Angel Gurría, Secretary-General, OECD: A Wholesale Approach to Policymaking is t...

Sep 2013
Global, September, 18 2013 - Poor and rich countries alike must recognise that inequality goes beyond income, encompassing health, education and more.

The benefits of growth have not trickled down. Income inequalities have become one of the biggest global challenges, attracting growing attention not only in academic literature but also among policymakers globally. The world community is increasingly highlighting the pernicious influence of inequalities on social stability and development outcomes. High levels of inequality generate high costs for society, dampening social mobility, undermining the labour market prospects of vulnerable social groups, and creating social unrest.

Rich and poor countries alike suffer from this phenomenon. In high-income countries, the gap between rich and poor has widened over the past three decades. According to our latest study on inequality, the average income of the richest 10% of the population in OECD countries accounts for more than nine times the income of the poorest 10%.

In recent years, growth rates in developing countries and emerging economies as a group have been higher than those in developed countries, but this has generally not translated into better living standards for all. In Mexico and Chile, the ratio between the 10% richest and the 10% poorest of the population is approximately 27:1; in Brazil it stands at 50:1, while in South Africa it is more than 100:1.

The factors creating this situation are complex. The profound transformations society has undergone in recent years, largely as a result of globalisation and technological innovations, have brought about equally dramatic increases in salary for some and little change for others. While regulatory reforms have spurred growth, tax and benefits reforms have hampered an equitable sharing of wages.

The financial crisis has widened these disparities, with the inequality of market incomes growing. Social protection programmes have prevented gaps in household incomes from widening even further. However, with unemployment levels remaining high, there is increasing evidence that income inequalities continue to grow, and that in certain countries, poverty is also rising again.

Inequality goes beyond income. Today, employment in non-standard work arrangements, such as part-time or temporary work, represents 40% of total employment in OECD countries. Informal jobs are widespread in emerging and developing countries, which puts workers – especially those in dangerous or demeaning jobs – at a serious disadvantage.

Health and education are key, too. Data from 15 OECD countries shows that, at age 30, people with the highest level of education can on average expect to live six years longer than people with the lowest level of education (53 years as opposed to 47 years). Less educated, lower earning individuals live shorter lives, are less active in political activities, and have children with lower school performance. Disadvantaged social groups are more exposed to insecurity, crime and environmental degradation.

These trends need to be reversed. Inequalities must be effectively confronted, not only for ethical and moral reasons, but also because widening disparities have become an obstacle for growth. For both developed and developing countries, this will require reforming and implementing sensible development policies and viewing of societal progress differently.

A first step towards reducing income inequality is tackling unemployment, which in turn requires not only increasing the number and quality of jobs while ensuring they are more productive and rewarding, but also investing in education to promote the development of the skills that are driving innovation and economic growth. Access to services and opportunities is another area for policy action to deal with non-income inequality.

Reforms to tax and social protection programmes, on the one hand, and improvements to public services such as healthcare, on the other, will also go a long way towards providing equal opportunities for all citizens. It is no less important to reform social institutions that contribute to gender discrimination; and for many developing countries, reducing inequalities will also mean addressing the informal economy.

To design such policies, it is also useful to update our conceptions of poverty, growth, and progress. Rather than measuring living standards merely in terms of income and GDP, new dimensions have emerged to suggest a more balanced view of a society's wellbeing, including life satisfaction, personal safety, and work–life balance. Social cohesion and inclusive growth are additional crucial perspectives to incorporate into public policies, targeting a renewed social contract that reduces inequalities and benefits the whole of society.

The OECD addresses the inequality challenge in many areas of its work and activities. For example, through its New Approaches to Economic Challenges (NAEC) and its Inclusive Growth (IG) initiatives, which explore new ways to combine strong growth with a better distribution of income and non-income outcomes; through its development strategy, which aims at integrating the diverse perspectives, views, and realities of developing countries in OECD analyses to provide a coherent approach to development; through its gender strategy, which focuses on achieving equal access to education, employment and entrepreneurship; and by looking at the distribution of wellbeing in its Better Life initiative, to name but a few.

Today, as our countries gradually exit the crisis, implementing reforms to build more resilient economies, it is more important than ever to put the necessary instruments in place to help us tackle inequality and create fair and inclusive societies. At the OECD we stand ready to continue to help our member and partner countries to design, promote and implement Better Policies for Better Lives.


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