Now here's a remarkable turn around. Income inequality is bad for your health but now officially bad for your economy too.
The recent OECD report unequivocally states that countries where incomes have become more unequal over the last three decades have not seen their GDP grow as much as it should have. When this is applied to New Zealand, their calculation is that instead of 28% growth over that period, we should have seen 44% if we had not had such a stupendous rise in income inequality. After all, we are nearly top of the class when it comes to becoming more unequal more quickly.
The increase in inequality seems to be due, not only to the lowest 10% becoming worse off, but to the whole group in the lowest 40%. This is probably not news to many of our citizens who have been struggling with limited and even dropping incomes for years as prices and costs generally keep creeping inexorably upwards.
So why should this inequality have an effect on our economic growth? The OECD report emphasises that this is by way of poorer education in the group of people who are worse off. Good education requires time and money as well as a clear vision of its importance to their children. Priorities may have focused on getting enough food and keeping warm perhaps?
Another important point made in the report is that redistribution of incomes via taxation and benefits DOES NOT impair economic growth. In fact, if it gives lower income people a chance to take part in educational opportunities fully, it should lead to an increase in GDP.
Their policy recommendation is to focus on education and skills training for those who have been effectively excluded from it over the last decades. That seems a sensible focus.
But as with most of these problems, it is more complex than a single issue, in this case education only, and we need to look at income adjustment for all of the bottom 40% which is a large proportion of our community that is feeling the pinch with no apparent way out. Such an adjustment would need a review of wages, taxation as well as benefits if it were to be done with genuine purpose.
It is with these combined measures that we will give people in that 40% a chance to improve their lot and particularly give their children a chance for a brighter future.
Americans claim their great dream is the chance to do better for yourself and move up the social and more importantly, the financial ladder. The figures show that this is very difficult in New Zealand with its unequal income distribution. It is also very unlikely to happen in USA as well. The best place to achieve the great American dream is actually in Denmark!
We need to rethink our approach to funding families and people in the lower 40%. Perhaps following OECD advice would be a good start.