The super-rich are grabbing even more of the nation’s wealth, the not quite so rich too and tax cuts for the wealthy are adding to the divide. These are the conclusions of the OECD in its analysis of income inequality in Italy
Here’s what the OECD says:
- Top income shares increased by more than a third. The richest 1% of Italians saw their share of total income increase from 7% in 1980 to almost 10% in 2008. That of the richest 0.1% increased from 1.8% to 2.6% in 2004. At the same time, the top marginal income tax rates were almost halved: from 72% in 1981 to 43% in 2010.
- The average income of the top 10% of Italians in 2008 was Euros 49,300, 10 times higher than that of the bottom 10%, who had an average income of Euros 4,900. This is up from a ratio of 8 to 1 in the mid 1990s.
- A greater role of self-employment income. Changes in self-employment income were important drivers of increased earnings inequality: their share in total earned income has increased by 10% since the mid-1980s, and self-employment income seems more predominant among high earners, to the contrary of many other OECD countries.
The OECD also finds that longer hours are the route to higher wages and social mobility measured by family ties is in decline.
- The higher-paid worked more hours. The divide in hours between higher- and lower-wage earners in Italy increased, confirming a trend seen in most OECD countries. Since the mid-1980s, annual hours of low-wage workers fell from 1580 to 1440, those of higher-wage workers also fell, but by less, from 2170 to 2080.
- More people are marrying within the same earnings class. Such societal changes contributed to a third of rising household earnings inequality in Italy. The rising gap between men’s earnings remains however the main driver, explaining half of the increase.
Social contract unravelling, says OECD
OECD Secretary-General Angel Gurría said: “The social contract is starting to unravel in many countries. This study dispels the assumptions that the benefits of economic growth will automatically trickle down to the disadvantaged and that greater inequality fosters greater social mobility. Without a comprehensive strategy for inclusive growth, inequality will continue to rise.”
“The main driver behind rising income gaps has been greater inequality in wages and salaries, as the high-skilled have benefitted more from technological progress than the low-skilled. Reforms to boost competition and to make labour markets more adaptable, for example by promoting part-time work or more flexible hours, have promoted productivity and brought more people into work, especially women and low-paid workers. But the rise in part-time and low-paid work also extended the wage gap.
“Tax and benefit systems play a major role in reducing market-driven inequality, but have become less effective at redistributing income since the mid-1990s. The main reason lies on the benefits side: benefits levels fell in nearly all OECD countries, eligibility rules were tightened to contain spending on social protection, and transfers to the poorest failed to keep pace with earnings growth.
As a result, the benefit system in most countries has become less effective in reducing inequalities over the past 15 years, the OECD said, adding that another factor contributing to widening income inequalities has been a cut in top tax rates for high-earners.
Tax the rich more
“The OECD underlines the need for governments to review their tax systems to ensure that wealthier individuals contribute their fair share of the tax burden. This can be achieved by raising marginal tax rates on the rich but also improving tax compliance, eliminating tax deductions, and reassessing the role of taxes in all forms of property and wealth.”