Does Income Inequality Hurt Economic Growth?

According to research by the Organisation for Economic Co-operation and Development (OECD), income inequality has a negative impact on economic growth. The OECD urges governments to invest in education for low income groups.

The gap between rich and poor is at its highest level in most OECD countries in 30 years. The richest 10 per cent of the population earn 9.5 times more than the poorest 10 per cent.

In the UK, rising inequality cost the economy almost nine percentage points of GDP growth between 1990 and 2010.

Angel Gurría, OECD’s secretary general explained: “This compelling evidence proves that addressing high and growing inequality is critical to promote strong and sustained growth and needs to be at the centre of the policy debate,”

“Countries that promote equal opportunity for all from an early age are those that will grow and prosper.”

The only countries in which the OECD found inequality had fallen were Greece and Turkey.

OECD explained a key factor behind rising inequality is due to a lack of investment in education. Fewer educational opportunities for disadvantaged individuals had the effect of “lowering social mobility and hampering skills development,” the report warned.

It also said that those whose parents have low levels of education suffer most when inequality rises, whereas family background matters less to those from a more educated background.

The OECD called for policymakers to do more than just implement anti-poverty programmes.The OECD urges governments to invest in education for low income groups.

To access the full report, click here.

Mike Sandiford
Head of Partnerships
0207 193 9931

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