Incomes continue to decline for overwhelming majority in developed nations

A study released by the McKinsey Global Institute (MGI) earlier in July shows that up to 70 percent of people in the world’s 25 most developed countries have had the purchasing power of their incomes either decrease of remain the same during the 10 year period between 2005 and 2014.

By comparison, only 2 percent of “developed world” households in the era of 1993 to 2005 did not see a rise in their real income.

The MGI report also predicted that if the “slow growth” of developed nations continues, up to 80 percent of income earners in those countries could experience flat or declining wages in the next 10 years.

To off-set the decline in pay, governments have generally adopted pro-growth reforms and expanded the social safety net by lowering taxes and increasing welfare benefits. Despite these policy changes, 20 to 25 percent of households have still not seen an increase in disposable income.

MGI looked closest at income statistics for six countries in particular — U.S., UK, Italy, Netherlands, France and Sweden — finding that 100 percent of Italians, 70 percent of the Dutch and 60 percent in the UK saw their inflation-adjusted, after-tax income stay the same or decline.

In the U.S., conversely, while 81 percent of employed persons had flat or decreasing “market income” — including any return on capital investment(s) — less than 2 percent saw their disposable income stagnate or decline.

“Over time, declining earning power for large swaths of of the population could limit demand growth in [these] economies”, said MGI senior partner, Richard Dobbs. “Our research finds that carefully targeted policy measures to boost productivity, GDP growth, and employment can make a significant difference.”

The studies authors noted that, for the U.S., “lower tax rates and higher transfers turned a decline in market incomes for four-fifths of income segments into an increase in disposable income for nearly all households. Efforts such as these — along with additional measures such as encouraging business leaders to adopt long-term thinking — can make a real difference.”

CGI also confirmed a political trend that seems common in all developed countries presently, citing survey data showing that people who experienced flat or negative income growth and were pessimistic about their prospects are more inclined to support a nationalist party or isolationist trade and immigration policies.


[The Guardian] [Image courtesy The Economist]