Inequality in OECD countries

By Kathy G.

A couple of weeks ago, I wrote a post about inequality in other developed countires. The gist of the post was that, during the period studied (1979 through 1994) inequality in the U.S. and the U.K. grew much more than inequality in other OECD countries in the dataset.

Several of my commenters wondered if other datasets might show the same results, particularly if the data were more recent. So I found this 2006 OECD working paper which uses data that goes up to 2001. Two time periods are looked at: 1978 to 1992/1993, and 1993/1994 to 2001. The data are sliced and diced in various ways, using different datasets and different measures of inequality. The paper also looks at income before and after taxes and transfers. Measures of inequality used include:

-- the Gini coefficient (where 0 would be perfect equality and 1 would be perfect inequality); and

-- the ratio of the top decile of income to the bottom decile.

What is the bottom line? As it turns out, the data in the earlier period do tell a different story from the data in the late period. According to data used in this report, by most measures, inequality in the U.S. increased in the pre-1993/1994 period, but results were mixed for the 1993/1994 to 2001 period. This occurred whether you look at wages or income. 

For example, in the pre-1993/94 period, income inequality increased in the  U.S. and  seven other countries and decreased in another seven countries, with mixed results for six  countries. In the later  period,  inequality increased in nine countries and decreased in four countries, with mixed results for the U.S. and five other countries.

So it appears that while inequality may have increased more in the U.S. in the 80s and the early 90s than it did in other countries, by the 90s the pattern in the U.S. was not noticeably different than in the other countries looked at.

Nevertheless, as of 2001, the rate of income inequality was still higher in the U.S than in all but two other countries included.

I wonder to what extent Larry Bartels' research might explain the  U.S. results. Bartels, as you may recall, has found that when Republicans are in power, those at the top of the income distribution experience larger income gains than those at the bottom, while when Democrats are in power, those at the bottom achieve larger gains. So could the increase in income inequality in the U.S. during the 80s and the early 90s have been driven by the Reagan and Bush administrations, while the more mixed picture in the 90s might be due to Clinton? It would be interesting to see what the post-2001 data say as well. But in terms of OECD data, this was the most recent comparative data of inequality I could find.

One more thing: this post looks only at within-country inequality, not between-country inequality. While within-country inequality is clearly rising in most developed nations, there's a debate as to whether between-country (global) inequality is rising as well. This UN report summarizes the debate, discusses the relationship between globalization and global inequality, and also makes an argument as to why global inequality matters.

Tables and chart after jump.   

Comments

[arbitrista]

Interesting. Is there any data on wealth or net assets, rather than simply income or wages?

And I also find in interesting that if the US and UK were the ones with the biggest inequality increases in the 1980's, they were also the two most neoliberal countries.

[Tom Geraghty]

I'd guess the relatively good US performance between '93 and '01 it has something to do with the fact that the latter half of the 1990s was the only period of genuine full employment the US had seen since the late 1960s. Very low unemployment rate (below 4%) and very high levels of labor force participation reduced wage inequality quite a bit.

Here's a handy table: http://www.epi.org/images/ACF00GQF4.gif

[Denis Drew]

Approaching 37% of American families below a more up-to-date poverty line?

The 50 percentile American family income in 2005 was $56,277 (technically, that's mean third-quintile in the Census tables).

The "minimum needs" table on p.44 of the 2001 book, Raise the Floor, maps out a very plausible poverty line for a family of three at $31,111 in 2005 dollars -- assuming health care is otherwise provided. Add $11,000 to purchase a family health plan and this plausible poverty line rises to $42,111 for a family of three (three years ago) -- the Raise' line computed by a totaling up of actual needs, not the half-century old federal formula of three times the price of an "emergency" diet.

(Raise' provides extensive explanations for its minimum needs parameters in Appendix B -- its tables cite Solutions for Progress. Average family size is 3.13 persons.)

The difference between second and third quintile averages ($35,000 and $56,000) runs roughly $1,000/percentile. So, needing to add $7,000 to $35,000 -- the 30 percentile mark -- to get $42,000 demarks 37%* of American families below poverty, at least without food stamps and other helps. Assuming all families were covered by comprehensive health insurance would still leave 26% of families on the wrong side of Raise's minimum needs line without helps -- don't know how many of those families between 26% and 37% are covered or by how much.

However perfectly accurate Raise's tables may or may not be, our media continuing to report the decades now, mis-measured federal poverty line of 12.5% without qualification is like the press of Columbus' era repeating without comment that the world is flat -- it makes no waves; but informed folks know better. :-)

[* Raise's tables allot $3,000 for yearly medical expenses for a family of three even if insured.]

[Denis Drew]

Approaching 37% of American families below a more up-to-date poverty line?

The 50 percentile American family income in 2005 was $56,277 (technically, that's mean third-quintile in the Census tables).

The "minimum needs" table on p.44 of the 2001 book, Raise the Floor, maps out a very plausible poverty line for a family of three at $31,111 in 2005 dollars -- assuming health care is otherwise provided. Add $11,000 to purchase a family health plan and this plausible poverty line rises to $42,111 for a family of three (three years ago) -- the Raise' line computed by a totaling up of actual needs, not the half-century old federal formula of three times the price of an "emergency" diet.

(Raise' provides extensive explanations for its minimum needs parameters in Appendix B -- its tables cite Solutions for Progress. Average family size is 3.13 persons.)

The difference between second and third quintile averages ($35,000 and $56,000) runs roughly $1,000/percentile. So, needing to add $7,000 to $35,000 -- the 30 percentile mark -- to get $42,000 demarks 37%* of American families below poverty, at least without food stamps and other helps. Assuming all families were covered by comprehensive health insurance would still leave 26% of families on the wrong side of Raise's minimum needs line without helps -- don't know how many of those families between 26% and 37% are covered or by how much.

However perfectly accurate Raise's tables may or may not be, our media continuing to report the decades now, mis-measured federal poverty line of 12.5% without qualification is like the press of Columbus' era repeating without comment that the world is flat -- it makes no waves; but informed folks know better. :-)

[* Raise's tables allot $3,000 for yearly medical expenses for a family of three even if insured.]

[Denis Drew]

Approaching 37% of American families below a more up-to-date poverty line?

The 50 percentile American family income in 2005 was $56,277 (technically, that's mean third-quintile in the Census tables).

The "minimum needs" table on p.44 of the 2001 book, Raise the Floor, maps out a very plausible poverty line for a family of three at $31,111 in 2005 dollars -- assuming health care is otherwise provided. Add $11,000 to purchase a family health plan and this plausible poverty line rises to $42,111 for a family of three (three years ago) -- the Raise' line computed by a totaling up of actual needs, not the half-century old federal formula of three times the price of an "emergency" diet.

(Raise' provides extensive explanations for its minimum needs parameters in Appendix B -- its tables cite Solutions for Progress. Average family size is 3.13 persons.)

The difference between second and third quintile averages ($35,000 and $56,000) runs roughly $1,000/percentile. So, needing to add $7,000 to $35,000 -- the 30 percentile mark -- to get $42,000 demarks 37%* of American families below poverty, at least without food stamps and other helps. Assuming all families were covered by comprehensive health insurance would still leave 26% of families on the wrong side of Raise's minimum needs line without helps -- don't know how many of those families between 26% and 37% are covered or by how much.

However perfectly accurate Raise's tables may or may not be, our media continuing to report the decades now, mis-measured federal poverty line of 12.5% without qualification is like the press of Columbus' era repeating without comment that the world is flat -- it makes no waves; but informed folks know better. :-)

[* Raise's tables allot $3,000 for yearly medical expenses for a family of three even if insured.]

[Denis Drew]

OPPS; SEEMS LIKE EVERY TIME I ATTEMPTED TO BACK UP TO THE PREVIOUS LINK AND HAD TO RETURN -- MY POST POSTED AGAIN!

:-] sheepish grin

[Thomas]

Interesting stuff about the artificial poverty line figure. In addition to that, with respect to Kathy's first post, I wonder if the statistical growth of wealth disparity in the US (and UK) as opposed to other "developed" countries has to do with the increasing tendency, since the 1980s, for the richest sectors of US society to be compensated with lucrative stock option packages?

According to Ted Nace's book "Gangs of America," (www.gangsofamerica.com) the average CEO of a large corporation earned 42 times the average worker's hourly pay in 1980; in 2001 this ratio had apparently soared to 411 times. (p.212) So the phenomenon of the super-rich CEO probably drives up wealth disparity, at least in the US statistics.

Nace claims that this trend has to do with the fact that more and more CEOs are receiving stock options, which in turn encourages corporate malfeasance to keep the price of stock artificially high (e.g. the Enron scandal) As it happens, CEOs generally face very little liability for this sort of thing since it is increasingly difficult to hold corporations accountable for their actions in a court of law.

[David Dzidzikashvili]

"CEO of a large corporation earned 42 times the average worker's hourly pay in 1980; in 2001 this ratio had apparently soared to 411 times..."

We have to also look generally at the system - American brand of capitalism is much different than European other countries' Capitalist system. Europe and Canada has more socialist approach to their economic and policy issues than the United States.