In a world where wealth reports and rich lists regularly occupy the headlines, most of us have surely asked ourselves where we sit on the spectrum that starts with struggling to get by and ends with Bill Gate’s estimated fortune of $79 billion.
If you think you already know the answer, think again. Research indicates that many of us have only a vague idea of how our income compares to that of our neighbours. For example, in France in 2011 about three out of five poor people thought they were better off than they were. Conversely, about four out of five rich people didn’t appreciate just how well off they were.
Similarly, many of us don’t have a strong sense of the income gap in our own countries. Americans, for example, typically think the gap between rich and poor is smaller than it is. On the other hand, people in a number of European countries, such as Hungary and Slovenia, often think the gap is wider than it is.
If these questions have been on your mind, we have some good news. From today, a new OECD research tool lets you get some hard numbers on whether you’re rich or poor. Simply type in where you live, your age and your income, and Compare Your Income will tell you where you stand on the income scale in your country – up there with Mr. Gates or … well, down here with the rest of us.
But the tool goes further that. It also lets you check if your sense of where you stand in relation to everyone else is accurate – you may be pleasantly surprised or sadly disappointed. More broadly, it also explores your understanding of how income is distributed in the country where you live.
Over the next few years, the anonymous and confidential responses that users provide to Compare Your Income will be used by the OECD to develop a clearer picture of people’s perception of wealth, poverty and income inequality in OECD countries. That, in turn, will feed into future analysis of income inequality – an issue that has “moved to the top of the policy agenda in many countries,” according to In It Together, a new OECD report that’s also released today
Given current trends, income inequality is likely to remain a top policy item for some time to come. As In It Together notes, the gap between rich and poor is now at its highest level in 30 years in most countries. Today, the top 10% earns 9.6 times the income of the poorest 10%; back in the 1980s, the ratio stood at just 7 to 1.
But there’s perhaps a sense in this latest OECD report that the focus of the debate is shifting – from top earners, the so-called 1%, to a large swathe of low earners, or what might be called the bottom 40%. In recent decades, these low earners have gained little from economic growth in many OECD countries and, in some cases, have seen real falls in their incomes.
As we discussed here on the blog last year, OECD research indicates that the declining economic power of this bottom 40% of low earners is bad not just for them but also for the overall economy. The research shows that when the gap between rich and poor grows, lower earners invest less in education and skills. By contrast, there is little or no change in how much middle and high-income families invest. The consequence of this underinvestment is a smaller talent pool for the economy, which, in turn, slows growth.
The new report adds further detail to this research and also looks at some of the factors that are weakening the situation of low earners, including growing concentration of wealth – as opposed to income – and the decline of “traditional” employment. We’ll return to some of these subjects soon.
OECD work on income inequality and poverty