. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167
4.1. Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168
4.2. Trends in inequality among full-time workers and all workers . . . . . . . . . . . . 169
4.3. Compositional changes and their impact on trends in earnings inequality. . 171
4.4. Earnings inequality and joblessness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179
4.5. Summary and conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 181
Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 184
Annex 4.A1. Additional Tables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185
Annex 4.A2. Accounting for the Effect of Joblessness on Earnings Inequality
Among the Whole Working-Age Population. . . . . . . . . . . . . . . . . . . . . 189
6 DIVIDED WE STAND: WHY INEQUALITY KEEPS RISING © OECD 2011
TABLE OF CONTENTS
Chapter 5. Trends in Household Earnings Inequality: The Role of Changing Family
Formation Practices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193
5.1. Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 194
5.2. Levels and trends in household earnings inequality . . . . . . . . . . . . . . . . . . . . . 195
5.3. The determinants of changes in household earnings inequality:
labourmarket and demographic factors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 198
5.4. Explaining changes in household earnings inequality. . . . . . . . . . . . . . . . . . . . 204
5.5. Summary and conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 211
Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 212
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 214
Annex 5.A1. Additional Tables and Figures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 216
Chapter 6. From Household Earnings toDisposable Household Income Inequality. . 225
6.1. Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 226
6.2. Inequality: trends in the distribution of market and disposable income. . . . . 227
6.3. How much of inequality is explained by each of the income sources? . . . . . . 236
6.4. Redistributive effects of marginal increases in individual income
components. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 243
6.5. Summary and conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 245
Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 246
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 247
Annex 6.A1. Additional Tables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 248
Part III
How the Roles of Tax and Transfer Systems HaveChanged
Chapter 7. Changes in Redistribution inOECD Countries Over Two Decades . . . . . . . 261
7.1. Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 262
7.2. Measured changes in redistribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 264
7.3. The role of policy reforms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 281
7.4. Summary and conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 292
Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 293
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 295
Annex 7.A1. Additional Tables and Figures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 299
Chapter 8. The Distributive Impact of Publicly Provided Services. . . . . . . . . . . . . . . . . . 309
8.1. Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 310
8.2. Defining public social services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 312
8.3. The overall distributive impact of publicly provided services
onthedistribution of income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 314
8.4. The distributive impact of particular public services . . . . . . . . . . . . . . . . . . . . . 318
8.5. The distributive impact of public services over time . . . . . . . . . . . . . . . . . . . . . 329
8.6. Summary and conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 330
Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 331
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 332
Annex 8.A1. How to Account for Publicly Provided Services inHousehold
Income: Conceptual andMethodological Issues . . . . . . . . . . . . . . . . . 335
Annex 8.A2. Additional Tables and Figures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 340
DIVIDED WE STAND: WHY INEQUALITY KEEPS RISING © OECD 2011 7
TABLE OF CONTENTS
Chapter 9. Trends in Top Incomes and Their Tax Policy Implications . . . . . . . . . . . . . 343
9.1. Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 344
9.2. Data on top incomes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 345
9.3. Trends in the share of top incomes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 346
9.4. Explanations of the trends in top incomes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 355
9.5. Tax policy implications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 361
9.6. Summary and conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 369
Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 370
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 371
Annex 9.A1. Characteristics and Limitations of Income Data
fromTaxReturns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 374
Annex 9.A2. Additional Data and Figures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 379
List of figures
1. Income inequality increased in most, but not all OECD countries. . . . . . . . . . . 24
2. Inequality increased in most countries over the long term, but recently fell
in some high-inequality countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
3. The integration of trade and financial markets and technological progress
grew rapidly, especially from the mid-1990s. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
4. Product and labour market regulations and institutions became weaker . . . . 30
5. Levels of earnings inequality are much higher when part-timers
and self-employed are accounted for. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
6. Hours worked declined more among lower-wage workers. . . . . . . . . . . . . . . . . 34
7. Demographic changes were less important than labour market trends
inexplaining changes in household earnings distribution. . . . . . . . . . . . . . . . . 35
8. Capital income became a greater source of household income, butmainly
in rich households. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
9. Market incomes are distributed much more unequally thannetincomes. . . . 36
10. While market income inequality rose, redistribution through tax/transfers
became less effective in many countries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
11. In-kind benefits from public services are redistributive
in all OECD countries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
12. The share of top incomes increased, especially in English-speaking
countries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
0.1. GDP per capita . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
0.2. Change in inequality levels, early 1990s versus late2000s. . . . . . . . . . . . . . . . . . 51
0.3. Change in real household income by quintile. . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
0.4. Inequality in urban and rural areas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
0.5. Informality in emerging economies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
0.6. PISA scores in mathematics, 2009 (proficiency levels). . . . . . . . . . . . . . . . . . . . . 57
0.7. Earnings inequality, decile ratios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
0.8. Public social expenditure in OECD countries and emerging economies. . . . . . 59
0.9. Unemployment benefit recipiency rates in OECD countries
andemerging economies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
0.10. Employment protection legislation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
0.11. Minimum wages in G20countries, 2009. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
8 DIVIDED WE STAND: WHY INEQUALITY KEEPS RISING © OECD 2011