December 19, 2013

Global inequality: How the U.S. compares

Global_InequalityWith more attention being paid to economic inequality in the United States, it’s also worth looking at how the nation compares globally. As it happens, the U.S. has one of the most unequal income distributions in the developed world, according to data from the Organization for Economic Cooperation and Development — even after taxes and social-welfare policies are taken into account.

Income, of course, isn’t the only way to measure economic inequality, but it is the most common, especially when making cross-national comparisons. Income inequality often is expressed in terms of the Gini index, a summary statistic that measures the dispersion of incomes on a scale of zero (everyone has exactly the same income) to 1 (one person has all the income).

The OECD, a group of 34 mostly developed economies, calculates Gini coefficients for most of its member countries, both before and after taxes and transfer payments. That helps address criticism from some economists that income-based measures of inequality ignore the redistributive impact of such programs as Social Security, the earned income tax credit and unemployment insurance. (We looked at the 31 OECD countries that had both sets of Gini scores for a reasonably recent year, in most cases 2010.)

Before accounting for taxes and transfers, the U.S. ranked 10th in income inequality; among the countries with more unequal income distributions were France, the U.K. and Ireland. But after taking taxes and transfers into account, the U.S. had the second-highest level of inequality, behind only Chile. (Mexico and Brazil had higher after-tax/transfer Gini scores, but no “before” scores with which to compare them; including them would push the U.S. down to fourth place.)

It’s not that taxes and social-insurance policies in the U.S. have no redistributive effect. Before taxes and transfers, according to a new Congressional Budget Office report, the bottom 20% of Americans had 2.3% of all income, while the top 20% had 57.9%. After taxes and transfers, the bottom 20%’s share rose to 9.3%, while the top 20%’s share fell to 47.2%. (Thanks to The New York Times’ Economix blog for the chart below).

CBO_taxes_transfers

However, the OECD data show that U.S. tax and spending policy does relatively little, compared with its peers in the developed world, to reduce inequality (a point made elsewhere using a similar dataset). Among the 31 OECD countries for which recent “before” and “after” Gini scores are available, the average differential was 0.163; for the U.S. the differential was 0.119. The country where tax and transfer policies do the most to reduce income inequality? Ireland, which ranked highest before taxes and transfers but 10th after.

Topics: Income Inequality

  1. Photo of Drew DeSilver

    is a Senior Writer at the Pew Research Center.

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4 Comments

  1. Jessica Ely4 weeks ago

    You can’t forget that different countries have a different cost of living. You are comparing apples to oranges.

    Reply
  2. Elle Strauss4 months ago

    Dear Shawn,
    I would like to impress upon you the importance of a college education. If you go to college, especially for journalism. Then earn a degree, at least a BA, in journalism. To which you apply for a job at the Pew Research Center where you work diligently and expeditiously at every position you are given until the time in which you qualify to even apply for the opening (there has to be an opening) position as Senior Writer. If and only if you land the position of Senior Writer at Pew Research Center will you and Mr.DeSilver NOT BE equal. Yes, that is right I said “NOT BE”. You see if there is an opening it is probably because Mr.DeSilver was promoted and now makes even more than you do. Nice try though. You see this is America, more specifically the United States of America, and here you work for what you want. It is not handed to on a “DeSilver platter”.

    Sincerely,
    Elle Strauss

    Reply
  3. Shawn4 months ago

    Drew…how much do you make. It is probably more than me. Please send me a check so we are a little more equal. Thank you.

    Reply
    1. Elle Strauss4 months ago

      Dear Shawn,
      I would like to impress upon you the importance of a college education. A college education allows for more opportunities and advantages in today’s work force. If you are interested in producing as much income as Mr. DeSilver does than I suggest you go to college and earn at least a Bachelor of Arts in Journalism. To which you use the degree to apply for a position at Pew Research Center (P.R.C). At this point I would advise you to work diligently as well as expeditiously as any and all responsibilities you are given at P.R.C. I would also advise you to apply for any positional openings that would assist with your advancement in the company until you could qualify to even apply for the opening (there has to be an opening) Senior Writer position. If you actually become Senior Writer at Pew Research Company, primarily congratulations! Secondly you and Mr. DeSilver will now NOT be equal. That is right I said “NOT”. You see if there is a Senior Writer position open that means Mr. DeSilver was more than likely promoted and is now your boss. I am sorry to inform you but this is America, more specifically the United States of America. In this country we work for what we want it is not handed to us on a “DeSilver platter”.

      Sincerely,
      Elle Strauss

      Reply