A novel solution to inequality: Pay poor people more

Posted on December 9, 2011 in Equality Policy Context

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TheGlobeandMail.com – business/economy/EconomyLab/DailyMix – From the FT’s Lex blog
Posted on Friday, December 9, 2011.    Financial Times

Inequality is like the weather. There is lots of it about, and nothing we can do about it. That blasé attitude may no longer be tenable. The trouble with inequality is not that it never goes away but that it is growing. The Organization for Economic Co-operation and Development says that the gap between rich and poor is at its highest for 30 years.

The question is how to reverse it. Here is a novel solution — pay poor people more.

The OECD says that inequality is growing even in countries we think of as paragons of egalitarianism. In Germany, for example, the average income of the top 10 per cent of workers in 2008 was nearly eight times higher than the bottom 10 per cent. In Japan, the gap is 10 times, in the U.K. it is 12, and in the U.S. it is 15. In all cases, the gap is much higher now than it was in 1985.

This trend looks set to continue. The developed world’s cherished standards of living are under fierce assault. This is especially the case in Europe: just consider the scale of the wealth destruction since 2008 in Ireland and Greece. Reversing it, however, should require a focus on alleviating poverty, not reducing the stock of wealth further.

The average income of the top 10 per cent of workers in the OECD’s 34 member states appears quite modest. It is just £55,000 in the UK, €57,300 in Germany, $114,000 in the U.S., and ¥7.5-million in Japan. The real problem is at the other end of the scale. The incomes of the poorest are tiny: £4,700 in the U.K. Efforts to close the wealth gap need to start here, perhaps by setting a higher minimum wage (many countries do not have one). A concerted effort to pay poor people more would help to bring the minimum closer to the median wage in rich countries.

Closing the income gap is a socially desirable goal. It is worth bearing in mind, however, that inequality may be too human a trait to eradicate entirely.

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