U.S. gap between rich, poor widening

PARIS — Economic inequality is growing in the world's richest countries, particularly in the United States, jeopardizing the American Dream of social mobility just as the world tilts toward recession, a 30-nation report said Tuesday.

The gap between rich and poor has widened over the past 20 years in nearly all countries studied, even as trade and technological advances have spurred rapid growth in their economies.

With job losses and home foreclosures skyrocketing and many of these countries facing recession, policy makers must act quickly to prevent a surge in populist and protectionist sentiment as was seen after the Great Depression, the Paris-based Organization for Economic Cooperation and Development (OECD) said.

In a study of its member countries between 1985 and 2005, the OECD found inequality had increased in 27 of its 30 members as top earners' incomes soared while others' stagnated.

Among these countries, the United States has the highest inequality and poverty rates after Mexico and Turkey, and the gap has increased rapidly since 2000, the report said. Inequalities in France, meanwhile, fell in the past 20 years as poorer workers were paid better.

In the United States, the richest 10 percent earn an average of $93,000 — the highest level in the OECD. The poorest 10 percent earn an average of $5,800 — about 20 percent lower than the OECD average.

Wealthy households not only are widening the gap with the poor, but are leaving middle-income earners further behind in countries such as the United States, Canada and Germany, with potentially ominous consequences if the global financial crisis sparks a long recession.

With several OECD countries already in recession, the "key question" raised by the report is whether governments can prevent a possible drop in top earners' incomes from sparking "a second wave" hit to the lowest-income households, said Martin Hirsch, France's high commissioner for fighting poverty.

With governments around the globe announcing trillions of dollars in rescue financing to shore up banks, "I think that citizens of OECD countries are going to expect that if you can find funds to rescue banks, then governments can fund an effective unemployment insurance scheme, and they can fund employment subsidies," Oxford University economist Anthony Atkinson said.

"If the government can take on the role of lender of last resort," Atkinson said, "then we should think about the government taking on the role of employer of last resort. Put bluntly, governments have to step up. Step up to the plate as Roosevelt did in the Great Depression."

OECD Secretary-General Angel Gurria urged governments to address the "divisive" issue of growing inequality. He said they should do more to educate the whole work force — not only the elite — while helping people find jobs and increasing incomes for working families, rather than relying on social benefits.

"Greater income inequality stifles upward mobility between generations, making it harder for talented and hardworking people to get the rewards they deserve," Gurria said. "It polarizes societies, it divides regions within countries, and it carves up the world between rich and poor."