Remarks by Angel Gurría
4 September 2015
(As prepared for delivery)
Ladies and Gentlemen,
I am very glad the G20 Turkish Presidency put inclusiveness as one of the three “I's" of the required collective action to foster the G20 inclusive and robust growth.
Ringing the alarm bell on rising inequality is becoming, unfortunately, routine for us at the OECD. In our latest publication – In It Together: Why Less Inequality Benefits All – we sadly show that in many G20 countries income inequality stands at an all-time high. The richest 10% of the population now receive 9.6 times the income of the poorest 10% in the OECD area, as opposed to 7 times in the 1980s. But the picture becomes even more worrisome when we also look at the distribution of household wealth: the bottom 40% owned only 3% of total household wealth, while 18% of the wealth is being held by the top 1% - in 18 advanced economies with comparable data.
Social and political costs of high inequality justify in themselves prompt policy action. But let me say it loud and clear: addressing high and often rising inequalities, while essential to promote social cohesion, is also vital to sustain economic growth. This is the central argument of our recent work, supported also by that of our colleagues at the IMF: Beyond its impact on social cohesion, high inequality raises serious economic concerns, not just for the low earners themselves but for the wider health and sustainability of our economies.
We indeed estimated that the rise in inequality observed between 1985 and 2005 in 19 OECD countries knocked 4.7 percentage points off cumulative growth between 1990 and 2010. Emerging economies too could benefit from lower inequality, despite their often impressive growth rates and reductions in absolute poverty.
Much of the recent inequality debate has been about the rise in top incomes. But our recent work suggests that it is when working and lower-middle class households fall behind the rest that growth suffers most. Therefore anti-poverty policies are not enough: we need to improve opportunities for low income households more broadly.
In this context, promoting inclusive growth requires a comprehensive strategy that addresses inequalities from its multiple dimensions. Our evidence shows that the most efficient policy packages need to tackle inequalities where they originate, addressing four key policy areas.
First, we need more effective tax-and-transfer systems and fiscal policies for inclusive growth. In recent decades, the effectiveness of redistribution weakened in many countries (in advanced economies in particular) due to working-age benefits not keeping pace with real wages and taxes becoming less progressive. A renewed focus on redistribution is important; this needs not to be bad for growth if properly targeted, implemented and “activated” for employment purpose. Redistribution policies have been strengthened in many emerging economies but there is still considerable scope to make their tax systems more progressive, to increase their tax revenues by promoting formal employment, to enlarge their tax base and to enhance often embryonic social safety nets and social protection systems. Some countries with low levels of redistribution did introduce transfers to increase income protection and reduce income inequality, such as Prospera, 65 y Más or SinHambre in Mexico. And of course, we need to tackle tax avoidance and evasion – which is a central objective of our work on BEPS and tax transparency.
Second: we need to build skills for all age groups. This means investing in the early years of education, with a strong focus on kids from lower and middle income households. But it also means investing in skills throughout the working life. (For example, subsidies introduced in Korea for private or public training providers that work in partnerships with SMEs, and the Bolsa Familia cash transfers in Brazil, are both excellent examples of measures that can make a real difference to inequality over time.)
The third key policy area is promoting inclusion in the labour market. Last year, the G20 Leaders agreed on an ambitious, yet vital, target to reduce the gender gap in labour force participation by 25% by 2025. This year, a youth target is under consideration, focusing on reducing the share of young people who are most at risk of being left permanently behind in the labour market by 15% by 2025. In the current uncertain and often still weak growth context, setting such a commitment will send the right signal to the many young people who are facing very difficult circumstances.
The fourth and last key policy area is promoting job quality. The principle priorities of the new G20 Framework agreed this morning are vital: promoting job creation and job quality; reducing labour market segmentation and rebalancing employment protection; and ensuring the quality of the work environment. (In South Africa, for example, the Basic Conditions of Employment Act improves the working conditions of domestic workers along many of these dimensions. And France and Canada [Quebec] have introduced model contracts to facilitate the establishment and formalisation of an employment relationship).
Ministers, Ladies and Gentlemen, there is nothing inevitable about growing inequalities. Let us take action to bring everyone in when it comes to contributing to growth and sharing its benefits.