The recovery after the COVID-19 crisis requires policies and reforms that tackle inequalities and promote equal opportunities. However, the implementation of such reforms requires widespread support from the public. To better understand what factors drive public support, this report provides a detailed cross-country analysis of people’s perceptions of and concern over inequality. It documents how concern over income disparities has risen in OECD countries over the long run. Nowadays, in most countries a large majority of the population believes that income disparities are too large and that intergenerational mobility is low. Yet, sufficient support for inequality-reducing policies may fail to arise if people do not agree on concrete policy options, or doubt the effectiveness of such policies. Moreover, even when the majority demands more equality, a divided public opinion can complicate the introduction of reforms. The report highlights how people within the same country are often divided as to the extent of inequality and what should be done to address this challenge. The report illustrates how the findings from analysis of perceptions and concerns can serve to inform policy making.
Does Inequality Matter?
Abstract
Executive Summary
Through extensive cross-country evidence, previous OECD reports have shown that income inequality has increased in most OECD countries over the last thirty years or so and that social mobility stagnated or worsened in some countries. The present report turns the attention to how people perceive inequality and social mobility.
In the recovery after the COVID-19 crisis, gathering public support is key to sustain the momentum for reforms that tackle inequalities and promote equal opportunities. Understanding how people form their perceptions and opinions about inequality can help understand the public support for such reforms. The report finds that there is increasing consensus that inequality is a problem, but there are increasing divisions about its extent and what to do about it.
Do people care about inequality? Most people are concerned about inequality. Four in five people in the OECD feel income disparities are too large in their country. People care about inequality of both outcomes and opportunities, as they perceive high income and earnings disparities as well as low social mobility. The average OECD citizen believes that slightly more than 50% of the national income goes to the 10% richest households and that only 4 out of 10 poor children make it out of poverty once they become adult. Concern over income and earnings disparities has risen in the last three decades, in line with the increase in income inequality measured by conventional statistical indicators: while in the 1980s the median individual believed that top earners earn 5 times as much as bottom earners, this perceived top-to-bottom earnings ratio has increased to 8 today. However, also tolerance for inequality increased: today the median person believes that top earners should earn 4 times as much as the bottom earners, up from 3 times in the late 1980s.
Are perceptions disconnected from reality? Even if most people do not have a full set of information, perceptions do reflect real-life evidence of economic inequality in the society. Indeed, even if there is no full match, perceptions and conventional estimates are correlated across countries: people perceive higher income disparities and lower social mobility where conventional estimates are also higher and lower, respectively. Furthermore, concern over income disparities and conventional estimates of inequality have moved in line over time: in countries where statistical indicators of income inequality grew the most, so did people’s concern over inequality. For each point increase in the Gini index – a conventional indicator of income inequality – there is almost a 2-percentage point increase in the share of people who strongly agree that income disparities are too wide. Experimental evidence also shows that people incorporate information about inequality consistently in their beliefs. When confronted with information about the actual extent of economic disparities and social mobility, people become more aware of inequality and more concerned about it.
Does high concern imply widespread support for government intervention? In general, the more people are concerned about inequality, the higher their demand for redistribution, but in some countries support for government intervention falls short of concern. Across the OECD, 80% of people who find income disparities to be too large think that it is the responsibility of the government to reduce them. However, in 1/5 of the countries this fraction is below 60%. Furthermore, over time preferences for income redistribution in OECD countries have, on average, risen less than concerns. Besides perceptions of and concern over inequality, demand for inequality-reducing policies is driven by beliefs around what drives inequality, in particular whether access to opportunities is widespread and hard work brings success: across the OECD, demand for more progressive taxation is lower where people believe that poverty is due mostly to lack of personal effort. Furthermore, people’s support for specific policies depends on whether those policies are perceived to be effective in reducing inequality. In fact, people are less likely to demand more redistribution if they believe that benefits are mistargeted. On the same line, they are less in favour of progressive taxation if they believe that petty corruption is widespread among public officials, prompting the misuse and misallocation of public benefits. Experimental evidence shows that informing people about the redistributive impact of policies and their effectiveness in addressing inequalities helps raise support.
How divided is public opinion within countries? Despite a growing concern about inequality, there are increasing differences about its extent and what to do about it. Within a given country, most people would like to live in a more equal society. However, they disagree on the extent of inequality and social mobility. Within the average OECD country, one person in four thinks that more than 70% of the national income goes to the 10% richest households, contrary to another fourth of individuals who think that less than 30% goes to the richest households. As a consequence, people disagree with each other as to by how much inequality should be reduced, but mostly because they perceive different levels of inequality, rather than because they have different preferred levels. This division of public opinion has grown in the last three decades, showing signs of polarization: in most OECD countries there is an increasing gap between those who believe inequality is high and those who believe it is low. Interestingly, disagreements over the extent of inequality are wide even among people with similar socio-economic characteristics. In fact, the increased level of disagreement over the last three decades is mostly explained by increased disagreement within socio-economic groups, rather than between them.
How can people’s perceptions of and concern over inequality inform policy? Despite people’s concern over inequality, public support in favour of inequality-reducing policies cannot be taken for granted. Getting citizens and governments on the same page when it comes to policies reducing inequality and promote social mobility requires understanding how people form their perceptions and opinion. The report highlights the importance of:
Better understanding of public support for reform: People care about inequality of both outcomes and opportunities, hence reform packages that tackle both aspects are more likely to gain support. Policy makers should nonetheless take into account people’s preferences for specific policy mixes, which may be more opportunity enhancing or focusing more on equalising outcomes. They may also focus on specific aspects of inequality more than on others (e.g. disparities at the top versus bottom). Furthermore, as disagreement is strong also between people with similar socio-economic characteristics, policies that are limited to just one main group might fail to reach sufficient consensus even within that target group.
Better understanding of the effectiveness of policies: People’s support for specific policies is higher when those policies are perceived to be effective in reducing inequality. This reinforces the need for evaluating the effectiveness of policies in a transparent way, to gain people’s confidence. Such evaluation should be coupled with increased effort to facilitate people’s understanding of the functioning and, in particular, the impact of the policies.
Better information on inequality and equality of opportunities: Providing high-quality information about inequality can help reduce the widespread dispersion of perceptions that leads to a divided public opinion. It has the potential for providing common ground for public debate even if it would not necessarily reduce the differences in opinion about policies.
