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OECD Centre for

Opportunity and Equality

Evidence-based, policy-oriented research on inequalities

Four policy avenues to reduce income inequality in OECD countries

Brussels, 10th October 2016, DG RTD

Céline Thévenot

OECD, Directorate for Employment, Labour and Social Affairs

OECD/COPE

http://oe.cd/cope 2

Large country differences in inequality

Source: OECD Income Distribution Database (www.oecd.org/social/income-distribution-database.htm), Note: the Gini coefficient ranges from 0 (perfect equality) to 1 (perfect inequality). Income refers to cash disposable income adjusted for household size. Data refer to 2013 or latest year available.

OECD/COPE

http://oe.cd/cope 3

Rather than continuous long-term trends, “episodes” of inequality increases

Long-term trends in inequality of disposable income (Gini coefficient)

Source: OECD (2015), “In It Together”, http://www.oecd.org/social/in-it-together-why-less-inequality-benefits-all-9789264235120-en.htm OECD Income Distribution Database, www.oecd.org/social/income-distribution-database.htm. Note: Income refers to disposable income adjusted for household size.

OECD/COPE

http://oe.cd/cope 4

No light at the end of the tunnel

Economic recovery has not reduced inequality

-2,5%

-2,0%

-1,5%

-1,0%

-0,5%

0,0%

0,5%

1,0%

Bottom 10% Median income Top 10%

2007-2010 2010-2014 2007-2014

Average annual growth of disposable income, OECD-34

OECD/COPE

http://oe.cd/cope 5

2

3

1

4 policy avenues to tackle high inequality

Promote employment and good-quality jobs

Strengthen quality education and skills development

Foster women’s participation in economic life

4 Improve the design of tax and benefit systems for a more efficient redistribution

OECD/COPE

http://oe.cd/cope 6

Non-standard work contributed to job polarisation

Percentage change in employment shares by task category, Mid 1990s - latest year

Source: OECD (2015), “In It Together”, http://www.oecd.org/social/in-it-together-why-less-inequality-benefits-all-9789264235120-en.htm Note: Abstract occupations (ISCO88: 12-34); Routine (ISCO88: 41-42, 52, 71-74, 81-82 and 93); Non-routine manual (ISCO88: 51 83 and 91). The overall sample restricted to workers aged 15-64, excluding employers as well as students working part-time.

-25

-20

-15

-10

-5

0

5

10

15

20

25

Non-routine Routine Abstract

Standard Work Non-standard Work

OECD/COPE

http://oe.cd/cope 7

More women in the workforce lowers inequality

Impact of changes in households employment patterns on Gini coefficient (mid-1980s-mid2000s)

Source: Luxembourg Income Study (LIS) data

-0,008

-0,014

Change in Gini

- 0,050

- 0,040

- 0,030

- 0,020

- 0,010

0,000

0,010

0,020

0,030

0,040

0,050 Change in households withfemale in skilled job

Combined wage effects

Change in households with FT,FY female worker

Change in households withfemale worker

Inequality would have been higher if women’s employment had remained the same as 20 years ago

OECD/COPE

http://oe.cd/cope 8 Note: Low PEB: neither parent has attained upper secondary education; Medium PEB: at least one parent has attained secondary and post-secondary, non-tertiary education; High PEB: at least one parent has attained tertiary education. The bars indicate 95% confidence intervals.

Average years of schooling by parental educational background (PEB) and inequality

11

12

13

14

20 25 30 35

Year

s o

f sc

ho

olin

g

Inequality (Gini coefficient)

Low PEB Medium PEB High PEB

Source: OECD (2015), “In It Together”

Inequality hinders lowers social mobility

OECD/COPE

http://oe.cd/cope 9

Inequality of market and disposable income, working-age population

Redistribution lowers inequality

0,20

0,25

0,30

0,35

0,40

0,45

0,50

0,55

Combined impact of cash transfers and taxes Impact of taxesImpact of cash transfers Gini at disposable income, after transfers and taxes (↗) Gini at market income, before transfers and taxes

OECD/COPE

http://oe.cd/cope 10

Redistribution has weakened recently

Inequality before and after redistribution though transfers and taxes, respectively, 2007=100, working-age population, OECD average

96

98

100

102

104

106

108

2007 2008 2009 2010 2011 2012 2013

Market income inequality(before transfers and taxes)

Gross income inequality (aftertransfers and before taxes)

Disposable income inequality(after transfers and taxes)

OECD/COPE

http://oe.cd/cope 11

2

3

1

Designing policy packages to tackle high inequality and promote social cohesion

Promote employment and good-quality jobs

Strengthen quality education and skills development

Foster women’s participation in economic life

4 Improve the design of tax and benefit systems for a more efficient redistribution

OECD/COPE

http://oe.cd/cope 12

What’s next?

Middle class

Intergenerational

mobility

Intragenerationnal

income mobility

How to prevent the middle

class from sliding?

Education, health, occupation,

relative poverty, wealth.

Does the passage of time

smooth income inequality?

OECD/COPE

http://oe.cd/cope 13

Thank you for your attention!

celine.thevenot@oecd.org

www.oecd.org/social/inequality-and-poverty.htm

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