Countries With The Widest Gap Between Rich And Poor

The widening gap between the rich and poor is not just an American problem. According to a new study by the Organisation for Economic Co-operation and Development, income inequality in most economically developed countries is the worst it has been in nearly 25 years. 24/7 Wall St. reviewed the OECD’s report and identified the 10 countries with the worst income inequality.

“In OECD countries today, the average income of the richest 10% of the population is about nine times that of the poorest 10%,” the study reports. And in many of these countries, income inequality is increasing as more and more wealth is concentrated in the hands of the rich.

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In some countries the gap is even more pronounced. The income of the bottom 10% of earners has actually declined while the income of the top 10% has increased. In Israel, Turkey and the United States, the average income of the top 10% is 14 to one compared to the bottom 10%. In Mexico and Chile, it is an astounding 27 to one.

In many of the countries with the greatest levels of income inequality, there is also very limited public social expenditure. Seven of the 10 countries on this list spend below the OECD average — as a percentage of GDP — on social benefits.  For example, the share of unemployed who receive benefits in both Chile and Turkey are less than half the OECD average. Mexico has no unemployment insurance at all.

The 10 countries on this list are ranked by their levels of income inequality using the Gini coefficient, where zero represents perfectly equal distribution and one represents maximum inequality. Also included are the change in income inequality from the mid-1980s, employment rates and the change in income for the rich and poor. While inequality has worsened in most countries, the situation has improved in some. Even in these countries, however, inequality remains at historically high levels.

10. New Zealand
> Gini coefficient: 0.330
> Change in income inequality: +21.8%
> Employment rate: 72.3% (6th highest)
> Change in income of the rich: +2.5% per year
> Change in income of the poor: +1.1% per year

New Zealand performs well by a number of economic indicators, including employment, where it ranks sixth highest out of the 27 OECD countries in the study. Income in New Zealand has increased across the board since the 1980s, but the percentage annual increase among the top decile was more than twice as great as among the bottom decile. Among OECD nations, capital income in New Zealand as a percentage of total household income grew the most for the richest group and decreased substantially for the poorest group.

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9. Australia
> Gini coefficient: 0.336
> Change in income inequality: +8.7%
> Employment rate: 72.4% (5th highest)
> Change in income of the rich: +4.5% per year
> Change in income of the poor: +3% per year

The difference in the annual increase in income between the richest and the poorest in Australia from the mid-1980s to 2008 is one of the largest among all countries in the study. The average annual change in income for the bottom decile was 3%, compared with the top decile’s 4.5%. This caused the Gini coefficient to increase 8.7% over those years. Australia has one of the highest minimum wages, as a percentage of average wages, of all the G-20 countries. The country also has a fairly high employment rate.

8. Italy
> Gini coefficient: 0.337
> Change in income inequality: +9.0%
> Employment rate: 56.9% (3rd lowest)
> Change in income of the rich: +1.1% per year
> Change in income of the poor: +0.2% per year

In Italy, income inequality increased 9% between 1985 and 2008. According to the OECD, earnings for the wealthiest 10% increased an average of 1.1% each year, while earnings for the poorest 10% grew just 0.2% annually. Italy has the third-lowest employment rate among the 27 nations in the study, with just 56.9% of working-age adults holding jobs in 2008. Since 1985, unemployment benefits declined by more than 50% to one of the lowest recipient rates in the OECD.

7. United Kingdom
> Gini coefficient: 0.345
> Change in income inequality: +7.9%
> Employment rate: 70.3% (10th highest)
> Change in income of the rich: +2.5% per year
> Change in income of the poor: +0.9% per year

The UK had one of the biggest increases in the income gap between the wealthy and the poor over the past two and a half decades. On average, the income of the bottom 10% increased 0.9%, while income for the top 10% grew 2.5% per year. After Israel and Australia, the UK had the third-largest difference between the top decile’s annual income increase and the bottom decile’s increase. The income ratio of the wealthiest citizens to the poorest citizens is 10 to one.

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6. Portugal
> Gini coefficient: 0.353
> Change in income inequality: n/a
> Employment rate: 65.6% (14th highest)
> Change in income of the rich: +1.1% per year
> Change in income of the poor: +3.6% per year

Despite its high Gini coefficient, Portugal’s income inequality has been improving. From the mid-1980s to the late 2000s, the incomes of the country’s poorest increased an average 3.6% each year. The incomes of the richest grew only 1.1% annually. The country has increased its efforts to redistribute income since the mid-1980s, such as through benefits for the unemployed.

5. Israel
> Gini coefficient: 0.371
> Change in income inequality: +13.8%
> Employment rate: 60.2% (7th lowest)
> Change in income of the rich: +2.4% per year
> Change in income of the poor: -1.1% per year

In Israel, the average income of the bottom 10% actually decreased between 1985 and 2008. On average, income of the top 10% increased 2.4% per year. During the same period, income of the poorest 10% declined 1.1% each year — the worst rate of decline among the 27 nations studied. Only one other country, Japan, saw its bottom decile’s income fall as well. According to the OECD, the top 10% of Israel’s residents make 14 times more than the poorest 10%.

4. United States
> Gini coefficient: 0.378
> Change in income inequality: +12.1%
> Employment rate: 66.7% (13th highest)
> Change in income of the rich: +1.9% per year
> Change in income of the poor: +0.5% per year

Inequality in the United States increased significantly from 1985 to 2008, putting it in the fourth-worst spot in the study. As with many other countries in which income inequality has increased, average income has gone up across all income groups since the mid-1980s, but not equally. The income of the wealthiest 10% has greatly outpaced the poorest 10%. The share enjoyed by the top 0.1% in total pretax income quadrupled in the 30 years to 2008.

3. Turkey
> Gini coefficient: 0.409
> Change in income inequality: -5.8%
> Employment rate: 46.3% (the lowest)
> Change in income of the rich: +0.1% per year
> Change in income of the poor: +0.8% per year

Turkey was one of the few OECD countries to experience a narrowing of the gap between rich and poor, with income inequality improving 5.8% between 1985 and 2008. However, it still has the third-highest income inequality among the countries in this study. Part of Turkey’s problem is a relatively low number of government programs to aid the poorest citizens. The average government social expenditure among OECD nations is close to 20% of GDP, while it spends just above 10% — the third-lowest percentage. The wealthiest 10% of Turkey’s residents make 14 times more, on average, than the poorest 10%.

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2. Mexico
> Gini coefficient: 0.476
> Change in income inequality: +5.1%
> Employment rate: 60.4% (8th lowest)
> Change in income of the rich: +1.7% per year
> Change in income of the poor: +0.8% per year

Mexico has one of the highest rates of income inequality. Among all OECD countries, Mexico has the lowest amount of public social expenditure as a percentage of GDP. It also has the lowest unemployment benefit recipient rates. Finally, the country has the lowest minimum wages as a percentage of average wages.

1. Chile
> Gini coefficient: 0.494
> Change in income inequality: n/a
> Employment rate: 59.3% (4th lowest)
> Change in income of the rich: +1.2% per year
> Change in income of the poor: +2.4% per year

Chile is one of the few countries where the income of the poor increased at a higher annual rate than the income of the wealthy, 2.4% to 1.2%. Nevertheless, the South American nation has the worst income inequality among the 27 OECD nations examined. Chile has a particularly high rate of self-employed individuals, primarily because of its large farming class. The income ratio of the top 10% to the bottom 10% is 27 to one.

Michael B. Sauter, Charles B. Stockdale