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# **4.3  Income inequality**

Macroeconomic volatility accompanying financial and economic crises also worsens income equality, since lower income segments of the population are less protected from economic downturns. As observed in previous crises, the substantial deterioration in development indicators has been accompanied by a worsening income distribution in some countries during the current crisis (figure 13), although with no clear indication that income inequality worsened more in the countries hardest hit by the global crisis. A commonly used measure of income equality, the Gini index,<sup>51</sup> increased post-crisis in a number of advanced countries such as Iceland, Sweden, Switzerland, Croatia, and Luxembourg, suggesting increased income inequality and a growing gap between rich and poor. Even in Germany, where the poverty rate is lower than most European countries, inequality seems to have increased, with the richest 10 percent of the population now controlling 60 percent of all wealth. The Gini index sharply deteriorated after the crisis in several developing countries in Europe and Central Asia and Sub-Saharan Africa, adding to the worsening socio-economic conditions. There seems to be a positive association between the rise in income inequality and a slowdown in economic growth (figure 14).

At the same time, the Gini index fell markedly in other advanced countries, suggesting reduced income inequality, including in a number of heavily-hit countries by the crisis, such as Portugal, Ireland, Greece, Spain, and Italy, as well as Romania, Hungary, Estonia and Norway (figure 15). The severe recessions and sharp drops in incomes due to prolonged periods of unemployment may have brought the distribution of income somewhat more aligned within these countries. This finding seems consistent with several earlier studies that point to drops in income inequality as a consequence of financial crisis.<sup>52</sup>

# **4.4  Social and political cohesion**

Evidence also points to a sharp deterioration in social and family cohesion during the global crisis. In a number of countries, rates of mental illness, substance abuse, and suicides increased since the onset of the crisis according to the United Nations.<sup>53</sup> Labor migration in response to the crisis and reported increase in the incidence of child abandonment, abuse and trafficking show signs of deterioration in social and family cohesion. Surveys indicate growing prevalence of depression in India, Indonesia, Pakistan, South Africa, and Thailand, and reported rises in suicide rates in Egypt, Japan, Latvia, South Africa, and the United States, similar to the evidence from the previous crises (a doubling of suicides in Korea after the onset of the 1997 crisis).

Evidence also suggests deterioration in socio-political indicators. In particular, there was an increase in outbreaks of conflicts, protests, violent demonstrations and perceptions of crime in 2009 compared to previous years, based on an index of global peace calculated by the Institute for Economics and Peace. The Global Peace Index that examines 23 indicators for 158 countries continued to deteriorate until 2012, as reflected in higher levels of organized crime and violent conflict, perceptions of criminality in society, greater likelihood of violent demonstrations, and increased number of homicides, jailed population, and deaths from organized conflict, as many

> 51 The Gini index measures the extent to which the distribution of income among individuals and households within an economy deviates from a perfectly equal distribution

> 52 See Calvo 2013 and references cited there in. 53 UN 2011.