Income inequality: the OECD and Turkey

A recent Organization for Economic Cooperation and Development (OECD) report on income inequality and poverty received significant coverage in the Turkish media given that election campaigns focus particularly on income inequality and poverty.
Since Turkey is ranked at the top among OECD members with regards to income inequality, the OECD report was largely highlighted in newspapers and television channels although this has long been a well-known fact. However, media commentators often failed to point out that Turkey has been among the few countries where income inequality slightly decreased even though it increased in a large majority of OECD members.
This increase in income inequality is the main concern of the report. and”The long-run increase in income inequality not only raises social and political concerns, but also economic ones,and” notes the OECD. Indeed, rising income inequality tends to drag down gross domestic product (GDP) growth as lower income is and”prevented from realising their human capital potential, which is bad for the economy as a whole.and” According to the OECD, the rise in income inequality has multiple causes such as globalization, technological change and changes in redistribution. Indeed, the intensive integration of economies at a global level as well as developing technology has deepened skill hierarchy, which increased the wage gap between skilled and unskilled labor.
The main driver of the income inequality increase has been the growing inequality in wages since wage income constitutes a major part of total disposable income. The OECD uses three measures of income inequality: the standard Gini coefficient measuring income differences between individuals the ratio of the average income of the top 10 percent to the average income of the bottom 10 percent and the poverty rate, which is the and”number of people andhellip whose income falls below the poverty line taken as half the median household income of the total population.and”
Regarding the Gini coefficient, the OECD average in 2012 was 0.32. The more equal countries have for a long time been the Scandinavian ones — Denmark and Norway 0.25, Sweden and Finland 0.27. Ex-socialist countries are also among the best performers (Slovenia 0.25, Slovakia and the Czech Republic 0.26). The worst performers in Europe are Portugal and Spain (0.34) while among OECD members the highest income inequalities are in Chile (0.50), Mexico (0.48) and Turkey (0.41 in 2011).
According to the OECD report these three countries are at the same time those countries where inequality decreased slightly. The Gini computation of the Turkish Statistics Institute (TurkStat) using the data of Income and Life Conditions Surveys — launched in 2006 and referring to incomes of the previous year — indicates that the Gini coefficient declined from 0.43 in 2005 to 0.40 in 2012. Recent Word Bank research shows that the main reason for this decline is the high and and”comprehensiveand” increase of per capita income during the period 2003-2011.
This comparative state of income inequality among OECD members is confirmed by two other measures. The average income ratio of the top 10 percent to the bottom 10 percent is 9.2 percent in the OECD. It was 7 percent 25 years ago. It is as low as 5.4 percent in Slovakia and the Czech Republic and as high as 30.5 percent in Mexico and 26.5 percent in Chile. According to TurkStat, this ratio declined from 14.6 percent in 2005 to 11.9 percent in 2012 in Turkey.
As for relative poverty, the average ratio in the OECD is 11.2 percent. The lowest ratio is in Denmark with 5.4 percent, while the highest is in Mexico with 21.4 percent. In Turkey the relative poverty ratio was computed at 18.4 percent in 2005. It declined to 14.9 percent in 2012.
No doubt, despite the improvements to income inequality during the first decade of the Justice and Development Party (AKP) rule, Turkey still suffers from very high income inequality. The interesting question is what happened to this improvement process in the recent past since the per capita income growth has been lowered sizably. During the high growth period (2003-2011) the average per capita income was approximately growing at 3.5 percent, while this growth decreased to 1.5 percent in the 2012-2014 period. As economic research underlines the positive contribution of high economic growth rather than income redistribution, we may expect a halt of declining inequality in the meantime, but letand’s wait for the figures.

SOURCE: Today’s Zaman