Template - Single Risk 2016

Rising Inequality

The gaps between rich and poor are growing all over the world, even if poverty rates have gone down (OECD, 2015). High economic inequality has a harmful impact on a number of societal outcomes, such as life expectancy, level of educational attainment, and economic growth (KPMG, 2015).

Due in part to the rise of emerging economies, global inequality overall is declining and the number of people living in extreme poverty has declined from 1.9 billion in 1990 to 836 million in 2015 (World Bank, 2015 & Humanosphere, 2015). In line with this development, projections show that we will witness a massive influx of people into the global middle class, which will grow from 1.8 billion people in 2009 to 4.9 billion in 2030 (OECD, 2012). Despite these positive global trends there is still inequality present today and the fact that it is not just the level of income in a community that matters — it’s also how income is distributed (NY Times, 2015), underlines the importance of addressing inequality for a sustainable future.

While there might be a positive trend globally, inequality is still rising within countries and poses a risk to societies. Global trends show increasing concentration of wealth in an increasingly small number of hands. The gap between the rich and the poor reached a new peak in 2015, where the richest 1 percent had accumulated more wealth than the rest of the world put together (Oxfam, 2016). Looking at the OECD countries, income inequality is at the highest level for the past half century (OECD). The average income of the richest 10 percent of the population is about nine times that of the poorest 10 percent across the OECD. OECD found that income inequality has a statistically significant impact on economic growth, costing the UK nine percentage points of GDP growth between 1990 and 2010 and the U.S. almost seven points (OECD, 2014).

The 2015 Change Readiness Index, which measures the ability of governments, businesses and civil societies in 127 countries to handle economic change and take advantage of investment opportunities, found that economic inequality makes it harder for countries to weather crises such as natural disasters and social unrest (KPMG, 2015). Income inequality is intrinsically linked to social inequality. Within countries and communities across the globe, prejudice and discrimination on the basis of sex/race/ethnicity/social class, etc. fuels income inequality. For instance, women make up the majority of the world’s poor and do not have the same economic opportunities as men (UNWOMEN, 2015).

Inequality has obvious implications for the groups negatively affected by it; however, it also has a negative spill over effect on other areas of society such as economic productivity, resilience and crime rates. E.g. inequality tends to fuel crime, and societies marked by inequality experience higher rates of violence than more equal societies do (Equality Trust). Life expectancy is also influenced by income inequality. Research have found that people in unequal communities were more likely to die before the age of 75 than people in more equal communities
in the US – even if the average incomes were the same.

The causes of these growing income gaps are complex and reflect both economic and social shifts. The OECD points to globalization – in particular the impact of technology on the workforce – as an important factor.

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