Income inequality damages growth, OECD warns
Chris Giles in London

Rising income inequality over the past 30 years has damaged growth rates in rich countries by limiting educational opportunities for poor children, according to research by the OECD, the group of mainly rich nations.
The finding that higher inequality harms economic performance mirrors the results of a similar study by the International Monetary Fund earlier this year. But the OECD’s analysis goes further because it concentrates on rich countries and attempts to establish the exact cause of inequality’s harmful effects on growth.

The OECD said the research showed governments should focus policy on ensuring poorer children gain better education and the supporting people into employment.
As inequality has moved higher up the political agenda in rich countries, there has been a flurry of research papers looking into the link between inequality and growth. Clear conclusions have been difficult to achieve because economic theory is ambiguous and the subject has been plagued by research finding spurious associations in the data rather than meaningful causal relationships.
Higher inequality can hinder growth by destroying trust in society, hitting investment in skills and reducing demand growth for goods and services from poorer families who tend to spend more of their incomes. But it also provides greater incentives for people to strive to climb the ladder of opportunity and can provide necessary savings to finance investment and growth.
Janet Yellen, chairwoman of the Federal Reserve, said this autumn that these conflicts of theory ensured that “society faces difficult questions of how best to fairly and justly promote equal opportunity”.
Statistical results showing inequality as bad for growth have also come under surprise fire from professor Paul Krugman, the Nobel Prize-winning economist and