Unequal income distribution within countries

Income distribution in a society is directly related to existing levels of poverty. There are societies in which poverty is generalized and indicators of income distribution, as is logical, show figures of low concentration. In these societies of an agrarian nature, the income indicator is not sufficiently appropriate to cover the concentration of agricultural ownership, and inequality in matters not directly connected with the distribution of product through systems of monetary income. In the industrialized and industrializing societies, however, income concentration always brings relative poverty in the lower group or groups. It has been shown statistically that when there are very sharp increases in income concentration and inequality, immediate outbreaks of poverty occur. This is what has happened in many of the developed countries in the last decade as a consequence of adjustment processes and cutbacks in social programmes. Income concentration leaves one sector of society in a relatively defenceless situation and thus in growing conditions of poverty. Very often these are the same people as the groups subject to most discrimination in societies, either by reason of their sex (women heads of households), age (old people and children), ethnic group (migrants, indigenous peoples and minorities), race or other derived forms of discrimination such as education. Poverty and destitution are understood in this report as phenomena related and in some cases concomitant with poor international and national income distribution.

Government tax legislation which favours the rich – for instance, by taxing income from capital less than income from labour – is one of the contributing factors to the increasing gap. Globalization also plays a large part, by encouraging a shift in low-skilled jobs from the industrialized countries to the developing world. Deregulation, with fewer state provisions governing wages, job security and benefits, has a similar effect: the income gap is the greatest in the USA and the UK, where deregulation of the labour market is the most extensive.

The resentment of the poor at this widening gulf between rich and poor can result in aggressive and even violent behaviour against (wealthy) individuals. This in turn prompts the affluent to create their own neighbourhoods, in the form of isolated enclaves, in order to protect themselves and their property. They may set up parallel health and education systems, and organize their own security forces. Thus the gap is reinforced and widened still further.

For several decades up to the end of the 1970s, the gap between high- and low-income earners narrowed in most developed countries. Pre-tax differentials also narrowed. There remained sizeable differences in the spread of incomes from one country to another, with the United States the least equal and Finland the most equal among OECD countries, but the overall trends were the same. In the late 1970s, the former trend towards income equality in the developed countries began to reverse, first in the USA, then in the UK, and in the mid-to-late 1980s in most of Western Europe.

Living standards and real incomes in European countries have been dropping since the 1980s. This has been accompanied by a polarization of incomes and an increase in poverty. The traditionally most vulnerable social groups (elderly on minimum pensions, large families, single-parent families, migrants, minority groups) have been joined by the "new" poor, particularly prime-age urban workers living on welfare and unemployment benefits and refugees and displaced workers, both groups on the rise in Europe. Transition economies have been worst affected.

Modern 'non-egalitarian' thinkers generally reject the idea that poverty is necessary and desirable and accept the proposition that a certain redistribution of income through public policy is desirable and feasible. In developing countries the attack on unequal income distribution has been focused on raising often desperately low wages. The main instrument in this is statutory minimum wages. At the same time there has been a move away from highly selective and variegated approaches to minimum wage fixing and towards uniform structures of general minimum wages of broad coverage.

Since the end of the 1970s, the gap between the income level of the wealthiest inhabitants of a country and that of the poorest has been widening. The incomes of the rich have grown more rapidly than average and those of the poor less rapidly. In fact, in most countries the incomes of the poor have declined in absolute terms.

There is not one single trend in internal income distribution. Although the predominant trend accompanying the globalization of economies is towards the concentration of income, there are numerous special cases in a position to depart from this trend, which shows and clearly expresses the role that is and can be played by the State in these matters. The economic policy measures each State adopts determine the type of insertion of their national economy in relation to the international economy.

[Industrialized countries]

UK figures for 1994 showed that the gap between the highest-paid and the lowest-paid in the UK was greater than at any time since 1886. Between 1979 and 1991 average income for the population as a whole rose by 36%: the real incomes of the top tenth rose by 62% while those in the bottom tenth fell by 14%. Between 1987 and 1992 the salaries of top executives of the first 100 companies in the Financial Times index rose by 133%, while wages of the lowest-paid 10% of workers rose by 38%. In 1990, top UK executives were receiving incomes 344 times greater than those of the lowest-paid seventh of the labour force. If property is included, the wealthiest 10% of the UK population own 53% of all wealth.

In 1979, the less well-off half of the British population received one third of total national income. In 1991 they received one quarter. The bottom 10% of the population pay 43% of their income in tax, while the top 10% pay 32%. While the population as a whole became 30% better off in 1988/89 than in the 10 years previously, the income of the poorest tenth, some 3 million people, fell by 6% after housing costs. Moreover, the number of poor people (those living on less than half average income) rose over that period from 5 million to 12 million; in 1993 it was 13.5 million, or 24% of the population.

In the USA the lowest-earning 20% of all households earn 5.7%, and the highest-earning 20% have 55% of the total income after tax. The wealthiest 1% of American households owns nearly 40% of the nation's wealth. The wealthiest 20% of the American population received 11 times more than the poorest 20%. In Canada, they received 7.4 times as much, and in the UK 7 times as much.

[Transition countries]

The situation of the former centralized economy countries is a special from case of income concentration and regressive distribution of wealth in a short period of time. Although the data only go back to 1993, the trends to be seen are extremely pronounced.

[Latin American countries]

Growing inequality in a context of accelerated economic growth is becoming the principal problem of "governability" in the countries of Latin America. in Democracy is being eroded for lack of correspondence between political principles at the economic and social levels. The enjoyment of civil and political rights achieved with the advent of democracies in all the Latin American countries is not matched by corresponding enjoyment of economic, social and and cultural rights by the population as a whole. Latin America has one of the highest levels of inequality in income distribution in the world.

[Developing countries]

In Brazil the poorest fifth of the population have just 2% of all income, the richest fifth have 67%.