May 21, 2015 5:24 am

Global income inequality holding back economic growth: OECD report

Latrese Williams of Dedham snuggled with her daughter, Desirae Shealey, 4, at a rally against income inequality in Boston on April 14, 2015.

Jessica Rinaldi/The Boston Globe via Getty Images
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PARIS – The widening gap between haves and have-nots in much of the developed world not only raises concerns about the fraying social fabric – it’s also dramatically holding back economic growth, according to a new global study.

Far from a rising tide lifting all ships, income inequality increases in good economic times as well as bad, Thursday’s report from the Organization for Economic Cooperation and Development says.

The OECD, a global watchdog, says that not only has social and political implications but also economic ones.

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“Put simply: rising inequality is bad for long-term growth,” the OECD concluded in its report, “In It Together, Why Less Inequality Benefits All.”

An increase in income inequality between 1985 and 2005 knocked 4.7 percentage points off cumulative growth between 1990 and 2010 on average across a range of its 34 member countries, the OECD said.

The problem is particularly acute in the U.S.: Between 2008 and 2013, real average household disposable income at the top 10 per cent rose 10.6 per cent, while in the bottom 10 per cent it fell 3.2 per cent, the OECD said. Austria, Denmark and France are other countries where rising income at the top has been accompanied by falling incomes at the bottom.

The average income of the top 10 per cent in the U.S. was 19 times higher than the bottom 10 per cent in 2013, far higher than the OECD average of 9.6 times. The U.S. figure rose from just 11 times higher 30 years ago, the OECD said.

The report adds fuel to the argument popularized in French economist Thomas Piketty’s 2014 bestseller “Capital in the Twenty-First Century.”

Policies to improve women’s treatment in the labour market and measures to reverse the growing share of low-quality, “dead-end” jobs are key to reducing income inequality and unlocking more economic growth, the OECD said.

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