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U.K. fares worst on income inequality among advanced economies: OECD

U.K. fares worst on income inequality, OECD report says

Ben Stansall/AFP/Getty Images/Ben Stansall/AFP/Getty Images

The gap between the highest and lowest paid has grown more quickly in Britain than in any other advanced economy over the past three decades, reflecting a broader rise in inequality across the developed world.

The average income of the U.K.'s top 10 per cent of the working-age population is, at almost £55,000 ($87,500), now nearly 12 times those of the bottom 10 per cent, who earn an average of £4,700($7,500), according to a study by the Organization for Economic Co-operation and Development.

The Paris-based grouping of advanced economies said only Israel and the United States. had a greater gulf between the highest and lowest earners.

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Rising inequality in Britain was caused by growth in incomes at the very top, with the share of the highest 1 per cent of earners climbing from 7.1 per cent in 1970 to 14.3 per cent in 2005, as wages of the majority of workers have grown at a far slower pace, the report found.

"Those at the top are drawing away," said Stephen Jenkins, a professor at the London School of Economics.

Inequality grew fastest between the mid-1970s and 1990, with the pay gap remaining broadly flat since.

Social trends, such as a greater tendency for people to marry within the same earnings bracket, were another factor behind the widening income gap, the OECD argued.

Transfers and taxes, meanwhile, have become less redistributive, it said.

Growth in the number of self-employed workers, who tend to earn less, and fewer well-paid jobs in industry also contributed.

Faiza Shaheen, a researcher on economic inequality at the New Economics Foundation, a think tank, said: "Most countries have done a lot more than the U.K. to hold on to mid-level manufacturing work."

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Income inequality among the working age population rose in 17 of the 20 countries studied by the OECD, which recommended that top earners should be taxed more.

The report seemed to allude to the Occupy movement in New York and London as evidence of the risks to social cohesion.

"Youths who see no future for themselves feel increasingly disenfranchised," said the OECD. "They have now been joined by protesters who believe they are bearing the brunt of a crisis for which they have no responsibility, while people on higher incomes appeared to be spared."

Better educational systems, labour market reforms and more redistribution can help stem the widening gap between rich and poor, the report said.

Though the wage gap was particularly pronounced in Britain, a broader measure of income inequality which includes pensioners and children was slightly better. When the incomes of the entire population of the U.K. were taken into account, those of the top 10 per cent were 10 times higher than those of the bottom 10 per cent.

"In retirement, the British state does a better job of putting a floor to living standards," said John Hills, of the London School of Economics. "And there are fewer people with very high incomes from valuable pensions, although there are clearly some of those."

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Copyright The Financial Times Ltd. All rights reserved.

2011-12-05 16:02:48

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