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Income Inequality Across Nations: Why You Should Care

Category: Financial News

Income inequality on a global scale is surging, and while the eye of the storm is focused on the United States because of the alarming gap and trend among the rich and the poor and it’s ironic impact on the so-called American Dream, many countries around the world are exhibiting wide income distribution gaps at a fast and ferocious rate.

A report by the Paris-based Organization for Economic Cooperation and Development (OECD) showed that while globally, household income increased overall by 1.7 percent yearly, not all income levels have benefited equally. The world’s bottom earners’ income grew annually by only 1.4 percent in the last 30 years, while the top earners grew by 2 percent.

Factors cited by the OECD for the surge in global income inequality include globalization, technological innovation and regulatory environments that have become relaxed  and have contributed to the growing gap between the rich and the poor.

Data aside and simply looking beyond national boundaries and listening to global economic woes, income inequality is a confirmed global phenomenon and it is getting worse. Let’s thumb through the income inequality scenarios around the world.

In Brazil, the plutocrats or the global super rich have always hugged the news amid poverty issues in the developing nation. In India, the poorest of the poor in Calcutta and the low-wage farmers in Bihar contrast with the image of technology and innovation being projected in Delhi or Mumbai.

In China, despite its emerging economy, the lack of relevant skills for rural workers to fit in industrial urban job requirements drives up the income disparity, and worsens low competitiveness and wage rates. Turkey’s low average education, low direct taxation and nil participation of women in the workforce were cited as just a few of the reasons why it still has the most unequal income distribution among European Union countries.

TRACKING THE GLOBAL INCOME INEQUALITY

The OECD, in its Factbook 2011-2012: Economic, Environmental and Social Statistics, reported on the income inequality data of 33 countries, with the best and worst-performing countries based on their GINI coefficient, as follows.

TOP 10 COUNTRIES WITH LEAST INCOME INEQUALITY GAP TOP 10 COUNTRIES WITH HIGHEST INCOME INEQUALITY GAP
1. Slovenia: 0.24 1. Mexico: 0.48
2. Denmark: 0.25 2. Turkey: 0.41
3. Norway: 0.25 3. United States: 0.38
4. Czech Republic: 0.26 4. Israel: 0.37
5. Slovak Republic: 0.26 5. Portugal: 0.35
6. Belgium: 0.26 6. United Kingdom: 0.34
7. Sweden: 0.26 7. Italy: 0.34
8. Finland: 0.26 8. Australia: 0.34
9. Austria: 0.26 9. New Zealand: 0.33
10. Hungary: 0.27 10. Japan: 0.33

GINI is a metric of inequality used to measure the income gap worldwide. It rates countries from 0 to 1, where zero indicates perfect equality and one indicates all wealth goes to a single individual. There is considerable variation and factors in income distribution and factors across countries.

WHAT IT MEANS BEYOND INCOME AND WEALTH

As the rankings showed, although income structure and distribution is in its core, income inequality is so much more complicated.

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High rates of income inequality might come as a no surprise for developing countries like Mexico or  Portugal, but data also shows the richest and most powerful countries like the U.S., U.K. and China belong to the same high gap category. Even countries with historically low income inequality index like Sweden, Denmark, and Germany are also experiencing gap increases over the past decades, and mitigating the surge is something that they should always watch out for.

Perhaps, the most important point to emphasize is that income inequality issue is not only an issue about the rich and the poor extremes. The middle-class has been left behind in the income growth benefit. In general, the highest 10 percent of wage earners have been leaving the middle earners behind faster compared to the pace of the lowest wage earners drifting away from the middle, the OECD report also noted. This is largely exhibited in the U.S., where income distribution for the past decades suggests that the American middle class has crumbled.

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GLOBAL EFFECTS OF WORSENING INCOME INEQUALITY

More than social class acts and financial equality, a look at varying degrees of income gaps around the world and the reasons given for its surge highlight its threat to global stability and solidarity.

As one of the most visible and sensitive reflections of drastic differences in living standards (and therefore, social injustice), income inequality can come at a great cost, especially when unchecked for long and remained viewed as just a “natural” economic phenomenon.

PUBLIC RESENTMENT. Stagnant growth in the quality of life and living often results to lower productivity especially for those who have been doing backbreaking work for a long time, and with no tangible benefit. Growing despair and dissatisfaction results to a myriad social problems, and like it or not, this has a negative effect in world economy.

GLOBAL MISUNDERSTANDING. High income inequalities showcase a waste of human resource with a large number of the citizenry out of work or stuck in low-paid, low-skilled jobs. Yet still, the inequality web transcends more than employment solutions and higher salaries. In this context, employment is a major issue and the shift of labor from one country to another has cropped up in many discussions, with overwhelming emotions on how employments are robbed and gained.

But never as simple as losing and winning jobs, income inequality involves the more complex issue of labor and capital. Actual jobs transferred from one location to another does not necessarily equate to greater income gains or automatic unemployment for the parties concerned. The global income inequality data and specific labor, income and living standards data for each country would prove otherwise. The same understanding is also called for in related issues of migrant jobs, competitiveness  and equality within one country and location.

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PUBLIC PROTEST. On the economics side, political and economic stability often precedes public action that can turn to violent protests. The dissatisfaction scale is heavy as the ones we’ve seen in the U.S. Occupy series, while serious consequences have resulted in the Middle East and North Africa protests.

GOVERNMENT PRESSURES. When public clamor turns to violence, a nation’s economy can be crippled even if just monetarily – stock markets closes and then crashes, work and business stops and commodities are hoarded in fear of the unknown, resulting to instant inflation increase. Governments often resort to iron-handed controls that hurts everyone.

The ill effects of a worsening income inequality on a global scale impacts negatively on one’s own country, on global policies and relations and even on a personal level. The global effects couldn’t get more personal when you think about your family, friends and loved ones (or a business interest or humanity advocacy) in a country beset with out-of-control inequality issues, and where it could lead.

By Louie Andre

B2B & SaaS market analyst and senior writer for FinancesOnline. He is most interested in project management solutions, believing all businesses are a work in progress. No stranger to small business hiccups and drama, having been involved in a few internet startups. Prior to his for-profit ventures, he has had managed corporate communications for a Kansas City-based Children International unit.

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