The rich keep getting richer. Should we be worried? -

The rich keep getting richer. Should we be worried?

A new OECD report takes on the widening income gap


Photograph by Flickr user seven_resist

That the gap between rich and poor has been widening in the U.S. and Britain is old news. What’s new, according to a recent OECD report (PDF), is that in the last 30 years the income gap has been growing even faster in unlikely places: Sweden, Denmark and Germany. Despite their notoriously generous welfare systems, the three have seen the split between top and bottom incomes grow faster than anywhere else in the OECD in the past decade. (Canada also registered a sizable increase in its Gini coefficient, the standard measure of income inequality.)

So why are the rich doing disproportionately better than everyone else? The report highlights an interesting trio of possible causes:

(a) Freer trade is pushing up the wages of skilled workers. This what trade theory predicts will happen in rich countries with increased trade integration. Technological progress is having a similar effect, putting a premium on education and skills, and making many low-skill jobs obsolete.

(b) Rich people are marrying rich people, thus significantly increasing the wealth of households in the top income bracket. In other words, doctors are marrying doctors—not nurses—and lawyers other lawyers—not housewives. I wonder if this is a bizarre side effect of women’s emancipation.

(c) Across the board, governments have been withdrawing from the markets, leading to lower minimum wages compared to average wages, sinking union membership, and fewer state-owned enterprises. Though these changes raised employment levels, they also likely weakened the redistributive mechanisms that used to restrain the gap between rich and poor.

The OECD says it will produce a more in-depth study to look at these factors, and how much they actually contributed to accelerating inequality. In the meantime, the new findings make for the topic of an interesting debate over whether the best way to tackle inequality is shutting our borders or thinking up a new and better way to ensure that the wealth actually trickles down.