OECD – Inequality – Skills Gap : Increasing Earnings Gap due to a Skills Gap Calls for Up-skilling

“Over the two decades to the onset of the global economic crisis, real disposable household incomes increased in all OECD countries, by 1.7% a year, on average. In a large majority of OECD countries, household incomes of the top 10% grew faster than those of the poorest 10%, leading to widening income inequality” and “increases in household income inequality have been largely driven by changes in the distribution of wages and salaries which account for 75% of household incomes of working-age adults” writes the OECD in its report: GROWING INCOME INEQUALITY IN OECD COUNTRIES: WHAT DRIVES IT AND HOW CAN POLICY TACKLE IT?

Choosen excerpts by JMM 

What drives growing earnings and income disparities? 

  • Globalisation
  • Skill-biased technological progress
  • Institutional and regulatory reforms
  • Changes in family formation and household structures;
  • Tax and benefit systems.

“Over the past decades, OECD countries have undergone significant structural changes resulting from their closer integration into a global economy and rapid technological progress. These changes have brought higher rewards for high-skilled workers and thus affected the way earnings from work are distributed. The skills gap in earnings reflects several factors” and is link to the fact that “technological progress is… inherently ‘skill-biased’” the report says.

OECD countries carried out regulatory reforms to strengthen competition in the markets for goods and services and associated reforms that aimed at making labour markets more adaptable:

  • anti-competitive product-market regulations were reduced
  • More lenient employment protection legislation for workers with temporary contracts
  • Minimum wages, relative to average wages, have declined.
  • Share of union members among workers has fallen across most countries changing the wage-setting mechanisms
  • unemployment benefit replacement rates fell,
  • taxes on labour for low-income workers were reduced to promote employment among low-skilled workers.

What could be done ?

“Redistribution strategies based on government transfers and taxes alone would be neither effective nor financially sustainable. A key challenge for policy is to facilitate and encourage access to employment for under-represented groups. This requires not only new jobs, but jobs that enable people to avoid and escape poverty. Recent trends towards higher rates of in-work poverty indicate that job quality has become a concern for a growing number of workers. Policy reforms that tackle inequalities in the labour market, such as those between standard and non-standard forms of employment, are needed to reduce income inequality.

“Policies that invest in human capital of the workforce are needed. This requires better training and education for the low-skilled. The latter would serve to boost their productivity potential and future earnings. Over the past two decades, the trend to increased education attainment has been one of the most important elements in counteracting the underlying increase in wage inequality in the longer run. Policies that promote the up-skilling of the workforce are therefore key factors to reverse the trend to further growing inequality.”

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