Though inequality has been rising for decades, the Great Recession catapulted the issue to the top of the policy agenda, costing millions of Americans their jobs and widening the gap between rich and poor. As the United States looks to reverse this trend, it faces a historic opportunity to lead a global transition to an inclusive model of economic growth.
According to a new report by the Organization for Economic Cooperation and Development (OECD), income inequality has reached record highs in most OECD countries. Since the mid-1980s, inequality as measured by the Gini coefficient has increased by an average of 10 percent in OECD countries and over 15 percent in the United States. But inequality levels are also rising in emerging countries and remain stubbornly high in most parts of the developing world. In the United States, the richest 10 percent earn 16.5 times more than the poorest 10 percent; in Brazil, they earn 50 times more, and in South Africa, 100 times more.
This trend is alarming because of its social, political and economic consequences. Inequality undermines social cohesion and, in severe cases, threatens political stability. Moreover, the OECD's research suggests it harms economic growth by reducing the ability of the poorest 40 percent of the population to invest in their skills and education.
There are two silver linings on the horizon, however. The first is that people are taking notice. In a 2014 survey by the Pew Research Center, majorities in all 44 countries polled described the gap between rich and poor as a big problem, and majorities in 28 nations said it was a very big problem. A more recent New York Times/CBS poll found that six out of 10 Americans believe inequality is a problem that should be addressed urgently.
The second is that there are solutions. We don't have to choose between faster growth and greater equality; we can achieve both by pursuing "inclusive growth" policies. Based on rigorous, data-based analysis, the OECD is urging countries to focus on four key areas: boosting women's participation in the economy, increasing job quality, improving skills and education and leveraging tax-and-transfer systems to reduce income gaps. Concerted action in these areas could kick-start the global economy while reversing rising inequality, ushering in a new era of prosperity and stability.
Of course, galvanizing policymakers around policy prescriptions that ensure opportunity for all is not easy. The OECD can help through its Inclusive Growth Initiative, which assists countries in analyzing inequalities and designing effective policies to address them.
But the United States has a special role to play, both as the world's largest economy and as a longtime advocate for open markets, competition, innovation and transparency. While these principles remain critical to economic growth, adding inclusivity to the mix will ensure its benefits are shared more broadly.
For starters, the United States can lead by example. President Obama understands this and has made expanding opportunity for the middle class the centerpiece of his economic agenda. Moreover, his policies span each of the four key areas recommended by the OECD. The President has expanded income-based repayment of student loans to help more Americans pursue a college education. He has cut taxes for middle-class families while restoring taxes on the highest-earning Americans to what they were in the 1990s. His proposals to expand child care and promote flexible workplace policies would help increase women's participation in the economy. And raising the minimum wage and updating overtime rules would improve job quality and ensure fair pay for millions of Americans.
The United States can also lead by putting inequality at the top of the global policy agenda. The Department of State recently announced that advancing inclusive growth would be one of its main strategic priorities for the next four years. This decision couldn't come at a better time.
This fall, the United Nations will adopt a new blueprint for global development, and the United States can see that it promotes inclusive economic growth. In concrete terms, this means increasing economic participation of women, youth, and systematically marginalized groups.
The Great Recession, while devastating, taught us to think not just about whether economies grow but how they grow. The world must respond to this shift by making fundamental changes that boost growth while raising living standards for everyone. Together, the United States and the OECD can show the way.
Angel Gurría is Secretary General of the OECD.
Daniel Yohannes is United States Ambassador to the OECD.
How will Donald Trump’s first 100 days impact YOU? Subscribe, choose the community that you most identify with or want to learn more about and we’ll send you the news that matters most once a week throughout Trump’s first 100 days in office. Learn more