Why rising inequality is here to stay

Reuters

Posted at Jul 03 2014 09:23 AM | Updated as of Jul 03 2014 05:23 PM

PARIS - The economic inequality seen in recent years will only get worse over the coming decades as highly skilled workers reap bigger gains from technological advances, the OECD said on Wednesday.

Governments need to invest more in education and build more progressive tax systems, the Paris-based Organisation for Economic Development and Cooperation said in the latest of a series of reports on long-term economic trends.

The debate over inequality has grown more heated since the success of "Capital in the Twenty-First Century," a best-selling book by French economist Thomas Piketty. His work shows the gap in wealth between the rich and the rest of the populace is returning to levels last seen before World War One.

Wages of the top earners in the OECD grew an average 0.6 percent a year faster than the wages of those at the bottom of the income ladder over the two decades leading up to the financial crisis, the 34-nation group said.

If nothing is done, inequality will keep growing at that rate over the coming 50 years, although real earnings are expected to keep rising across the income spectrum.

At that rate, the average gross earnings inequality in the OECD would by 2060 reach that of the United States, whose income gap is one of the largest in the group.

After Israel, the United States would remain the country with the greatest earnings inequality, according to the OECD's projections.

Nearly all of the growing gap would be between high and middle-income earners. That was in line with recent evidence, the OECD said, suggesting that technology is replacing jobs requiring only mid-level skills.

"We expect the best qualified to benefit from technological progress," said Jean-Luc Schneider, the deputy head of the OECD's economics department.

Against that backdrop, the OECD recommended better targeting of tax and benefit systems on the needy. At the same time, the burden of taxation should shift more towards property and raw materials, it said.

But ultimately the remedy is more and better education, to help people climb higher up the skills ladder, the OECD said.