Top earners benefit more from improving economic growth even though governments target tax and other financial incentives at the lowest paid.
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In the US, after-tax incomes for middle earners were up a fifth between 1979 and 2005, but in the same period, the incomes of the top 0.1% of earners rocketed by 400%.
Analysing income figures in more detail can show that economic growth benefits fewer people than believed, says the Organisation of Economic Co-operation and Development, a group helping governments with economic and tax policy.
In America for the 10 years ending in1997, real household income grew by 1.2% a year, but when the top earning 1% were excluded, the figure was 0.6%.
Income inequality
The underlying figure showed that the top 1% of earners had a 58% increase in real incomes.
Celebrities and sports stars are often branded as earning the most, but other surveys have found this is not true.
In the USA, 41% of those taking home the largest pay packets were business executives. In Britain, 21% of top earners work in finance, while in France, the figure is 15%.
“We have reached a tipping point. Inequality can no longer be treated as an afterthought. We need to focus the debate on how the benefits of growth are distributed,” said OECD secretary general Angel Gurria.
“Our report ‘In it Together’and our work on inclusive growth have clearly shown that there doesn’t have to be a trade-off between growth and equality. On the contrary, the opening up of opportunity can spur stronger economic performance and improve living standards across the board.”
Why so people earn more
The OECD also looked at why some people are paid so much and came up with several answers:
- Global markets, such as finance, compete for the same top executives and professionals and have to pay a big salary to attract and keep them
- High earners often receive stock options as well as salary, which in theory encourages them to work harder to become successful as their wealth depends on their performance
- Wage premium means some professionals are paid more than comparable workers even though their productivity is lower, leading to wage inequality
- Falling top tax rates give high earners larger pay packets
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