Oxfam recently hit headlines with their report that the combined wealth of the 85 richest people in the world was equal to more than the wealth of the bottom 50% of people worldwide – that’s just 85 people with more wealth than the poorest 3.5 billion people in the world. This stunning figure has thrown the issue of income inequality into the limelight, and to the forefront of economic debate. An examination of the way in which wealth is distributed in a country gives a valuable insight into the state of the economy and the well-being of the nation’s majority. Income inequality is quantified via the Gini coefficient – where 0 is a state of absolute equality, when everyone holds the same amount of wealth, and 1 is absolute inequality, when 1 person holds all the wealth. Every country will fall between these two extremes; and some well-developed countries are (perhaps surprisingly) far from the 0 mark.
What happens when a country has high income inequality? If the division of wealth sees a small group of people holding the majority of a nation’s capital, the balance of power is skewed; the lower and middle classes have access to less capital, fewer resources and – consequently – a low chance of breaking out of the cycle of poverty. While economists’ opinions vary on what constitutes optimal wealth distribution, many agree that the Gini index is one reliable indicator of the health and vitality of a county.
Which countries in the world today have the highest level of income inequality? We’ve had a look at the Gini coefficient after taxes and transfers (pensions, government programs and other equalizers) are taken into consideration, providing rankings which look at the real spending power of the people. Specifically, our rankings come from data collected from countries that are part of the OECD (Organization for Economic Co-Operation and Development). At the beginning of this decade, the OECD released a report stating that income inequality was at its highest level in over 50 years, and these figures demonstrate that level of high inequality – even in some of the world’s most well-developed, wealthiest countries. It’s worth noting, however, that African countries are not members of the OECD and these are some of the countries with the most extreme income inequality in the world, with parts of the continent reportedly holding a Gini coefficient of up to 0.7. But of the OECD countries, these 10 are the nations with the most marked inequality of wealth distribution.
10. Japan: 0.336
Japan has a saying “ichioku-sohchu-ryu” which translates to “a nation of middle-class people.” However, in the past few decades, they’ve seen the middle-class shrinking at twice the average rate of other OECD countries. Since 1980, incomes have dropped for the lower classes while they’ve risen for those in the higher classes. And this problem is exacerbated by the lack of employment security. During Prime Minister Junichiro Koizumi’s term (2001-2006), the number of people working regular jobs dropped by 1.9 million while numbers of those in temporary positions rose by 3.3 million. Since the middle-class started disappearing, there’s been a reported increase in depression, domestic violence and suicide – which indicates the toll the economy has taken on the people.
9. Greece: 0.337
Income inequality in Greece had been on the decline for several years, but in 2010 it shot back up again. It’s still better than it has been since 1999, when it was at its highest point in the last couple of decades. Greece is second only to Mexico for the number of hours people work per year, but the country was hit hard by the Global Financial Crisis when the number of unemployed skyrocketed between 2008 and 2013. Greece have had issues with massive tax evasion and false economic statistics, which effectively covered up the extent to which the country was in debt: This has led to catastrophic problems which are taking some time to clean up. Greece’s economy has been aided by massive bailouts from the European Union and the International Monetary Fund but the state of the economy, and a high level of wealth inequality, means the majority of the Greek citizens are likely struggling financially.
8. Spain: 0.338
There’s been a dramatic increase in poverty and hunger in Spain since 2008, another European country to be hit hard by the GFC. Salaries are being frozen or even cut in 2014, while the country announces a steep increase in rates for electricity, water and transportation. Spain has the second highest unemployment rate in Europe, and the number of people living in poverty has doubled since 2008. The economy looks likely to see some improvements in 2014, however most of that will be based on exports – and economists warn that it could take years before any benefit from it trickles down to those who are currently struggling to survive.
7. United Kingdom: 0.341
The United Kingdom’s Gini coefficient is the highest it has been in the last 30 years. In fact, the bottom 10% of the population hasn’t seen a rise in income at all in the last decade. That means, of course, that when adjusted for inflation the poorest 10% in Britain are at a much lower income now than they were ten years ago. The richest Brits now control 31% of the income, with the poorest 10% claiming just over 1% of the country’s wealth.
6. Portugal: 0.344
Portugal may be sixth on our list, but it has the highest income inequality of any developed country in the EU. Portugal had made progress in regards to the problem of wealth inequality, but a lot of that progress was offset by the economic crisis that hit in the early 2000s. Part of the problem is that the poorest people in Portugal are stuck in a poverty cycle. The country suffers from a lack of educated workers: Only 30% of adults have attended secondary school, which is far lower than the EU average of 74%. As with many countries, while unemployment remains high, positions still remain unfilled due to the lack of workers with the right qualifications.
5. Israel: 0.376
Israel has a trickier situation than most. For one thing, not only is their significant income inequality between the rich and the poor, there’s also a disparity between the Arabs and the Jews. In fact, over half of all Arab families in the country are classified as ‘poor’ in stark contrast to the wider figures – just over 20% of all families in Israel are classified as ‘poor’. There were protests in 2011 over the income gap, mostly focusing on the tycoons who monopolised most of the wealth in the country. The result was that parliament voted to break up the conglomerates. So with one bill, the government hopes to fix some of the issues with inequality – but only time will tell how much good the measure will do.
4. United States: 0.38
It’s hard to imagine the United States being so high on this list, but truthfully, the US hasn’t seen such large income disparity since 1928. And if you thought some of the other countries had it bad in regards to numbers, these numbers will no doubt serve to shock: From 2009 to 2012, the top 1% in the U.S. claimed 95% of gains from the economic recovery. And the rest of country, the other 99%? They only saw income growth of 0.4% while their richer counterparts saw their incomes rise by over 30%. While the economy is superficially showing recovery from the Global Financial Crisis, the reality is that the lower classes are not recovering nearly as fast as that top 1%.
3. Turkey: 0.411
While still high on our list, Turkey is actually one of two countries that did see a decrease in wealth inequality in recent years, Greece being the second. Some analysts partially blame the tax code for the inequality problem, considering that two thirds of the income comes from indirect taxes like sales tax – as opposed to income taxes, which would make sure the wealthy pay their fair share. The sales taxes seem skewed in favour of the wealthy, as certain luxury items have lower taxes and some items such as precious gemstones have no tax whatsoever. Add to the mix other issues such as a high unemployment rate and less opportunities for women and it’s easy to see why the wealth distribution is quite so unequal in Turkey.
2. Mexico: 0.466
It probably comes as no surprise that Mexico is high up on the list, but one thing that might surprise you is that even with the huge income gap, Mexicans are some of the hardest workers in the world. In fact, they spend about 10 hours per day working while China, for example, works an average of about 8 hours per day and U.S. workers clock in an average of 8.5 hours daily. Even with the amount of hours Mexican workers put in, the top 10% still make over 30 times more than the poorest 10%. Mexico faces many unique challenges, including drug cartels which the government has a hard time controlling. The current administration has said they will focus more on poverty, so the income gap may be set to narrow in coming years.
1. Chile: 0.501
With a Gini coefficient of 0.501, Chile tops our list of countries with the most serious problem of inequality. Several factors contribute to this problem, including issues with higher education. While this has improved in recent years – many more Chileans are getting a college degree than before – most of those who land graduate jobs come from the richest schools in the country. Many of the poor go to cheaper colleges, hoping that they’ll still have the same opportunities as other graduates – only to leave college with mounting student loan debt and jobs that pay scarcely enough to cover those debts. There are several bills on the table to help improve the education system, but many of them aren’t moving very fast due to wealthy universities lobbying against them. Education isn’t the only problem, though. In fact, many of the industries in Chile are run by oligopolies. Add to this corruption from the wealthy who cover up their income, and few restrictions on interest rates for credit cards, and you have a nation with one of the most unequal wealth distributions in the world.