Can we reduce income inequality in OECD countries?

Abstract

The public debate about inequality has generated a sense of gloom and doom—that high levels of inequality are inevitable and that little can be done. The aim of this paper is to inject a more optimistic note. I argue that there have been periods in the past when income inequality was reduced and we can learn from these, that the textbook story of the causes of rising wage inequality—globalisation and technological change—has a more optimistic interpretation; and that, whereas wages are a major part of household incomes, but there are other important determinants where it is possible to take action to reduce inequality. The paper ends by outlining four “old” measures to reduce inequality, based on the lessons from the post-war decades in Europe, and four “new” measures suggested by the analysis of today’s economics of inequality.