 And we're going to be talking about moving from inequality to inclusion. It's my pleasure to introduce Secretary General Anahogoria, who's from Mexico, and was formerly Mexico's Minister of Foreign Affairs, as well as Mexico's Finance Minister. Since he's been Secretary General since June of 2006, there have been a number of additional members to have joined the OECD, including Chile, Estonia, Israel, and Slovenia. So for a total of 34. The OECD is one of the most important multilateral organizations some people have never heard of, but should know about. It's actually really one of the most really important organizations. It's a standard setter and has a number of important components to it, including PISA, which is the world-renowned analysis of education performance, as well as the DAC, the Development Assistance Committee for the development world, which is also the in essence it's the Major League Baseball Commission for Foreign Assistance, or for those of you who think about the World Cup, it's the FIFA of Foreign Assistance, as well as many other. There's focus on tax, it's on trade, and it's really a sort of a global think tank that I think had its origins, I think, to be fair in the Marshall Plan, if that's a fair way to describe it. Secretary General Anahogoria speaks six languages, or five and a half. His German is Masomenos, but speaks five languages very fluently. His wife's an ophthalmologist, he has adult children, and it's a very great pleasure to welcome you here to CSIS. Secretary General, please join me up here. Well, thanks a lot, Don. And thank you for joining us today when so many things are happening, the Stanley Cup and the NBA, and that's a little later, but certainly the opening of the World Cup. And let me say that together with me today are my colleagues in here. I'll go from left to right, Lamia and Mr. Morrison and Stefano and Jill, and over there, Carol, who's the head of our Washington Center. But this is the team that is working. Where is Luis? Where is Luis? The middle, there. This is the group, and Miguel, who has worked here at the office here on communications and media issues. But this is the group that is working on this issue that originally started working on 10 years ago on inequality, and that now is when inequality has become mainstream. The issue of inequality has become mainstream, and the best seller is about inequality. And the President of the United States says this is going to be the defining issue and the rest of the administration will be like, well, all this, fine. The IMF is working on inequality. The World Bank is working on inequality, fine. We're happy and comfortable that it has become mainstream, but at the same time, so what do we do with it? Now, if everybody agrees on the diagnosis and everybody agrees on how bad it is and what much of a problem it is, what do we do with it? What are the answers to that? And this is a little bit of what we're talking about today. So I'm delighted to be here at the CSIS. Thank you very much. Monsieur, Monsieur Rondi, we're bilingual. For the past 50 years, the institution has been dedicated to driving prosperity in the United States, but also peace in the world. This is an ideal place to address the challenges of inequality and the need to foster inclusive growth. As you know from the chorus of voices calling for greater equality, President Obama and President Bachelet, just to name a few, the issue of inequality has moved to the mainstream of politics and policymaking and the center stage of the international policy arena. It is one of the most urgent issues threatening the lives of Americans and so of many people around the world. The OECD has been at the forefront of this issue, not least since the publication of our pathbreaking study, growing unequal. It had a question mark. This was as far back as 2008 and it had numbers up to before the crisis. However, of course, we started working three years before. So already by 2008, we had been working for three years on this question when nobody thought it was a very hot issue or a very relevant issue. And in 2008, we had a question mark in our title and in 2011, we removed the question mark and we produced another book that was called Divided We Stand and the subtitle was Why Inequality Keeps Growing. And now, Stefano, you're going to come up with the third Opus early next year, which is going to look hard at the question of labor market and the sources of the inequalities and how that has come along. So I say this because for an institution, let me just make a little adjustment. I would never dare say a correction. But a little adjustment, he said it was a think tank. And we are a do tank, not a think tank, because we're policy oriented. We're action oriented rather than a think tank. But other than that, it was a very generous and very nice presentation. So since this work was put out, we made great advances with our members and the partner countries to address this growing divide or this greater and greater divide, very worrisome divide between the rich and the poor. So let me take a moment to share some of the key results. Inequalities are indisputably rising, first point. The enduring idea that the rising tide of economic growth lifts all boats is no longer a universal truth. In the US, even before the Great Recession, the poorest were steadily losing ground. Between 2000 and 2012, the average disposable income of the bottom 10 percent in the United States fell by 14 percent. At the same time, top incomes have soared to dizzying heights as the richest 0.1 percent earn 8 percent of national pre-tax income. And by comparison, the top 0.1 account for 4 to 5 percent of total pre-tax incomes in Canada. So Canada is half as unequal in that sense. And they're very proud of it. I just came back from Canada yesterday. And the UK, Switzerland also have about half. And it's about 3 percent in Australia, New Zealand, and France. So they're even more equal than, say, widening inequalities of outcomes, like income, which reflect growing inequality of opportunity. So it's not just a question of measuring the revenue from a job or from not having a job, which is the ultimate consequence. It is increasingly difficult for low-paid workers to climb the social ladder. Over the past few decades, low-paid Americans have worked harder and harder, increasing their average annual working hours by 20 percent. But their incomes are falling. They are failing to see the fruits of their labor. Most worryingly, inequality risks becoming entrenched. As low-paid workers struggle to afford quality education for their children. So here is a problem of very great consequence to our generation today, but which threatens to be transmitted to the next generation. What is driving this trend? Well, advances in technology, while a key driver of economic growth, generally increase salaries and opportunities for the highly skilled, leaving those with intermediate or low skills behind. On top of these many countries have undertaken pro-competition reforms in goods and services markets, this is good for productivity and growth. It's great for productivity and growth, actually. But it has polarized wages and, again, affected the poorest most, the ones who do not have the skills and made it more difficult for the ones who the crisis hit the hardest, the low-skilled young males, okay? It makes it more difficult for them to be picked up by the recovery, by the new growth. And inequality is not, as I said, just about income. It goes far beyond it and has become truly multi-dimensional. And so this brings us to the obvious conclusion that this is not about inequality, but this is about inequalities. There are several inequalities which conspire and kind of reinforce each other. In our publication all on board, this is the reply to the inequality issue. I said before, okay, so we do a diagnosis, we do a quantification, we do some benchmarking, but then we point to the solutions and now we're moving or proposing the actions. Now, this, I have to say, Annemarie from the Ford Foundation, we did it together with the Ford Foundation. We're very proud to launch this. Some of you actually were there, Heather, and some of you accompanied us that day in New York, precisely to look at what we can do with the inequality challenge by focusing on some of the policies that we have to adopt and adapt. And in this all on board, and by the way, here, the coordinator of the work and the main, you know, Lamia has now run out of many pieces of pencils and Lamia, and here Luis over there, I introduced you a while ago, he's coordinating this work and Lamia is part of the team, actually and they're a team of two, so that's all you get. No, it's actually a very, very important horizontal work. All of the OECD is involved and they're the ones who are coordinating the work and making sure that the people in ELSA, you know, employment, labor and social affairs, the people in the ECO, in economics, the people in health, the people in education, and the people in science and technology and innovation, that everybody is on board as the publication is called all on board for our proposals. So we find that rising income inequality is also accompanied by greater polarization in education and health outcomes. Perhaps intuitive, what we have done is documented, benchmarked and quantified that. Our most recent survey of adult skills, I mentioned PISA as the very well-known product of the OECD and the Program for International Student Assessment, but the PEOC is a very new product, it's called the Program for International Assessment of Adult Competencies. And this most recent survey of adult skills revealed that socioeconomic background has a stronger impact on adult literacy skills in the United States than in other countries. What have I just said? Very difficult to even understand what I just said. What our analysis reflects is that in the U.S., your socioeconomic background is weighing more heavily on your performance than most other OECD countries. That which would look like natural or even intuitively, maybe appropriate, is very bad, because if you happen to be from a vulnerable and from a family that had low skills, low education, it means that the children are going to be disenfranchised or are going to have lesser opportunities than the rest of their cohort, because of the weight of the past generation. So literacy skills are linked and have actually a very great bearing on health or to health. In 2008, the highest educated white males in the United States were expected to live 14 years longer than the lowest educated African Americans. This is not between an African country and the United States. This is in the United States. Now, let me just tell you, it won't make you feel any better, but I just, as I said, I just came back from Montreux and we just rolled out an analysis about skills and jobs and we went very, very local. We went to Ontario and to Quebec and then we went to very small towns in Ontario to Thunder Bay and to Hamilton and then to Estre and Merisi, et cetera. And we would there have, in some cases, from the better off to the worst off, you could have, because of the type of work and mining and whatever and extraction, you could have even sometimes even 30 years of life expectancy differences. So this is OECD countries. These are some of the richest, better off countries in the world. We're not talking again about Africa or Asia or Latin America. So it's a big wake up call. Now, to address inequalities, we believe, you know, address inequalities and incomes and health outcomes and education and well-being in general, we need to drastically reconsider our approach to policymaking and our policy tools. We need to focus more on policy synergies and a more tailored approach to policymaking that targets disadvantaged social groups. For example, in our approach to education, we need to create a more level playing field for disadvantaged pupils. Again, to break the link between disadvantaged parents and a low performance in the school of the newer generation. This begins by examining our inequality measurement tools. Let's start with a bogeyman. The bogeyman enters every policymaker's room and agitates. He's called Mr. Average. And who is Mr. Average? Well, Mr. Average doesn't exist. He's a statistical construct. Simply looking at Mr. Average fails to capture, in fact, hides the wide disparities among social groups. And we feel also comfortable because we captured the average. Examining, instead, the entire distribution of incomes, the whole range of income distribution, will help strengthen our policies, which is also fundamentally about growth. By the way, somebody was asking me today, Mr. Korea, this is about distribution policies. And I said, no way. It's about growth. And just like we say green growth and, effectively, only where to go. Well, inclusive growth, we say only where to go. Now, I was sharing with some of you that I have been advised, particularly here in Washington, to say inclusive growth, inclusive growth. You say you'll be politically correct. Well, we're not interested in being politically correct. But we also think that this is policy correct to say out loud inclusive growth. And that that is the way to go. That that is the way things will work and that will get better outcomes by saying that the two go together and must go together. In fact, it's the only way it's going to work. So forget about, Mr. Average, and take a hard look at the numbers, the whole, as I said, the whole distribution of the incomes. New work underway at the OECD confirms that the vicious cycle of inequality harms economic growth. Those at the bottom of the ladder rarely have the opportunity to increase their earnings potential and therefore rarely have the opportunity to contribute to economic growth. They are in a way kept in a certain confine and they will stay there. Let's remember that growth and equity are natural betfellows. Without growth, there's no way we can raise people's living standards. But how can we drive inclusive growth, particularly given the new constraints of low demand in a post-crisis environment? We're not starting from zero. We're not creating the perfect world we'd like to in order to create inclusive growth. We are starting from still the throws of the longest, deepest, widest, most severe economic crisis in our lifetime. With all the known consequences including budgetary consequences and constraints. Now, to help policymakers lay the foundation for inclusive, equitable, sustainable growth, we've launched the Inclusive Growth Initiative, which I told you about, and again, thank you to the 4th Foundation for their support. This is still pretty much work in progress, by the way, but it provides an analytical policy framework to identify the adverse effects of rising inequality on growth. I'm going to tell you a little, in a while, we quantified a little bit of this impact, and it's pretty dramatic. The bottom line is that there doesn't have to be a trade-off between the growth and equality. Greater inclusiveness, the opening up of economic opportunity will act as drivers, not dampeners, of strong economic performance. Our approach is first and foremost multi-dimensional. We take account of income, but also non-income related outcomes. We've mentioned employment and health, among others, in order to provide a more accurate picture of people's living standards. It also places a great deal of importance on the distribution of these multi-dimensional outcomes. That's the distribution within the population, to consider the effects that individual policies will have on specific social groups, such as the poor or the median household, again, move away from Mr. Average. And our framework is about identifying actionable policy recommendations. This helps policymakers identify, analyze, and exploit synergies among policies that can boost both equity and growth, and also to take compensatory action when trade-offs are present. Now, what does this mean in a country like the United States? Earlier this year, I launched an action plan that had four pillars to lay the foundation for more inclusive growth in the United States. And this is the brochure that we are providing you today, and that is these four pillars. The first pillar calls for investing in education and skills to empower the poorest in society. This will help over the long run by reducing wage polarization, increasing employment, and promoting social mobility, something that is sorely lacking. Ensuring equal access to high quality education and ensuring equal access also to training opportunities can enhance individual well-being and benefit society at large. It will broaden the tax base. It will increase the pool of skilled workers, but it takes time. It's not a quick fix, but it's a win-win. Secondly, labor market policies need to focus on reactivation measures. So one is about education, skills. The other one is about reactivation measures to bring disadvantaged groups closer to employment. In recent years, we have seen labor market participation in the U.S. edging down toward 60 percent of the population compared to pre-crisis levels that were close to 65 percent. And of course, the U.S. spends only one quarter of what the OECD countries spend on average on reactivation policies, meaning connecting the unemployed to the jobs that are available. Now, here we have a very dramatic measure It's not that this is alien, not that people are not doing it, it's the U.S. is not doing it. Not doing it enough. It's doing it at 25 percent. It's like an engine that is only moving at 25 percent of its potential power. Therefore, you're going to go at 25 percent speed. Now, by implementing reactivation policies that are more family-friendly or provide women better access to jobs, the U.S. can mobilize more talent to boost growth. And I would say the U.S. is not the problem, is not the country where the problem of women and women's jobs is the greatest, but it is going to increasingly become to the extent that we do not address it. Already, there are countries like Japan, the oldest on average in the OECD or Korea, which is the third youngest today and it's going to be the second oldest in 2050 because of the demographics, where there, I'd say, pretty clearly one of their most important sources of hope for a more dynamic economy is precisely to get women on board. And these are societies which are known to have much lower levels of participation of women in the labor market. Well, here it's a few percentage points, but it's one area where the U.S., you know, opens society, should be leading like in so many other things. And it's behind. Now, countries like Australia, countries like Denmark, they have a wealth of experience to share on the successful design and activation programs. In addition, the U.S. survey, the U.S. Economic Survey, which I will present tomorrow, this is the second deliverable we're going to do in this short stay, our U.S. Economic Survey by the OECD, it recommends a range of policy measures that help parents better reconcile the work and their family lives. So this is part, again, of the reactivation policies. Third, let's look hard at our tax and benefit systems to ensure a fair distribution of the benefits of economic growth. Well-targeted support helps prevent low-income families from sliding further down the ladder. I'll repeat this. Well-targeted support helps prevent low-income families from sliding further down the ladder. In the U.S., taxes and transfers reduce income inequality among the working-age population by about 20 percent. That number is 30 percent in France. It's slightly upwards of 30 percent in Germany. So take two situations just as unequal. Throw at them the taxes, throw at them the payments for social security, but also throw the delivery of services. And what do you have at the end? In Europe and most countries in Europe, you're reducing inequality by a third. In the United States, you're reducing inequality by a fifth. Again, it has to do with things we can change. It has to do with the design of our policies, both of the taxes and of the benefits. Now, this means the U.S. has room for maneuver when reviewing both minimum wage levels and instruments such as the Earned Income Tax Credit. I recently delivered the Economic Survey of Germany, and there was a big... I delivered it with Sigmar Gabriel, who is the Deputy Chancellor, and he's the head of the Junior Coalition member of the Socialists. And of course, they were very happy to hear that we were very strongly supporting the minimum wage in increase... well, actually, minimum wage period. They don't have one in Germany, to 850 euros per hour, which is kind of below France and below Belgium and more or less average in Europe. It's not anything to write home about, but they don't have one. In practice, it happens that they do have in certain sectors and it works well, but it will benefit the lowest, which were very poorly paid. Well, I'd say the same thing about the United States, that the 1010 that is being proposed, again, is not going to get the cost of work through the ceiling, but it will help to address this particular issue that we're talking about today. We're talking about how do you empower the lowest echelon of the workforce by skilling, by education, by focusing on their inclusion into the workforce, but also by increasing their consumption capacity, or at least by making sure that there is a safety net or a lower limit. Now, as top earners now have a greater capacity to pay taxes than before, I was asked today, is this about inequality by taxing the rich? And this is one of the dangers of looking at this issue like this, and this is perhaps, let me just say that this book by Piketty which has a number of very interesting considerations, but the fact that it is recommending that you just go and tax the rich or that you tax inheritance, or you tax it, makes it look like this is the easy way out. And what we're looking here is that you're looking at education, you're looking at innovation, you're looking at more competition, and you're looking at special programs, and you're looking, and we're saying that takes time. And just saying tax the rich or tax inheritance or taxes, looks like there is a quick fix, and that it won't cause distortions and it won't cause misallocation of resources. So again, I would invite you to take a very serious look or very comprehensive view of the whole thing. But here, again, raising marginal income tax rates or simply, do people pay the taxes they're supposed to pay? Tax compliance, fighting tax evasion. And this is by individuals, but also by the larger companies. We're involved in basic erosion and profit sifting issues. Eliminate regressive tax expenditures, meaning all the breaks. Reassess the role of taxes on property and wealth. Why? Because, again, we believe that it is less distortive to tax property than it is to increase the taxes on the benefits of companies or profits of companies or to tax more the revenue of workers or to tax more the companies in the way of contributions to social security. Why? Because the logic of this all is we want companies to have more appetite to create more jobs. Therefore, you should reduce the cost of creating more jobs. You know, this is the arithmetical logic. But it has to be assured that the state, that the government has the minimum of revenue that it will require in order to discharge their obligations. To whom? Mostly to the more vulnerable. Precisely to help them move up the ladder. Now, the fourth and final pillar concerns public services. So, you know, we've talked about education and skills talked about reactivation measures we talked about the tax and benefit systems and now public services. Now, in the United States spending on cash benefits has a much lower incidence than across the OECD. In many countries in the United States you get the benefits in cash. In the United States the fact that most of this is through services or some benefits it is particularly important for Americans to have equal access or at least better access to health, family care and other social services because they are great equalizers. But to be equalized, you have to be able to access them. And I say this in the United States the capital of the United States to people to whom this may seem like say, why is he saying this? Well, because if you're a European audience you would not understand what I'm saying because you would take it for granted that you go to the pharmacy to get your cheap medicines or you don't pay anything medicines and that you go to the doctor to get your cheap doctor and that you have the education all the way from kindergarten to the university that is not the case in the United States and because it's not the case in the United States because you still have a lot of co-payments and because you still have to pay for a lot of education because you have to pay for it then the question of the delivery of the services by the government becomes doubly important if you want to address the question of inequality. So, you know, I don't want to overdo the point but it's quite critical. Making health insurance coverage universal, for example and I know this is a very controversial issue here in the United States but I have to say, you know, we testified in the Senate in favor of, of course, going universal only the United States and Mexico in the OECD are the only ones who do not have universal coverage Mexico is now about 95 percent so that leaves the U.S. as the only one that did not or still does not have coverage. So this is a welcome move to reduce health inequalities but the most vulnerable will need additional attention from policymakers to compensate from bad health outcomes non-financial barriers to health care and the same applies to other services. So, ladies and gentlemen, Sirundi and dear friends the U.S. and the OECD have always been strong partners. Today I attended the serenity ceremony of Daniel Johannes your new ambassador to the OECD. He is a fine professional, former banker, very successful and committed civil servant in the field of development and the support of the poorest countries in the world. Very welcome to our work at the OECD and hopefully with his partnership, with your partnership, with your guidance and I thank our friends from State from the Department of Agriculture and other areas of the United States government here, the Department of Labor and others. We can actually steer the U.S. towards the vision of social mobility and unlimited opportunity that it so aptly symbolizes throughout the world. It's a bit of a paradox that we have all these bending issues such a lot of homework when the world is looking to you precisely as the example. To unleash the unique American spirit its relentless commitment to hard work and its thirst for innovation we need to create a more level playing field to enable every American to flourish. This is the only way forward in an increasingly competitive and globalized world. So together let's do better policies for better lives. Thank you. Thank you very much, Mr. Secretary General. What I think we're going to do is I'll have you sit down and then I'm going to have the panelists respond to what you had to say. Very thoughtful, very constructive. Thank you very much. I'm going to ask the two panelists to join me. Dr. Heather Boushee who's the Executive Director and Chief Economist of the Washington Center for Equitable Growth as well as Dr. Aparna Mathur who's a resident scholar at the American Enterprise Institute. Let's get right into it. Thank you both for being here. I thought that that was very thought-provoking and very constructive. Thank you very much, Mr. Secretary General. Let me first start with, I thought that the OACD has been working on these issues for a long time. I thought it was a very sobering analysis. It's now a hot topic. There's often trends and very sort of fads and economic development and there's a little bit of a, of course there's this book that's also been involved with making this an important issue. Is the conversation moving in the right way or is this just another flash in the pan? So I'd like to hear from you first, Dr. Boushee, please. Well, I certainly don't think it's a flash in the pan. I don't know how many folks in the audience caught the recent issue of a Bloomberg Business Week that had what I would refer to as a Tiger Beat-esque cover of Thomas Piketty and some other folks. I mean, it seems like this issue of inequality and what it means for the economy has certainly captured the public's imagination and the bestseller list and certainly the attention of policymakers here in Washington. I had a few remarks that I had prepared that I wanted to say in reaction to what the secretary said. You know, I think it's very, this is a very exciting and I think very timely topic. I am the executive director of a brand new center here in Washington, D.C., called the Washington Center for Equitable Growth and we are focused on exactly this question. What makes economies grow and whether and how does economic inequality affect economic growth and stability? So we've been spending a lot of time digging into the research and thinking about these questions and I think I would very much agree with two early comments that the secretary said. I mean, first of all, we also consider ourselves a do-tank, which I like that phrase, and second, I very much agree that this is about growth. For a long time, we've thought of issues around inequality, about either poverty or just thinking about what's happening at one place of the income distribution, but I think that this conversation about what this means for economic growth and job creation is the economic conversation we need to be having. There is a growing pile of economic evidence that shows that there is a relationship between what is happening to families in terms of inequality and what that means for economic outcomes. One of the most cited papers over the past, you know, recent time period on this has been recent work by Jonathan Austrian Andrew Berg that they'd done a couple of years ago and then a new paper they've done with, I'm going to totally mingle this name, Churlumbus Zyganderis, I apologize, on a paper from the IMF called Redistribution Inequality and Growth, where they look at a variety of countries and find that inequality has a negative effect on the strength of economic growth in countries around the world. And then this new research they found that actually countries with a lower net inequality, inequality after redistribution have faster and more durable economic growth. That is a really important finding, one that is true for countries around the world, because of course it's an IMF study and I'm very sort of heartened to see that the OECD has been looking at this just for OECD countries a document that we sort of found on the OECD web page yesterday shows that, and have knew what I understand to be a hot off the press report showing that a 1% decline in inequality in OECD countries can reduce GDP by anywhere from 0.6 to 1.1%. These are real economic impacts and I would add to that because the secretary brought it up in a recent paper that I did with John Schmidt and Eileen Appelbaum, we actually found that the movement of women into the workforce over the past few decades has actually increased U.S. economic growth by 11%. So the way that inequality plays out in an economy has real implications for how economies grow, which means that it has real implications for job creation, which is in turn sort of how families are faring in the economy. So all of these things have been found and connected. One of the things, though, that I think that makes this a very challenging area to understand is that while there are some studies that look across countries, really I think that the biggest and the most interesting and important questions are how. How does inequality actually affect economic growth and stability? What are the mechanisms that this plays out in an economy? This is sort of a macroeconomic phenomena that is actually playing out in different communities and in different kinds of institutional structures. So this is specifically the question we are looking at at the Washington Center for Equal Growth and we've been thinking about this in four buckets. First and foremost, how is it that inequality affects the development of human capital? Second, we've been thinking about how is it that inequality affects economic demand? Third, how does it affect the development of our institutions? And then fourth, how does it affect the opportunities for entrepreneurship? You know, we have found a variety in a variety of ways that you can see economic evidence for inequality affecting the economy through each of these mechanisms and I just want to point to some recent research in just a couple of areas. First, in terms of human capital, there is a growing amount of evidence that, you know, certainly we all know that talent is very important and we know that that's what makes economies grow, but there's also increasing evidence, quite frankly, consensus in the economics literature that what happens to young children is very important for future human capital development. But of course here in the United States, not only do we not make investments in children that other countries make, we don't have universal pre-K, we don't have universal child care programs, but we also have spent very, very little time connecting the dots between what happens to in a world where most parents work, but they don't have jobs that provide them with the flexibility or the benefits or the resources to address conflicts between those jobs and what's happening to their children at home. This is a place where we are sort of unequivocally the bottom of the barrel in terms of the OECD and a place where I think the long-term implications could be quite stark and quite strident for the U.S., so I think that I was glad the Secretary brought that up a little bit, but I think that this is a very critical area that we need to be focusing on if we care about this intersection between inequality and growth. Then a second area that we've been hearing a lot more about recently is in the area of demand. We just did an event with Atif Mian and Amir Sufi, who are two up-and-coming young economists, one's at Princeton, Chicago, who just wrote this book called House of Debt. This is based on a series of economic research papers, and I want to make one plug for the way that they've done this. They did these very serious economics papers that appeared in the National Bureau of Economic Research and top-tier economic journals, and then they went the next, the extra step, and have written a book that you could read in an afternoon that is accessible, that takes research they've done that only economists could read and actually made it very accessible for policy makers in House of Debt. What they've done is shown that the way that we have inequality in the United States and the inequality in net worth was actually a key component in the cause of the economic crisis because the crisis was caused by a fall in consumption, but that fall in consumption was specifically related to the ways that we saw debt increase in ways that were all about economic inequality. Thinking through the way that these mechanisms play out in our economy and where the policy levers are I think is the next step. I want to just sort of wrap up my comments here. I think that this is an enormously important agenda around inclusive growth for our economic future here in the United States for economic competitiveness. I think that for a long time now we've posited this idea that there is this necessary tradeoff between inequality and growth and that that's just what economic efficiency is about and we've kind of just sort of stopped there. I think it's very exciting to see a lot of new research pointing out that there isn't always a tradeoff and that in fact there are various, they're measurable and serious harms that we see because of the ways that inequality has played itself out in our economy and you have to dig a little bit deeper than just maybe looking at the overall giny but you have to look at exactly how inequality is playing itself out and I'm very excited that the OECD is joining in thinking about this. Dr. Mathur, thank you for being here as well. Could you tell me, I know you have some prepared statements as well but I hope you'll also tell me a little bit about is this conversation going ahead in the right way or is this just a flash in the pan? First I would like to thank you Daniel and thanks to CSIS and the OECD for organizing this wonderful event to talk about this important issue about income inequality and inclusive growth. I think this is not a flash in the pan. This is a conversation that we have all the time it's just that President Obama made it the defining challenge of our time and so everybody is sort of focusing on it but I think it's been an issue that's been a part of debates, political debates and debates amongst economists for a long long time and I don't think it's settled I don't think this is sort of a conversation this is where the conversation will end this is not the point where we say well now we know that inequality does or does not lead to growth I think it's a conversation that will keep happening but to get back to the issue of inclusive growth so where I would I think there is a big support for the idea that maybe inequality leads to adverse impacts on economic growth but I think there is also support for the idea that inequality does sometimes promote growth it depends on how we deal with the inequality I think a lot of the policies that countries follow to help participants in countries who are experiencing that inequality affects a lot how countries experience the growth so for instance in the US there's been a lot of discussion earlier this year about how do we even define income inequality and the secretary general pointed out that inequality is ultimately a measurement issue we can talk about it in terms of income but we can also talk about it in terms of several other indicators we can look at education and health in work that we've been doing at the American Enterprise Institute we've also looked at consumption inequality and I would say that it's not unambiguously true that inequality measured from the perspective of consumption is actually growing worse or has widened to the same extent at least as income inequality so if you look at how people are consuming you know you compare the top quintile the top 20% of the population with the bottom 20% and you see that the ratio of consumption expenditures hasn't grown or hasn't widened the disparity hasn't widened as much as when you look at income which is of course not to say that inequality is not an issue I mean whether we look at it from consumption or income we obviously have measurement issues and we obviously agree that there are tremendous amount of poverty out there and we need to address that and we need to help people experiencing that and we have social mobility issues so what I would argue is instead of making the conversation about inequality as the OECD is doing now to shift the conversation towards inclusive growth because what does matter is not growth per se because we don't know how it's getting redistributed but when we have participants in the economy every segment and sector of the population becoming a part of the growth process traditionally we've always relied on a little redistributive growth we've looked at top-down policies we've said growth matters let's cut taxes or let's have corporate tax reductions and let's move towards getting more investment and more people employed and have even if the wealth gets concentrated at the top we have a huge transfer system in the US that's meant to take that income from the top redistributed to people at the bottom and we've had several decades of that redistribution of the tax and transfer system but as the secretary general pointed out that creates only dependence in the system that only creates a stream of people in poverty who are now dependent on social assistance and who are not being given the right opportunities to move out of that dependent framework to move towards the labour market in fact I think the one successful federal program that everyone looks to and which we've mentioned the Earn Income Tax Credit Program the reason we think of it as a success is not because it's actually just simply giving cash assistance from the rich to the poor it's actually getting people into the labour market it's actually shown that these more than 5 million people in 2010 were in fact lifted out of poverty as a result of the EITC so moving towards creating self-sufficiency I think is the right part and getting these participants in the labour market as part of the growth process rather than as dependence of the growth process I think is extremely important I also want to talk about a lot of policies so we again at AEA we've been focusing as the secretary general has at the OECD focusing on a lot of policies that we think could help people move out of social safety nets and move up the income ladder towards the American dream that we all talk about moving up the social mobility ladder and so when you talk about the labour market issue one of the biggest problems and one of the reasons why we are focusing on income inequality and social mobility is the fact that the labour markets have been in a deep procession I mean ostensibly we've had the economic recession end in 2009 but we've had a labour market recovery that's been abysmal anybody who's been unemployed over the course of the last five years would not agree with the statement that we've had growth, that we've had an economic recovery in the US we have about 10 million people who are unemployed and 3 million or more are long term unemployed so how do we get these people back into the labour market what sort of policies do we need for them, we can keep talking about taxing the rich but that's ultimately not going to create self-sufficiency for these people who are at the bottom of the income ladder and who all they want is a job so I think focusing on programs that end it's sort of dependence on the government focusing on we had this huge debate about unemployment compensation and how we should endlessly extend unemployment compensation for people in need and I agree that people in need and people who are out of jobs need that unemployment compensation in order to sustain the families but at the same time if we had combined these compensation programs with better skills matching with better jobs matching programs I think you would have seen a better recovery for these participants for these people who have been out of a job for six months because at the end of that six months or at the end of the two years those people are still out there what do you do with them? So I think having more job matching programs where people are actually sort of provided skills training matched to particular jobs and maybe the employer has provided a subsidy so that they keep the worker for at least a six month period and see if it's a good match, keep them in these jobs programs would be a more active labor market policy and we haven't seen much of that coming out of the administration we have seen policies that help the poor and help people in poverty and help people in need but we haven't seen active labor market policies come out so we've also been sort of talking about education a lot we know that low income people low income students drop out of high school at five times the rate of middle income students how do we help these people what sort of policies do we need to keep these people in school it's a huge predictor of their lifetime success what they do in high school whether they complete high school whether they go on to college or vocational education is a huge predictor of their lifetime incomes so we've talked about having pilot programs that would maybe provide cash assistance or cash incentive to keep low income people to keep schools that have poor performing high schools or high schools in poor neighborhoods provide them some sort of cash incentive to complete high school and then an additional incentive maybe to either go to vocational schools or to go to college and again once you're in college their academic studies showing we assume that the Pell Grant programs and all these college assistance programs actually work really well but a lot of them are targeted towards families earning more than 250% of income really you know policies that we can change even within the existing framework without sort of adding on new systems there is enough efficiency to be sort of gained from streamlining existing systems from targeting them better and you know help us to help with the mobility process Thank you Dr. Mathur I want to hear from both of you and I think you've detailed some of them here Dr. Mathur when I listened to the secretary general he talked about four buckets of areas of work one was on education skills another on labor policy reactivation another on taxes, another on public services and you've spoken about job matching skills training is that in your mind and I want to hear from Dr. Boucher about this as well is that in your mind the one that we should put most of our focus on is that if you were going to attack the problems of unemployment or long-term unemployment we want to call it inclusive growth or we want to call it solving tackling inequality depending on what frame you want to call this is that the specific policy intervention you'd say is the one you should prioritize and I'd like to hear from Dr. Boucher as well if you had to choose from a menu what would you pick and I think I'm hearing you say that is that what you're saying I would say that the current challenge is of course the labor market I think if we deal with helping the pool of long-term unemployed to the labor market that would be one of the biggest challenges facing the economy today we also have seen tremendous growth in single motherhood single parent families there's been a doubling of single parent families since the 1980s and those are highly correlated with poverty because single moms experience double the rates of poverty than traditional two parent families and as Heather pointed out in order to get these women again this is linked to the labor market challenge in order to get these women into the labor market we need to reform the child care tax credit programs make them more expand the child care subsidies so that these women are able to get back into the labor market without worrying about the cost of child care at the same time so I think looking at labor markets for the long-term unemployed looking at labor markets for single mothers and then in the long-term it would be sort of the priority areas from my perspective Dr. Boushi I think there's a couple of things I certainly think that these four areas are of course very important where we are here in the United States at this point in the economic recovery I agree with you Aparna it's been your word was abysmal it's been better than that but certainly it's down there the employment rate for workers still is just a few tens of a percentage points higher than it was in the worst days of the great recession that means while we've created jobs that job creation rate has been just about the same to soak up all of the new immigrants and new labor market entrance it has not actually gotten people back to work the way that we want that I think is a national tragedy these four areas that the secretary outlined in some ways deal with that the first and number one economic priority has to be to get our country back to full employment so I would actually add to this list a couple of things I mean one and I think some of this goes under public services but here in the U.S. one of the things that we've allowed to deteriorate even as we have great need our investments in infrastructure actually secretary as you were talking and you were talking about the United States being slower than other countries in some policy areas I kept thinking about trains we don't have a transportation system that is consistent with what many other both developed and developing countries have and we also have a lot of people who need work so this is the right time to do that that I think is for the U.S. right now a fundamental part of an inclusive growth strategy so including the excel keystone pipeline I would assume right that a infrastructure no I thought I heard infrastructure jobs energy no I said transportation but we can talk about green energy if you want but I think that's one issue I mean I think a second issue we do need to deal with the we need to deal with the continuing issues around consumption so the U.S. has moved from a country that was more investment driven than we are today to a country that is increasingly diversified on consumption to boost our economic growth now over the long term as family as we've seen wages stagnate in the U.S. over the past few decades families first coped with that stagnation by putting more people into labor force you saw rising women's labor force participation and then in the 2000s as you saw that labor force participation rates flatten out for women and for men and fall for men actually but you saw families taking on increasingly high levels of debt and that continues to be an enormous problem for American families especially middle class and low income families and you cannot have a sustained recovery that is entirely built on debt especially debt that is so unequally distributed as we've seen in the crisis it's toxic so that I mean I think this is where thinking about if we want to have inclusive growth there are policies that focus on the inclusivity addressing inequality sort of directly but I think there's other macroeconomic policies where we just need to be enormously attentive to the unequal ways that they play out across families because these also have macroeconomic implications so both in infrastructure and in dealing with the foreclosure crisis and the crisis of debt and the potential larger issue now that we're seeing in student debt those will also be areas that focus on. Let's see here I think I'm going to ask the secretary general to come back up here and we're going to take a couple of questions from the audience and so you'll take some as well why don't you either why don't you actually join us actually why don't you join us at the podium and I'll or actually why don't you sit here we'll have you we'll have you sit here great so let me first ask you a question Mr. Secretary General and then what we'll do is I guess now that there's not I'm going to you know right you want to give the full view of the everybody could you tell me why if you were working on this issue before inequality was cool if you will or we're going to call it inclusive growth was cool could you tell me what has changed why why is this change you alluded to a little bit maybe around the crisis but could you tell me what and maybe is it just President Obama's put this on the agenda what what is all of a sudden why is this this a hotter topic than it was let's say three or four years ago first of all because it already existed and it was growing before the crisis and we should have and in fact we denounced it we measured it we benchmarked it we came out with it and we the first document about growing unequal is before the crisis by the way everybody is sitting on a big key like this or you as big key and they have the documents about divided we stand growing unequal house life 2013 focus on top topic takes all everything you always wanted to know but we're afraid to this is an OECD party favor yes and this is this is this is to avoid too many trees from exactly but this is the one we're presenting today and that again I understand that you're sitting on it or have it available or it's out there in a table so you can have everything that we've talked about and all the documents were referred to right here so the answer to your question as I said is this was already happening we measured it we talked about it we denounced it we did not get a lot of audience but still second it grew more from 2009 10 and 11 then in the 12 years before the crisis now the second delivery is the divided we stand that goes into the first year three years of the crisis and Stefanos outfit which is working now on the last let's say the second three years of the crisis are going into 2012 2013 is precisely looking at now the whole of the period of the crisis and there was not an acceleration there was just a dramatic going moving into another orbit of the problem so why is it now suddenly it's not suddenly it's because it became too big I have to say that inequality used to be cool well what happened is people said inequality is natural inequality is normal yeah but we're not saying the outcomes have to be equal what we're saying is opportunities have to be equal the inputs may be equal of course some people will work harder some people are smarter some people will go the extra mile some people have a PhD and some people will stay at the technical level and that will define differences the only question is are they having those differences if they could have something different can they choose can they opt for something better or for something more and the problem is they can't so this is it's not that we are discovering this this is not coming out of the blue inequality was already rearing it's ugly head before but it just has become too big and it has become a true real as Heather suggested a real obstacle to the conduct of economic policy is no longer a question of again ethical or moral it's about economic policy delivery thank you very much I want to hear from our friend from the Ford Foundation Anna Marie we've got a microphone for you and I know there are several thoughtful people in the audience who have questions and comments as well thank you very much I would really like to please I'm Marie from the Ford Foundation I'm a senior advisor on the Just Cities initiative and on behalf of Darren Walker our president and our Zab Briggs who couldn't be here with us I really salute the leadership of the Ford Foundation we have always been of the OECD we've always been at the Ford Foundation very interested in these social justice issues and we've been talking for a long time it's been fantastic to see this first step and I hope that there's many other reports without question marks at the end that give us some information we've talked a lot about the Ford Pillars and the data given that with the Just Cities initiative I'm wondering we know we have a little bit of a blueprint what national governments can do but I'm wondering if you're a mayor in a city or if you're working in a metropolitan region at that level if the federal government is maybe a little bit lagging what can we do on those on different regions why don't we take a couple questions we'll do this World Bank style I want to hear from some of my friends I see Charlie Heeter here as well as my friend John Simon we'll take these two more so we have these three and then we'll have both the secretary general perhaps my panel colleagues have a chance to respond Charlie and the panelists for a great discussion my name is Charles Heeter I chaired the business and industry advisory committee to the OECD for seven years recently stepped down my question is this I've listened now for an hour and fifteen minutes or so and I haven't heard the words business or private sector and they still make up the major part of the economy I'm not going to intend jobs in the world I think are generated by the private sector but what do I know I want to talk a little bit about what you think the role of business is here both in private sector led growth addressing the issues of skills of reactivation of employees and so forth because I think there's a lot going on in the private sector and it can be extremely helpful with the right policies John Simon thank you Dan thank you Mr. Secretary General for a very compelling presentation and for the panelists I think it's fairly clear the case for addressing inequality both in those developed world and throughout the world as a whole both for economic fairness issues but also for economic efficiency for growth issues has been pretty well laid out and the four policy baskets that you presented seem right at least to my eye but there is there are two one issue you mentioned one issue you didn't mention which I would take issue with one is the minimum wage on whether the minimum wage has an impact on employment it's fairly ambiguous but the evidence on whether the minimum wage has an impact on low skilled employment and the employment of people at the bottom of the income spectrum is actually much less ambiguous in fact it tends to take those people out of the employment system and therefore increase in equality in that way so I want to understand your analysis on that and how you would advocate for that as an anti inequality measure as opposed to some other measure which I think you could argue for other reasons and the second thing you did not mention is transfer payments entitlement payments both in terms of the federal entitlement programs but also in terms of the public pension systems which squeeze out the resources available for many of the programs that you described instead wind up putting a lot of resources into the hands of the middle class of course it's great to put resources into the hands of the middle class but if as we have now where the eldest cohorts in our population are much above average in terms of wealth and they're getting most of the benefits of these transfer payments and the youngest cohorts in our population are below average in terms of wealth and they're having their programs cut isn't that an area that's right for policy intervention thank you my friend John is the reason I went to the Kennedy school he served in the Bush administration together but he also served in state government so it was both the foreign policy and foreign assistance role but also no state government as well so I think it's appropriate we'll take those three so why don't we start with you Mr. Secretary General and then we'll ask the panelists to respond if we have time we'll capture some more questions but take those three and respond as you will multi-level government or governance is one of the biggest challenges for every single policy but when you're talking about inclusive growth it is the key to effectiveness there has to be very close coordination because the services are delivered at the local government because sometimes you have state or regional depending on whether European or American or whatever because this applies to all the members and non-members of the OECD and then of course you have the national budgets and you have national policies such as education or such as health or such as the entitlements that have to be applied so the governance and the government and the execution and implementation of an appropriate coordination between the different layers is absolutely critical so Ms. Lagos mentioning or reminding us if you're a mayor the mayors always get together to talk about the governments and the governments and the ministers are always getting together to criticize the mayors about how much they spend and all the problems that they have et cetera et cetera and of course they're both wrong no they're both they're both a little bit right and a little bit wrong I'd say we've been on both sides when we say we have been we because she just left the service of Secretary Donovan to join the Ford Foundation but was working precisely on issues of cities and transport and infrastructure et cetera et cetera and we're working together there on that and I have to say this is you could say as the mayor Montrell said to us yesterday and Mayor Bloomberg was reminding us also or or the mayor of Stockholm say this is where things happen and therefore this is where the money should be you know but devolution or decentralization especially when you decentralize services like health or you decentralize services like education but there is not a robust enough fiscal base in those government entities either regional state or municipal that have to deliver the services are going to deliver there for bad services and that is another source of inequality because there has to be some kind of leveling of the playing field and that has to do with the resources so you have mentioned another dimension of inequality creation but also if you look at it positively another dimension of the solution Charlie Heeter reminds us what about business what about the private sector well when you are talking about skills it is for the workforce to be able to be employed by the private sector I am not suggesting that the government is going to do the government should help together with the private sector to the skilling the upskilling the re-skilling the education the innovation but the government has to provide the broader competition context but then the private sector is the one who has to provide the investment and the jobs so I would say yes I would say everything we have been talking about is for them to be employable for them to have more attractive opportunities but more importantly this is not a discussion about austerity against growth or it is about the only way in which you can actually improve the wages and improve the question of inequality or reduce inequality which is by providing the workforce with the elements to be not only more employable but also to have better access because they are better skilled so they come together the target is of course as I said it is about the private sector and if assume that the lowest 20% of the population which today is the most vulnerable in the case of the United States were re-skilled, up-skilled better prepared more sophisticated into their knowledge and their skills go in a workforce go into the private sector that would then be allowed to move more into more knowledge based therefore more value added we now know that it is a value added that counts rather than this high nominal numbers of trade in the world then you would get upward mobility social mobility but you would also get more productivity and more competitiveness so it is a kind of a win-win minimum wages and jobs and skills we strongly support the minimum wage as a minimum as the French say the protection so that you cannot have workers being paid lesser than what is considered the minimum dignified revenue necessary to survive though the question is the following I don't know a single country where minimum wage is relevant in terms of the business transactions every day and the cost of workers it's a unit and the minimum wage is a unit people gain a multiple of the minimum wage or lower or higher multiple of the minimum wage depending on working conditions, depending on skills depending on the productivity of the workers etc but the fact that there would be a minimum wage let's say take the case of Germany where we just passed the idea of a minimum wage Germany did not have a minimum wage and they were doing thank you very much very well but were they doing very well thank you very much or was everybody doing very well thank you very much and we actually discovered in Germany which is kind of the shining cathedral of well best practices for labour markets and everything else that you had people that were 400 600 700 800 euros per month when in theory the minimum wage was 1200 or 1300 etc now where does an 850 again where was an 850 per hour minimum wage take you well it takes you pretty much the kind of the middle of the rankings it's not going to make Germany lose any productivity because they are paying on average a multiple of that but it's going to allow for protection and second it is going to allow those who are at that level or below to have a certain guarantee now in the case of the United States the 1010 that is being proposed this hasn't been legislated or just approved it's only now applicable to public sector employees which can be paid more because or paid the minimum wage because of executive order but again it takes you into what I would call the the averages I don't think it's going to and you can actually compensate with productivity and competitiveness I'd say almost the opposite of what you suggested that increase in the minimum wage would be opposed to a skilling or up skilling no I would say that this would be a very great incentive and I would also say something which is not so obvious in the American workforce in the American workplace which is a minimum sense of loyalty and belonging by the workforce vis-a-vis the employer and vice versa here the solution to a crisis or a problem or a drop in the order book is a pink slip in Germany what they did was to say okay one hour less, two hours less we divide the cost of that Kurzarbeit and in the meantime what do we do we use the one hour, the two hours or the three hours in order to train the workforce that means somebody has to pay for it and it's a private sector paying for it the government paying for it and also the worker paying for it and what is the result Germany has a lower rate of unemployment than before the crisis but they now have a more productive better prepared more competitive workforce than they had before the crisis in the post-crisis period in those countries that took those kinds of decisions that are going to take to eat our cheese why? because it's going to be cutthroat competition to recover the jobs to recover the well-being to recover the exports that were lost let me suggest that your two panelists just also reflect on some of those questions each can have a minute and just keep it to a minute and you can either please Dr. Mathur so let me combine the policies of the metropolitan of the city, state level with the corporate sector side of it I think we are seeing a lot of initiatives at the state level that are coming from the private sector and a lot of the policies that I talked about are things that you can implement at the state level so I think talking about policies is a lot more productive because it's going to help with social mobility a lot more at that level than at the federal level where there's so much rift between the parties but at the state level there are initiatives like the Wisconsin fast forward initiative where employers are sort of recruiting employees to train them the government is subsidizing them for a period of a few months and then the requirement is that the employers keep them you know keep them employed beyond that period so there are a lot of state initiatives that we are seeing that are helping with the labor market crisis and with the unemployment issues and I think the private sector is extremely extremely important in sort of spearheading the recovery in terms for the minimum wage issue I mean if the tool is the talk has been about using minimum wages to fight poverty and I would argue that it's not the best tool to fight poverty we know that less than 20% of people on minimum wages are actually doing poverty and the CBO report suggested that increasing the minimum wage would actually lead to significant you know disemployment effects so we know the negative impacts from the minimum wage why not expand something like the EITC if we have the money expand the EITC expand it to childless adults so that we know that a program that's actually successful in getting people into the labor market is the program that we focus on rather than something that would lead to more unemployment in the current economy and the energy of the last court how exciting so I wanted to just pull together a comment on all three of the questions by tying together the minimum wage and an answer that gets it all three you know first I think here the research in the United States on the minimum wage definitely shows that it can be an excellent labor market policy both in terms of wages but it's not shown to have economically significant job losses in the budget office and its famous report that came out this spring said that job gains were within the 90% confidence interval so it's very difficult to see that this is a job killer further there's substantial evidence that raising the minimum wage actually both improves productivity and critically reduces turnover so this actually has a positive economic effect at the firm level which I think is often we don't talk about that enough but there's a lot of evidence for it so Annemarie had asked about what we can do at the state and local level and here I would point to the minimum wage is something that we're seeing a lot of vitality at both the city and the state level there are a basket of labor and job quality issues that you can deal with the local level and one of the things that's been happening though in cities around the country is as they are seeking to enact ordinances or laws around job quality you're actually seeing states come in and say no you can't actually do that and I think that's actually an area that we aren't thinking enough about so for example in Milwaukee they implemented a paid sick days by ballot it was on the what did they call that? were the people voted that in by like 70% but then the state said no no you don't have the right to actually do that kind of regulation so I think that's a place that we could be playing in terms of inclusive growth and again also having productivity effects and then finally on leadership by the business community again sort of pointing to the minimum wage as this example to lead to these answers you've seen a lot of leadership around the country on this issue as it's been put on the political agenda and that's been very interesting you know I'd point to the gap who's kind of been out there in front but there have been other companies as well I mean they think that the one thing that I mean certainly the vast majority of jobs there are two issues that I just want to underscore I mean one the United States has been is not a great place to be an entrepreneur to open your own business, to have a small business relative to other OECD countries I think that's a really big question I have a lot of questions as to why that's not the case certainly some of the research I've seen points to the lack of inclusive policies, the lack of universal health coverage the things that make it much more riskier here to go out and set out your own shingle but in other countries what could we be doing to spark entrepreneurship and small businesses by thinking about what people need to make that happen in a sort of very practical sense and then it would be wonderful to see the private sector stepping up more to help talk about the things that we see mattered to them like we saw the importance of skills it would be really wonderful to hear more voices of business leaders in the debates around how we should be investing in education or early childhood that I think too often those voices aren't as strong in terms of how those investments are so important for our long-term economic future you certainly hear them but it would be wonderful to hear more okay I think we have to end it here thank you very much please join me in thanking the Secretary General