By Alexander Apostolides on May 06, 2011

New OECD report - the rich are getting richer except in Greece, Turkey, Hungary and Belgium

The excellent blog and radio show "Planet Money" has brought to my attention that even through inequality within countries was rising in the boom, inequality is rising in the recession too.

Very interesting to note that Greece is not one of them - although i think this shows that recession hit everybody badly and the rich did not have the umbrella of government support that the poor have (and not that George Papandreou id following his "socialist principles")

According to the report there are three reasons for still rising inequality even in hard times:
I would however add a very important reason that is not mentioned by the report. The owners of capital were the big winners of globalisation as global wage demands were moderated through competition in the boom and they have successfully managed to protect their margins through the boom --> look at the support of stock markets and financial institution even of capital such as general motors. As a result owners of capital got away with sharing the less of the burden of the recession. Taxpaying public of Iceland, Ireland and the US know all about that. Sadly the UK is misled to focus on public spending and not on the reason that capital ownership was supported when it made bad decisions and is refusing to pay for the support or for future insurance that such things will not happen again.

The other three reasons acroding to the OECD for the rise of inequality:
[Quoting PLanet money]
"Why is this happening? Here are three possible answers from the report.


1. Robots, etc.

Trade barriers have come down. Technology has advanced. The combination of these two factors has disproportionately benefited highly-skilled workers. You want to be the guy building the robot, not the guy whose job got replaced by a robot.

2. Rich people marry rich people

Inequality is calculated by household, not by individual. And a few changes at the household level have driven some of the increase in inequality.

For one thing, it's become more common for people to choose spouses in their own income bracket. In other words, rich people are now more likely to marry other rich people, and poor people are more likely to marry other poor people. (There's a creepy term for this: "assortative mating.")

Single-parent households and single-person households without children have also become more common. Both groups are disproportionately likely to be at the bottom of the income ladder.

3. Free-wheeling job markets

State ownership of corporations has declined. Price controls have become less common. Minimum wages have fallen relative to average wages. Legal changes have made it easier to fire temporary wokers.

Taken together, these changes have actually improved overall employment levels. (Businesses are more likely to higher hire workers when they can pay lower wages and when it's easier to fire people.)

But despite the gain in employment, the same shifts may also have driven up inequality. In the words of the report, "the high-skilled reaped more benefits from a more dynamic economy.""

2 comments:

  1. Why won't anyone mention inflation? Inflation is a massive transfer of wealth to the investor class from the rest of the population. The more advanced the financial markets in a country, the worse it gets.

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  2. Not necessaries Mano. At the same, if wages do not keep up to inflation, then there is a mass transfer of income from wage earners to owners of capital (i.e. supermarket owners ect.) so the effect is ambiguous and varies case by case basis.
    However i don't think inflation comes into this anyway as you need high and more importantly unpredictable changes in the inflation rate to catch out people and have and transfer of wealth --> rich to poor or vice versa. We have not seen this phenomenon anywhere in the OECD.

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