Rising Inequality Hurts Growth as Poor Fall Behind, OECD Says

Children play cricket at a playground in the Dharavi slum area of Mumbai. Photographer: Prashanth Vishwanathan/Bloomberg

Children play cricket at a playground in the Dharavi slum area of Mumbai. Photographer: Prashanth Vishwanathan/Bloomberg

Widening income gaps in developed countries are reducing economic growth as the poorest 40 percent of the population falls behind and becomes less productive, the OECD said in a report.

“While the flashy lifestyles and incomes of the top 1 percent are certainly eye-catching, focusing on them exclusively risks obscuring another area of growing concern in inequality -- namely the declining situation of low-income households,” the Organization for Economic Cooperation and Development said.

The gap between rich and poor is at its highest level in three decades in most developed countries, the OECD estimates, with the richest tenth of the population earning almost 10 times that of the bottom tenth. The increase has knocked 4.7 percentage points off cumulative growth between 1990 and 2010, on average across major economies, it said.

“Rising income inequality has a significant impact on economic growth, in large part because it reduced the capacity of the poor segments -- the poorest 40 percent of the population -- to invest in their skills and education,” the OECD said.

Among major developed countries, the U.S. had the highest level of inequality as measured by the Gini coefficient, followed by Israel and the U.K., Denmark, Slovenia and Slovakia had the lowest levels of inequality.

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