Global income inequality: Where the U.S. ranks

@CNNMoney November 8, 2011: 4:18 PM ET
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NEW YORK (CNNMoney) -- It's no surprise that top earners in America make a heck of a lot more than middle- and lower-income Joes.

But the disparity is greater here than in most developed nations.

The U.S. has a higher level of income inequality than Europe, as well as Canada, Australia and South Korea, according to data gathered by the World Bank.

And, while many nations have seen income inequality rise within their borders, the United States has experienced a more rapid increase in recent decades, widening the wealth gap even more.

"The top 1% in the U.S. really receive much more than in Western European countries," said Branko Milanovic, an economist with the World Bank and author of "The Haves and the Have-Nots."

America ranks in the bottom third of the list of 90 countries that Milanovic compiled, which is mainly based on 2008 data of per capita income or consumption in each nation.

The data is then put into a complex formula to provide the Gini index, which determines how much money would have to be redistributed for everyone to have the same income. The higher the figure, which ranges between 0 and 100, the more unequal the country.

Slovenia and the Slovak Republic top the global list, reflecting the fact that they have the most equal economies. Most of Western Europe, Canada, South Korea and Australia rank in the top half.

Faces of poverty

But while the U.S ranks low among rich nations, plenty of countries are worse off, particularly in Latin America. Honduras and Guatemala have the most income inequality, according to the World Bank.

Income inequality has also soared in the former Communist countries of Russia and China, as they shifted to market economies. Russia is only slightly better than the U.S., while China has become more unequal.

But the U.S. still stands out as a developed economy with such a great divide between rich and poor. The reasons behind its weak showing on the global stage are many and experts differ over which factors predominate.

Technology has contributed to the growing gap. As jobs require greater skills, it's harder for those with just a high school diploma to land good-paying employment. A college degree has become a requirement for more lucrative positions.

At the same time, increased globalization is squeezing the middle class. Many companies are outsourcing jobs to other countries where workers are paid less. Also, other nations produce goods at cheaper prices so fewer U.S. firms are making items here. Hence, there are fewer opportunities to make a decent wage.

And what's unique to the United States is the relative lack of government support compared to Europe and Canada. Other countries provide more public services, including health insurance, higher education, daycare and pensions. And these benefits are provided on a more universal basis, rather than being dependent on one's income level, as in the United States.

"The U.S. government has done far less to address inequality in American society than any other of the rich countries," said Frederick Solt, an assistant political science professor at Southern Illinois University at Carbondale.

Other factors also play a role in the widening divide in America.

Low-skilled immigrants to the U.S. increase the competition for low-wage jobs, said Lane Kenworthy, a sociology professor at the University of Arizona. This allows employers to keep a lid on wages.

At the same time, unions are losing their strength on this side of the pond, while they've retained more of their clout in Western Europe. Experts cite the decline of U.S. unions as one cause behind falling middle-class incomes.

Meanwhile, Europe also places more restraints on executive compensation so its corporate leaders don't receive the outsized packages that their American counterparts do. Lavish executive pay is one reason why the top 1% of U.S. earners have seen their average inflation-adjusted household incomes rise by 275%, according to the Congressional Budget Office.

Growing income inequality could lead some Americans to feel that they will never be able to move up the economic ladder, experts said. This is especially true if they see the wealthy advance, while they stay in place or fall behind.

"When you combine stagnant or worsening living standards with rising income inequality, it's a recipe for potential discouragement or frustration," Kenworthy said. To top of page

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