Business

Inequality 'significantly' curbs economic growth - OECD

  • 9 December 2014
  • From the section Business
Education Image copyright Thinkstock
Image caption The OECD urged government to invest in education for low income groups

Income inequality has a "statistically significant impact" on economic growth, according to research by the Organisation for Economic Co-operation and Development (OECD).

In the UK, rising inequality cost the economy almost nine percentage points of GDP growth between 1990 and 2010, the think tank said.

The US lost almost seven points.

The OECD also found that redistribution of wealth via taxes and benefits does not hamper economic growth.

"This compelling evidence proves that addressing high and growing inequality is critical to promote strong and sustained growth and needs to be at the centre of the policy debate," said OECD's secretary general, Angel GurrĂ­a.

"Countries that promote equal opportunity for all from an early age are those that will grow and prosper."

Widening gap

In the 34 countries that are members of the OECD, the gap between rich and poor is at the highest level in 30 years, the group said.

The richest 10% in those states earn, on average, 9.5 times the poorest.

In the 1980s, they earned 7 times as much.

The only countries in which the OECD found inequality had fallen were Greece and Turkey.

Education

A lack of investment in education was the key factor behind rising inequality, the OECD said.

Fewer educational opportunities for disadvantaged individuals had the effect of "lowering social mobility and hampering skills development," the report warned.

It also said that those whose parents have low levels of education suffer most when inequality rises, whereas family background matters less to those from a more educated social sphere.

The OECD called for policymakers to do more than just implement anti-poverty programmes.

"Policy also needs to confront the historical legacy of underinvestment by low income groups in formal education," it said.

"Strategies to foster skills development must include improved job-related training and education for the low-skilled, over the whole working life."

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