OECD study: Concerns about inequality - but what does that actually mean?

Citizens' concern about social inequality is growing in developed countries.

At the same time, however, the assessments of their extent and the correct answers to reduce them diverge ever further.

These are key findings of a 160-page analysis published by the Paris-based OECD on Thursday - almost exactly three years after the first “yellow vests” protests flared up in France.

The industrialized countries organization classifies it as its “lead publication” on trends, causes and consequences of inequality and the measures required to reduce them.

It is the sixth publication of its kind and the first since the outbreak of the Corona crisis.

Niklas Záboji

Business correspondent in Paris

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Not all of the knowledge gathered therein is new.

The OECD economists cite a four-year-old survey according to which four out of five citizens in industrialized countries complain about growing income inequality.

The actual increase in the OECD average over the past three decades is also nothing new.

Recent surveys, however, show that the pandemic has further increased concerns.

"The Covid-19 crisis exposed and exacerbated inequalities," writes the OECD - although the short-term development of actual income inequality is mixed thanks to political measures in industrialized countries.

In some cases, the gap between high and low earners has even closed somewhat, which is also shown by a new study by the German Institute for Economic Research.

"There is evidence that the ongoing pandemic and the resulting recession have brought to light existing inequalities," the OECD report said.

After all, the perceived inequality was "high" even before the pandemic.

In the perception of many people in industrialized countries, social mobility has stalled.

The middle class complained about rising costs, stagnating incomes and insecure job prospects;

the average citizen in the 38-country OECD believes that only 4 in 10 poor children find their way out of poverty on their way to adulthood.

The demands do not keep pace everywhere

As the report further shows, however, the perceptions sometimes diverge.

If concrete sums were involved, tolerance of inequality would also have increased: While middle-class citizens were of the opinion in the late 1980s that top earners should earn three times as much as low-wage earners, nowadays four times as much are accepted as fair, too when the tolerance has decreased somewhat in the last few years.

At the same time, in some developed countries, concerns about inequality are noticeably greater than support for state intervention.

In other words: The dissatisfaction with a growing gap between rich and poor has grown, but the demands for more redistribution by the state are not keeping pace among the population in all countries.

This applies - not surprisingly - not least to those countries in which citizens are of the opinion that petty corruption among public officials and the misuse of public funds are widespread.

In addition, people from country to country think differently about the causes of social inequality.

Across the OECD, for example, there is less demand for more progressive taxation where people believe that poverty is mainly due to a lack of personal commitment.

"Big disagreements" about the extent

It is true that the OECD economists emphasize that the perception of most people tends to reflect the factual inequality - and that it does so better and better over time. But it is more of a tendency. For example, one in four people on average in OECD countries believe that around 10 percent of the richest households account for more than 70 percent of national income. Another quarter estimates the income share of the rich at 30 percent and thus significantly lower.

"As a result, people disagree on how much inequality should be reduced, but mainly because they perceive different degrees of inequality, not because they have different preferred degrees," the economists concluded. They point out that, interestingly, even among people with similar socio-economic characteristics, there is “major disagreement” about the extent of inequality.

The leading OECD publication makes it unmistakably clear that reducing social inequality is advisable. For economists, one thing is certain: the funds used for the economic recovery from the Corona crisis offer a great opportunity to launch reforms to equalize incomes. However, this is not necessarily a matter of fact among experts in the field. In an earlier annual report, the “economic wise men” in Germany advising the federal government concluded that the connection between inequality and economic growth was “not clear” empirically in the scientific literature, so that individual results should be interpreted “with considerable caution”.

It is said there that distribution conflicts could contribute to social and political instability.

This could especially be the case when parts of the population have little chance of success from the outset, for example because of limited access to the education system.

On the other hand, an unequal distribution of income and assets is associated with "a high incentive for individual efforts".