Income Inequality and Labour Income Share in G20 Countries: Trends, impacts and causes
The Government of Turkey has made inclusiveness one of the three priorities of its G20 Presidency. This builds upon the G20 Leaders’ commitment in 2014 to “…support development and inclusive growth, and help to reduce inequality and poverty.”
Indeed, the inclusiveness of growth, and the related issues of growing inequality and declining labour income shares, have taken center stage in policy debates both within the G20 and beyond. An ever-growing body of research documents that inequality has risen across the globe, including in most G20 countries, in some cases to historic highs. The middle class has been squeezed in many advanced and some emerging economies, with incomes stagnating or even declining. The share of national income going to labour has declined in almost all G20 countries, with productivity rising much faster than real wages in a number of advanced G20 economies. Within the labour share, the highest earners have captured an increasingly large portion, while those at the bottom have seen their shares decline significantly.
Many emerging G20 economies have managed to bring millions of people out of absolute poverty over the past two decades, but at the same time several have seen sharp increases in income inequality. Overall, the reality for emerging markets and developing countries is more mixed than for the developed world. Amongst the emerging economies of the G20, inequality has been increasing in some—e.g. Indonesia and China—while falling in others—e.g. Brazil and Argentina.
The G20 Sherpas and the Employment Working Group have requested the international organizations to present concise evidence of recent trends in inequality and labour income shares and to identify possible causes as a basis for developing potential policy responses. This report takes up that task and pays particular attention to both the overall trends and common patterns in the G20 as well as to the important differentiation across G20 countries.