‘We Are Not Taxing the Very Wealthy Enough’: Runaway Inequality About to Get Worse
The United States' astronomical levels of economic inequality are poised to become further entrenched in the coming years.
The Great Recession has widened the gap between the developed world’s affluent and everyone else.
By Salvatore Babones
Since the Global Financial Crisis of 2007 inequality has been rising faster than ever before, according to a new report from the Organization for Economic Cooperation and Development.
According to the OECD, “inequality has increased by more over the past three years to the end of 2010 than in the previous twelve.” Things were already pretty bad in 2007, but inequality in America today exceeds the records last reached in the 1920s.
The United States has the fourth-highest level of inequality in the developed world, trailing only Chile, Mexico, and Turkey. That is to say, if you consider Chile, Mexico, and Turkey to be “developed” countries.[pullquote]The United States has the fourth-highest level of inequality in the developed world, trailing only Chile, Mexico, and Turkey.[/pullquote]
The OECD report measures inequality using a statistic called the Gini coefficient. The Gini coefficient runs from a minimum of 0 (perfect equality) to 100 (total inequality). Different countries have different ways of calculating Gini coefficients, but the OECD implements the same method across all countries to create comparable figures.
America’s Gini coefficient, as calculated by the OECD, stands at 38. Most developed countries have Gini coefficients that run much lower. The United Kingdom (35) is the developed country that comes closest to the United States, followed by Australia (33), Canada (32), France (30), Germany (29), Belgium (26), and Denmark (25).
No other developed country comes close to matching the levels of inequality that have arisen in the United States over the last forty years.
Another measure of inequality reported by the OECD tracks the 90/10 ratio. This is the ratio of incomes at the top (90th percentile) versus the bottom (10th percentile) of the workforce.
A typical professional with a postgraduate degree has an income that is higher than about 90 percent of the rest of the population. A typical unskilled worker has an income that is higher than about 10 percent of the population.
As a result, the 90/10 ratio is, roughly speaking, the ratio of what professionals like doctors and lawyers earn to what cleaners and fast food workers earn.[pullquote]Not surprisingly, the United States also has the fifth-highest incidence of poverty.[/pullquote]
The United States has the third-highest 90/10 ratio in the OECD. In the United States, successful professionals make roughly 16 times as much as unskilled workers.
To put this in numbers, while a mail room attendant at a major law firm may make $20,000 per year, a partner in the same law firm may make $320,000 per year.
Among OECD countries, only Mexico and Turkey have higher 90/10 ratios than the United States. The average 90/10 ratio across all OECD countries is 9.4. In Canada, just across the border, the ratio is 9. In other words, American professionals make 16 times as much as their office cleaners. Canadian professionals make 9 times as much.
In most European countries, 90/10 ratios hover in the range between 6 and 8.
Not surprisingly, the United States also has the fifth-highest incidence of poverty in the OECD, after Chile, Mexico, Turkey, and close U.S. ally Israel. All told, the United States now shows higher levels of inequality and poverty than such crisis-hit countries as Greece, Portugal, and Spain.
The global financial crisis has affected the whole world, but the ensuing Great Recession has been a surprisingly selective recession.[pullquote]Well-off Americans — those in the top 7 percent — have seen their wealth expand by 28 percent in recent years.[/pullquote]
Economies may have stagnated since 2007 across the North America, Europe, and Japan since 2007, but not for the rich. The rich have continued to get richer. Forbes reports that 2013 rates as a record year for billionaires and their fortunes.
Well-off Americans — those in the top 7 percent — have seen their wealth expand by 28 percent in recent years, according to a study from the Pew Research Center, while the rest have seen their wealth drop.
The Great Depression of the 1930s saw a different story. Back then, nearly everyone suffered. Of course, in the 1930s the poor suffered much more than the rich, but rich people ended up much worse off in 1939 than they had been in 1929. Maybe that’s why they were so keen to do something about it.
In today’s Great Recession the rich seem much more complacent. They can afford to be. We’re not experiencing a recession for the rich, only a recession for the rest.
This week’s OECD report shows that America isn’t the only country experiencing rising inequality in a time of economic stagnation. Inequality rose in 27 out of 33 countries the study spotlights. The difference: Inequality in the United States had already reached a record high in 2007.
The report ends with an ominous warning. The OECD’s new statistics only cover the period up through 2010. Things have likely gone, the OECD suggests, from bad to worse since then. The United States has certainly seen no let up in pressures on ordinary people and the poor.[pullquote]Things have likely gone, the OECD suggests, from bad to worse since 2010.[/pullquote]
We may not know how to restart economic growth, but we know how to fight inequality. We can raise the minimum wage, increase taxes on investment income, expand public education, and make it easier for workers to join unions. We can start now. We don’t have to wait for the next OECD report to show that America remains at the bottom.
Salvatore Babones is a senior lecturer in sociology and social policy at the University of Sydney and an associate fellow at the Institute for Policy Studies.