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OECD findings confirm the negative impact of income inequality on growth


  • TUAC Discussion Paper on Inequality, 2014pdf

The OECD’s findings on “trends in income inequality and its impact on economic growth”, released today, emphasize the urgency to introduce a comprehensive policy package to reduce income inequality. 

“Inequality undermines not only progress in health and education but also puts the social compact in many countries at risk. The OECD work shows that there is no serious evidence on the ‘trade-off’ between redistribution and growth. That implies that policies reducing income inequality don’t lower but may actually increase growth”, said John Evans, TUAC General Secretary.

“More equality is key to higher and more inclusive growth – the OECD research confirms that. It challenges the belief in ‘old school’ economics that inequality would be positively correlated with growth”, Evans adds.

OECD analysis suggests that income inequality has a negative and statistically significant impact on subsequent (medium-term) growth. It also reveals that the crisis did not alter the trend of increasing inequality. It was found that the top 10 per cent of the population did better than the poorest 10 per cent between 2007 and 2010 in two thirds of OECD countries.

Other OECD research has also revealed the effects of income capture by the ”top-1% percent”, which is not covered in today’s release:

“We need to shed light on the capture of much of the income gain in the majority of OECD countries by the top 1% per cent. The capture of the policy agenda by top income earners through their excessive domination of political funding is leading to a serious distortion of public policy and builds inequity into economic growth models. There is for instance a strong negative correlation between the top marginal tax rates and the pre-tax shares of top incomes across OECD countries”, Evans said.

The analysis of the determinants of inequality is ongoing. Future research needs to give particular attention to policies and institutions that push back against inequality including trade unions, collective bargaining and minimum wages.

The TUAC has released a policy paper on inequality for upcoming consultations with the OECD on December 15: http://www.tuac.org/en/public/e-docs/00/00/0F/95/document_doc.phtml

The OECD paper and a 4-page summary are available at www.oecd.org/social/inequality-and-poverty.htm

More information about OECD work on inequality is available at www.oecd.org/inequality.htm

More information about the OECD's New Approaches to Economic Challenges Initiative