Growing risk of inequality and poverty as crisis hits the poor hardest

Income inequality increased by more in the first three years of the crisis to the end of 2010 than it had in the previous twelve years, before factoring in the effect of taxes and transfers on income, according to new OECD report and data.
The analysis says that the welfare state has cushioned the blow for many but warns that further social spending cuts in OECD countries risk causing greater inequality and poverty in the years ahead.
After taxes and transfers, the richest 10 per cent of the population in OECD countries earned 9.5 times the income of the poorest 10 per cent in 2010, up from 9 times in 2007. The gap is largest in Chile, Mexico, Turkey, the United States and Israel, and lowest in Iceland, Slovenia, Norway and Denmark.
“These worrying findings underline the need to protect the most vulnerable in society, especially as governments pursue the necessary task of bringing public spending under control,” said OECD Secretary-General Angel Gurría.
“Policies to boost jobs and growth must be designed to ensure fairness, efficiency and inclusiveness. Among these policies, reforming tax systems is essential to ensure that everyone pays their fair share and also benefits and receives the support they need.”
Poorer households tended to lose more or gain less than richer households between 2007 and 2010. The top 10 per cent of the population did better than the poorest 10 per cent in 21 of the 33 countries where data are available.
Using pre-crisis income levels as a benchmark, the number of people living in poverty rose during the crisis in most countries. Taxes and benefits helped mitigate the overall increases, but the impact varied. Between 2007 and 2010, average relative income poverty in OECD countries rose from 13 to 14% among children and from 12 to 14% among youth, but fell from 15 to 12% among the elderly. Until 2010, in many countries, pensioners were largely protected while working households took the hit.
Child poverty has risen in 16 OECD countries since 2007, with increases exceeding 2 points in Turkey, Spain, Belgium, Slovenia and Hungary. This confirms a previously identified trend of young people and children replacing the elderly as the group most at risk of income poverty across the OECD.
Inequality will be one of the key issues discussed at this year’s OECD Forum, “Jobs, equality and trust”, from 28-29 May in Paris. More detail are available at www.oecd.org/forum.