Widespread increases in income inequality have raised concerns about their potential impact on our societies and economies.
New Oecd research shows that when income inequality rises, economic growth falls.
One reason is that poorer members of society are less able to invest in their education.
Tackling inequality can make our societies fairer and our economies stronger.
Key findings:
- The gap between rich and poor is now at its highest level in 30 years in most OECD countries;
- This long-term trend increase in income inequality has curbed economic growth significantly;
- While the overall increase in income inequality is also driven by the very rich 1% pulling away, what matters most for growth are families with lower incomes slipping behind;
- This negative effect of inequality on growth is determined not just by the poorest income decile but actually by the bottom 40% of income earners;
- This is because inter alia people from disadvantaged social backgrounds underinvest in their education;
- Tackling inequality through tax and transfer policies does not harm growth, provided these policies are well designed and implemented;
- In particular, redistribution efforts should focus on families with children and youth, as this is where key decisions on human capital investment are made and should promote skills development and learning across people’s lives.
December, 2014
