Inequality reaches a record high in the US, but which countries are worst off?

Five years after Lehman Brother's collapse, one group has fared spectacularly well: the richest 1 per cent. The world's superpower is now worryingly dependent on the financial fortunes of just 1.35m taxpayers. But where in the world is inequality the grea

It’s now almost five years since Lehman Brothers collapsed, precipitating a global financial crisis. In the US, one group has fared significantly better than the rest as the country struggles out of recession – the richest 1 per cent.

Recent data from the Internal Revenue Service shows that the incomes of the richest 1 per cent of Americans increased by 31 per cent between 2009 and 2012, while the incomes of the bottom 99 per cent grew less than 1 per cent. There’s a good Economist chart to illustrate this here. The share of national income flowing to the richest 1 per cent has now reached a record high of 19.3 per cent.

So how does this compare internationally? The UK has little reason to feel smug. According to a report this February by the Resolution Foundation, the richest 1 per cent of Britons own 10 per cent of national income.

The Organisation for Economic Cooperation and Development (OECD) warned earlier this year that inequality was increasing across its 34 member countries. It has rated its members according to levels of inequality using the Gini coefficient (which measures the extent to which the distribution of income varies from perfect equality.) The UK ranks 28th out of 34 countries, and the US fares even worse at 31. Only Turkey, Mexico and Chile are more unequal than the US. Meanwhile Slovenia, Denmark and Norway are three OECD nations with the most equal income distribution. You can find the full list here.

The Gini coefficient can’t distinguish between different distributions of inequality, in that it doesn’t tell you if inequality is high because the top 1 per cent hold a huge proportion of national wealth, or if the majority of the country’s wealth is held by the top 25 per cent. The Gini coefficient also depends on up-to-date GDP data, which is especially hard to extract from developing countries. This can sometimes make comparison hard.

The CIA world fact book, for instance, compares 136 countries in terms of inequality, but some of the data it uses is over 15 years old. Here the US ranked 95th out of 136 in terms of inequality, with the UK in 76th place, and Sweden, Slovenia and Montenegro topping the list. The most unequal countries were Lesotho, South Africa and Botswana.

One conclusion that can be drawn is that both the UK and the US may be wealthy nations, but compared to their wealthy peers they stand out because of the wide gap between rich and poor. This has all kinds of implications. Rising inequality raises moral questions about fairness and social justice, and some researchers believe that inequality holds back economic growth. There’s also a worry that as the economic power of the richest 1 per cent increases, their political power increases with it.

In the US, for instance, the richest 1 per cent pay 37.4 per cent of income taxes – leaving the world’s superpower worryingly dependent on the financial fortune of just 1.35 million tax payers. Similarly in the UK, 30 per cent of government tax revenue comes from just 308,000 earners in 2012.
 

A homeless man rests along Wall Street in front of the New York Stock Exchange. Photo: Getty

Sophie McBain is a freelance writer based in Cairo. She was previously an assistant editor at the New Statesman.

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The Brexiteers who hope Article 50 will spark a bonfire of workers' rights

The desire to slash "employment red tape" is not supported by evidence. 

The Daily Telegraph has launched a campaign to cut EU red tape. Its editorial they decried the "vexatious regulations" that "hinder business and depress growth", demanding that we ‘throw regulations on the Brexit bonfire’.

Such demands are not new. Beyond immigration, regulation in general and employment protection in particular has long been one of the key drivers of frustration and fury among eurosceptics. Three years ago, Boris Johnson, decried the "back breaking" weight of EU employment regulation that is helping to "fur the arteries to the point of sclerosis". While the prospect of slashing employment rights was played down during the campaign, it has started to raise its head again. Michael Gove and John Whittingdale have called on the CBI to draw up a list of regulations that should be abolished after leaving the EU. Ian Duncan Smith has backed the Daily Telegraph’s campaign, calling for a ‘root and branch review’ of the costs of regulatory burdens.

The Prime Minister has pledged to protect employment rights after Brexit by transposing them into UK law with the Great Repeal Bill. Yet we know that in the past Theresa May has described the social chapter as a sop to the unions and a threat to jobs.

So what are these back-breaking, artery-clogging regulations which are holding us back? One often cited by Brexiteers is the Working Time Directive. This bit of EU bureaucracy includes such outrageous burdens as the right to paid holiday and breaks, and protection from dangerous and excessive working hours.

Aside from this, many other workplace rights we now take for granted originated from or were strengthened by the EU. From protection from discrimination and the right to equal treatment for agency workers and part time workers; to rights for women and for working parents; and rights to the right to a voice at work and protection from redundancy.

The desire to slash EU-derived employment rights is not driven by evidence. The UK has one of the least regulated labour markets among advanced economies. The OECD index of employment protection shows that the UK comes in the bottom 25 per cent on each of their four measures.

Even if the UK was significantly more regulated than similar countries – which it is not – there is no reason to expect that slashing rights will boost growth. There is no correlation between the strictness of employment protection – as measured by OECD – and economic success. France and Germany both have far more restrictive employment protection than the UK, yet their productivity is far higher than ours. The Netherlands and Sweden have higher employment rates than the UK, yet both have greater protections for those workers. And if EU red-tape was so burdensome, so constraining on businesses, then why has the employment rate continued to increase, standing as it does at a record high?

While the UK certainly doesn’t suffer from excessive employment regulation, too many employees do suffer from insecurity, precarity and exploitation at work. We’ve seen the exponential growth of zero-hours contracts, as well as the steady rise of agency work and self-employment. We’ve seen growing evidence of endemic exploitation and sharp practices at the bottom end of the labour market.

Instead of evidence, it seems the desire to slash employment rates is driven by ideology. Some clearly see Brexit as an opportunity to finish what Margaret Thatcher started, as Lord Lawson, who served as her Chancellor admits. He claims the deregulation of the 1980s transformed the economy, and that leaving the EU provided "the opportunity to do this on an even larger scale with the massive corpus of EU regulation. We must lose not time in seizing this opportunity".

The battle that is to come over employment regulation is just part of a wider struggle over what future Britain should have as we leave the EU. At the start of the year, the Chancellor warned our EU neighbours that if the UK did not get a good deal, we would be forced to abandon the European-style taxation and regulation and "become something different". In a thinly veiled threat, he said that the UK would ‘do whatever we have to’ to compete with the EU. To be fair, the Chancellor said this was not his preferred option. But we know that many see this as the future for the UK economy. Emboldened by both their triumph in Brexit and by an enfeebled and divided opposition, many Brexit-ultras want to build a low-tax, low-regulation, offshore economy that would seek aggressively to undercut the EU. This turbo-charged, Brexit-boosted Thatcherism would not just be bad for our continental neighbours, it would be bad for UK workers too.

Britain faces a choice on leaving the EU. We can either seek to compete in what the last Chancellor called the "global race" by driving up productivity, boosting public and private investment, and improving skills. Or we can engage in a race to the bottom, by slashing rights at work, and making Britain in the words of Frances O’Grady the "bargain basement capital of Europe".

Joe Dromey is a senior research fellow at IPPR, the progressive policy think tank.