Tuesday, September 25, 2012

Inequality and the euro zone: Coincidence or cause?

September 25, 2012

Inequality is one of the great issues of the day and a key inspiration for the Occupy protesters. The bottom 10% of the US population has hardly seen any gain in real incomes over the last 25 years and this has been accompanied by a decline in social mobility; it is harder to escape the circumstances of your birth than it used to be. But this is a phenomenon that has occurred across the western world; an OECD report last year showed that, since the mid-1980s, the real incomes of the top decile have risen from 1.9% a year while those of the bottom decile have risen just 1.3%. The average Gini coefficient (a measure of inequality where 0 means income is equally shared and 1 means that one person has all the wealth) has risen from 0.29 to almost 0.32.

But looking through the data, one factor leaped out. Here is a rearranged version of the OECD's table 1, with the countries ranked by the gap between bottom decile and top decile income growth. So countries which have reduced inequality are at the top, those where inequality has increased are at the bottom.

The four countries at the top of the table are four of the PIGS which have been at the heart of the debt crisis. Is this a coincidence? The OECD report doesn't really discuss the reason for inter-country differences except to say that there may be a general convergence of Gini coefficients (Chile and Turkey are becoming less unequal, while the Scandinavian countries are becoming less equal).


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