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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6 Comments

  1. Malcolm Surer1 month ago

    Dear Drew,
    I am curious to know where China and Russia stand on this chart?
    Thank you
    Malcolm

    Reply
  2. Jessica Ely6 months ago

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

    Reply
  3. Elle Strauss9 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
    1. Daniela3 months ago

      Hi Elle,
      As an educated individual by chance and luck and hard work none the less, I very well understand that even as and individual that migrated to the United States with my family having only $500 and a small network we had enough human and social capital that brought about certain opportunities that many will never see. There are different levels of advantages that one has to acknowledge, particularly those that are educated and find a strong levels of importance in education as yourself. Although I grew up with little money and no documents the fact that my father had a college education, my mother with some college education, and the family network that was well established in the United States gave us much greater advantage then someone growing up in some of the most impoverished areas of the United States. These areas have poor quality of education, high crime rates, little economic or political stability etc. These areas have been describe and compared to war zones having very similar post traumatic stress effects on individuals. They have been called food deserts because for miles there may not be a grocery store near by just liquor stores and McDonalds. Furthermore, they are heavily represented by minorities particularly African Americans and Latinos. Therefore, with your education you may wonder well what is going on there. Why are the majority of people living in poverty minority, why do they have low educational attainment and the other social problems that exist as their reality…. And then you have do research with that education and look in to underlying structures that have perpetuated a state of oppression for many and why that is growing. If you truly believe we live in a meritocracy than I suggest you use your education to get real. The idea is not for all to be equal but for all to have equal opportunities so they can get out of poverty and become less dependent on the government and instead contribute to the growth of a the economy.

      Reply
  4. Shawn9 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 Strauss9 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