Rising profits linked to inequality and poverty

A rise in the share of national income taken by profits is linked to a rise in income inequality and poverty, says a new research study for the United Nations. The main contributory factors are policies that promote economic 'liberalisation' and deregulation, and in general the 'slow erosion' of the welfare state.

The study draws on high-quality and homogeneous datasets for 26 developed countries (compiled by the United Nations and the OECD), together with secondary sources.

Key findings

  • In at least 17 of the 26 countries examined, income inequality has risen at the same time as the labour share of national income has fallen. There are exceptions to this rule, but they relate to either small or less developed countries.
  • The evidence points to a close association between a rise in the profit share (on the one hand) and a rise in income inequality and poverty (on the other). The two measures – profit share and income inequality – can be viewed as 'twins', stemming from the same idea of 'distributing' income, and reacting to the same overriding institutional and policy factors.
  • Structural changes in institutions and economic policies since the start of the 1980s explain most of the international pattern observed, with a shift of toward more a more 'liberal' economic policy agenda.

Source: Olivier Giovannoni, Functional Distribution of Income, Inequality and the Incidence of Poverty: Stylized Facts and the Role of Macroeconomic Policy, United Nations Research Institute for Social Development
Link: Report