Why America Is More Unequal Than Most

By Reuters

21 December 12

Some rich countries are more unequal than others - and the United States more so than most.

merica has a higher degree of income inequality than almost any other developed country. Only three of the 34 members of the Organization for Economic Cooperation and Development rank higher - Chile, Mexico and Turkey.

So why is the U.S. so much more unequal than its peers? The U.S. Congressional Research Service cited several potential reasons in a report earlier this year.

One is that most other rich countries spend a bigger share of their national output on social programs, which tend to lessen income inequality. In Germany, public social spending accounted for 27.8 percent of gross domestic product in 2009, compared with 19.2 percent in the United States, according to the OECD.

A second factor is tax systems. A 2012 study by economists at the OECD found that, in general, the more a country spends on social programs, and the more progressive its tax-and-transfer system is, the more it can reduce income inequality. The U.S. is less effective at reducing inequality through taxes and benefits than the OECD average; German policies have cut inequality more than the average.

Australia spends less than the OECD average on social programs - but has been more effective than average in reducing inequality. Economists say this may be because Australia targets its programs more squarely at low-income families.

A third potential reason is the way earnings are divided. Michael Forster of the OECD suggests inequality in English-speaking countries may be higher because Anglophone corporate executives have more options of places to work than do, say, German speakers, and so they can demand higher pay.

Attitudes toward the poor may make a difference, some researchers say. A 2008 OECD study found that respondents in the United States and Korea were far more likely to say poor people were poor because they are lazy than did respondents in Nordic and Continental European countries.

That speaks to a common belief among Americans that anyone who works hard enough can become rich. As John Steinbeck once wrote, in America, "the poor see themselves not as an exploited proletariat but as temporarily embarrassed millionaires."

Recent studies, however, have shown that Americans are now less likely to move into a class above their parents than are people in other rich countries.