/ world today news/ High unemployment, falling incomes and devaluation of assets have hit both the rich and the poor, but the latter have suffered more and become even poorer. State support and budgetary assistance have helped them not to become totally impoverished, but their share in the national wealth of developed countries has decreased dramatically.
Only at first glance it seems that the crisis has hit the rich and the poor equally hard: both incomes and the value of assets – real estate, securities, etc. – have fallen. But in reality it is not. In the first two years of the crisis, inequality in the member countries of the Organization for Economic Co-operation and Development /OECD/ grew sharply, and the worse the situation in the economy, the greater the differences between the rich and the poor became. The market income of households in 2007-2010 fell by an average of 2% per year, but the poor got poorer much faster.
Iceland, Greece, Estonia, Mexico, Spain and Ireland suffered the most from unemployment. Market household incomes in these countries fell by 5% or more.
Incomes of the self-employed shrank significantly in Mexico, Greece, Ireland and Japan.
Households in Iceland and Ireland also suffered from the contraction in capital income, but to a lesser extent.
At the same time, there were also countries in the OECD that registered income growth, for example, Poland and the Czech Republic, and to a lesser extent Slovakia, Germany and Austria.
Inequality only increased
But the burden of the consequences of the crisis was not distributed fairly.
In the first half of the crisis, income inequality increased significantly. It is measured using the Gini coefficient /0 – equal distribution of income, 1 – everything is concentrated in the hands of one person/. From 2007 to 2010, the ratio increased by 1.3 percentage points.
Prior to that, income inequality had been rising for virtually three decades in a row. After the crisis, this trend continued.
If we look at the 18 old OECD countries for which data are available over a longer period of time, inequality by market income has grown more strongly in them over the past three years than in the 12 years before that.
In 19 OECD countries, inequality rose by 1 percentage point or more between 2007 and 2010.
It has grown particularly strongly in countries that have experienced severe declines in median market income, such as Ireland, Spain, Estonia, Hungary, Japan and Greece. And also in France and Slovenia. Inequality has decreased in Poland and to some extent in the Netherlands.
Transfers and taxes helped cushion the shock of the crisis
The disposable income, i.e. what people can actually spend has actually fallen less than market incomes. Reductions in government transfers and taxes helped offset this effect. During the recession, many people began actively receiving unemployment benefits or other welfare benefits.
In 2008-2009, several OECD countries also offered fiscal stimulus packages for demand – this also helped to keep incomes from collapsing completely.
From 2007 to 2010, all OECD member countries increased their government transfers. The only exception was Turkey.
The more the country suffered from the crisis, the greater the impact of transfers on disposable income growth. In Ireland, New Zealand and Estonia, they grew so strongly that if other sources of income had not declined, then household incomes would have increased by 2% per year.
Government transfers grew significantly in Slovakia, one of the few countries where the average income of the population continued to grow between 2007 and 2010. In Finland, Luxembourg and Norway, the growth in government transfers was either higher or offset the decline in other incomes.
In addition, during a crisis, government revenues tend to shrink: and this means that a significant drop in household disposable income is avoided at the expense of lower taxes. This was implemented in New Zealand, Iceland, Greece and Spain. In Ireland, the Netherlands and Norway, taxes rose in parallel with falling incomes.
Taxes and transfers have also helped to maintain inequality, if we consider “disposable income” in particular. In 2007-2010, the Gini coefficient for disposable income was stable in almost all OECD countries.
Changes of more than 0.2 percentage points were registered in 10 countries. Inequality by disposable income fell in Iceland, Portugal, New Zealand and Poland, and rose in Spain, Slovakia and Sweden. In Israel, the Gini coefficient for disposable income grew more than the market one. And in the Czech Republic and Poland it fell more. In all countries, governments will no longer be able to control the growth of inequality with the help of taxes and transfers.
Income inequality rose in Spain, where the Gini coefficient rose from 0.31 to 0.34. In Iceland, which went through the crisis, surprisingly, inequality is decreasing. The same is happening in Portugal and New Zealand.
Countries differ significantly in their level of inequality
The difference between OECD countries in the level of inequality is significant. For Iceland, the Gini coefficient reaches 0.25. For Chile and Mexico, it is twice as high.
The lowest level of disposable income is found in the countries of Northern and Central Europe. The highest levels are in Israel, the USA, Chile, Mexico and Turkey.
The ratio between the average incomes of the poorest 10% and the richest citizens reaches 10:1 on average for the OECD. In Denmark, this ratio is 5:1, and in Mexico – 29:1.
Overall, the poorest 10% lost more from the recession and crisis and gained less from the subsequent economic recovery than the richest 10.
The average disposable income of the richest 10% in 2010 was little changed compared to 2007, and that of the poorest 10% decreased by 2%. These trends are particularly noticeable in Spain and Italy. The incomes of the poorest 10% of households in Mexico, Iceland, Greece, Ireland and Estonia fell by 5%. The only exceptions were Australia and Portugal, where the incomes of the poorest 10% grew more than the rich.
The average level of poverty in the OECD countries reaches 11%. In Denmark and the Czech Republic it is 6%, and in Turkey, Chile, Mexico and Israel 18-21%.
In general, in many countries, the level of poverty for the last two decades has increased. The crisis has had little impact on poverty. /BGNES
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The analysis was published on the specialized business site “Finmarket”.
Moscow / Russia
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