The Social Safety Net Is Staving Off Income Inequality

Income inequality around the world increased more during the financial crisis that it did in the previous 12 years, according to new data from the Organisation for Economic Cooperation and Development (OECD) released on Wednesday. The United States has one of the largest gaps along with Chile, Mexico, Turkey, and Israel. The top 10 percent of the income scale fared better than the poorest 10 percent in 21 out of 33 countries.

In the United States, the top 10 percent of the income distribution had 15.9 times the income at of the bottom 10 percent in 2010, compared to 9.8 times for the OECD on the whole. The U.S. also has a higher Gini coefficient – a measurement of a country’s income inequality – and a higher share of the population living on less than half the median income.

But there is a silver lining: The numbers would look much worse without social spending. Nearly a third of the country’s population would be living on less than half of the median income without the social safety net, but taking it into account drops that number to 17.4 percent. The Gini coefficient also falls significantly, proving that social spending is doing a lot to bring down income inequality.

That could change as the U.S. continues to cut government spending. The report “warns that further social spending cuts in OECD countries risk causing greater inequality and poverty in the years ahead.” The U.S. is set to cut $1.5 trillion in spending over the next decade, and new CBO numbers show that the deficit has dramatically dropped thanks in part to falling public spending.