The Income Inequality Boom: It's Real and It's Everywhere

By Derek Thompson

Income inequality is rising in almost every developed country. Don't go thinking America's middle class crisis is special.

A new report this week from the OECD has a message for both sides of the income inequality debate. To conservatives who claim it's a myth: Actually, income inequality is real and growing. To liberals who claim that Washington has been extraordinarily complicit in allowing income inequality to happen: Actually, there's nothing extraordinary or unique about the origins of America's wealth gap.

The most striking takeaway from the monster report is that all the criticisms leveled at Washington for enabling the explosion of income inequality in the U.S. are true of the rest of the developed world over the last 30 years. The following five points are borne out in the graphs below.

1) Union participation fell in most countries.

2) Financial, market, and product regulations eased across the world.

3) Real minimum wages and legislation to protect the rights of temporary workers declined almost everywhere.

4) Corporate tax rates fell in most countries even faster than in the U.S. (where carve-outs increased to reduce effective rates) and income security increasingly failed to offset unequal gains at the top. In OECD's words: "the stabilising effect of taxes and benefits on household income inequality decline" around the world.

5) Meanwhile trade between rich and poor countries increased, giving companies access to cheap labor (reducing wages toward the middle/bottom) while financial markets also globalized, increasing wages at the top.

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Even the demographic changes we consider uniquely American -- like the rise in single-parent households and the ascendance of educated female earners -- turn out to be not so unique. Across the OECD countries, there are more single-earner households with and without children today than ever before, and their share of the workforce rose from 15% in the late-1980s to 20% in the mid-2000s.

The following graph is a real print-and-saver. It's the answer to the question "Is culture or economics to blame for income inequality?" The answer is: both. Assortative mating (i.e.: rich people marrying rich people, and poor people marrying poor people) and the rise in single-parent households both contribute to the household earnings gap. But the vast majority of the change is coming from the labor market, the report concludes, and especially from middle-class men's awful three decades.

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This article available online at:

http://www.theatlantic.com/business/archive/2011/12/the-income-inequality-boom-its-real-and-its-everywhere/249561/