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An inequality chasm is fracturing Europe, warns the OECD

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April in Berlin, Germany. A homeless man sat begging for euros or food in the entrance of an S-Bahn station.

April in Berlin, Germany. A homeless man sat begging for euros or food in the entrance of an S-Bahn station.

Deepening inequalities in income between the richer and poorer families, greater relative income poverty in recent years compared with earlier, a greater burden borne by children and young people than before because of their being relatively poor – these are some of the stark conclusions contained in the OECD briefing, ‘New Results from the OECD Income Distribution Database’.

This is the picture of Europe today (and of the non-European members of the OECD). “Looking at the 17 OECD countries for which data are available over a long time period, market income inequality increased by more over the last three years than what was observed in the previous 12 years,” observed the new briefing, which is sub-titled ‘Crisis squeezes income and puts pressure on inequality and poverty’.

Annual percentage changes in household market income between 2007 and 2010, by income component. Chart: OECD

Annual percentage changes in household market income between 2007 and 2010, by income component. Chart: OECD

The figures and data show that many of the countries recording the most dramatic increases in inequality are European countries which have been subjected to punitive austerity measures by the European Union and International Monetary Fund. The OECD report singles out Spain and Italy, where the income of “the poorest 10 percent was much lower in 2010 than in 2007”.

Five percent falls in income (per year) amongst the poorest 10 percent were also recorded in Greece, Ireland, Estonia, and Iceland. The only non-European nation with a comparable level of income decline was Mexico. The report also stated that over the same period, poor families in the United States, Italy, France, Austria and Sweden all recorded income losses in excess of the OECD average.

Indeed the ‘New Results’ briefing has showed that across OECD countries, real household disposable income stagnated. Likewise, the average income of the top 10% in 2010 was similar to that in 2007. Meanwhile, the income of the bottom 10% in 2010 was lower than that in 2007 by 2% per year. Out of the 33 countries where data are available, the top 10% has done better than the poorest 10% in 21 countries.

This is the OECD picture till 2010. Since then, recession has been the companion of inequality. With an average growth of -0.2 per cent in the first quarter (against -0.1 per cent in the EU as a whole) and hardly better prospects for the whole rest of the year (-0.7 per cent), according to Eurostat, the dreaded “double dip” has become a reality. The press attributes the result largely to the austerity policies.

Gini coefficient of household disposable income and gap between richest and poorest 10%, 2010: Chart: OECD

Gini coefficient of household disposable income and gap between richest and poorest 10%, 2010: Chart: OECD

“Eurozone sets bleak record of longest term in recession,” reported the Financial Times. The daily noted that “this latest dismal record came after unemployment hit 12.1 per cent in the bloc, its highest level,” and that this data “is likely to add to pressure on the European Central Bank to take further action after cutting interest rates this month, and to revise down its economic forecast predicting a recovery later in the year.”

Moreover, relative income poverty – the share of people having less income than half the national median income – affects around 11% of the population on average across OECD countries. Poverty rates range between 6% of the population in Denmark and the Czech Republic to between 18% and 21% in Chile, Turkey, Mexico and Israel. Over the two decades up to 2007, relative income poverty increased in most OECD countries, particularly in countries that had low levels of income poverty in the mid-1990s.

In Sweden, Finland, Luxembourg and the Czech Republic, the income poverty rate increased by 2 percentage points or more. In Sweden, the poverty rate in 2010 (9%) was more than twice what it was in 1995 (4%). Relative poverty also increased in some countries, such as Australia, Japan, Turkey and Israel, with middle and high levels of poverty.

The OECD briefing has stated bluntly: “Households with children were hit hard during the crisis. Since 2007, child poverty increased in 16 OECD countries, with increases exceeding 2 points in Turkey, Spain, Belgium, Slovenia and Hungary.” The ‘New Results’ briefing added: “Since 2007, youth poverty increased considerably in 19 OECD countries. In Estonia, Spain and Turkey, an additional 5% of young adults fell into poverty between 2007 and 2010. In the United Kingdom and Ireland, the increase was 4%, and in the Netherlands 3%.”

Annual percentage changes in household disposable income between 2007 and 2010, by income group. Chart: OECD

Annual percentage changes in household disposable income between 2007 and 2010, by income group. Chart: OECD

Between 2007 and 2010, average relative income poverty in the OECD countries rose from 12.8 to 13.4% among children and from 12.2 to 13.8% among youth. Meanwhile, relative income poverty fell from 15.1 to 12.5% among the elderly. This pattern confirms the trends described in previous OECD studies, with youth and children replacing the elderly as the group at greater risk of income poverty across the OECD countries.

These results only tell the beginning of the story about the consequences of austerity, growing unemployment, the burden on children and youth, and burden on immigrant wage labour. The OECD data describes the evolution of income inequality and relative poverty up to 2010. But “the economic recovery has been anaemic in a number of OECD countries and some have recently moved back into recession”, said the briefing.

Worse, since 2010, many people exhausted their rights to unemployment benefits. In such a situation, the briefing has warned, “the ability of the tax-benefit system to alleviate the high (and potentially increasing) levels of inequality and poverty of income from work and capital might be challenged”. These are unusually blunt words from the OECD and their use reflects the depth and persistence of the crisis of modern, reckless, destructive capitalism in Europe.

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