Income inequality is an indicator of how material resources are distributed across society.Some people consider that high levels of income inequality are morally undesirable. Others regard income inequality as harmful for instrumental reasons – seeing it as causing conflict, limiting co-operation or creating psychological and physical health stresses (Wilkinson and Pickett, 2009). Often the policy concern is focussed more on the direction of change of inequality, rather than its level.

Poverty rates measure the share of people at the bottom end of the income distribution.Often a society’s equity concerns are greater for the relatively disadvantaged. Thus poverty measures generally receive more attention than income inequality measures, with greater concerns for certain groups like older people and children, since they have no or limited options for working their way out of poverty.

Most OECD countries operate transfer programmes that aim at preventing extreme hardship and employ a low-income criterion as the central entitlement condition. These guaranteed minimum-income benefits (GMI) provide financial support for low-income families and aim to ensure an acceptable standard of living. As such, they play a crucial role as last-resort safety nets, especially during prolonged economic downturns when long-term unemployment rises and increasing numbers of people exhaust their entitlements for unemployment benefits.

In 2012-13, public social spending averaged an estimated 21.9% of GDP across the 34 OECD countries (, Panel A). In general, public spending is high in continental and northern European countries, while it is below the OECD average in most countries in Eastern Europe and outside Europe. Belgium, Denmark, Finland and France spent more than 30% of GDP on social expenditures. By contrast, Korea and Mexico spent less than 10% of GDP. Social spending in the emerging economies in the late 2000s was lower than the OECD average, ranging from around 2% in Indonesia to about 15-16% in Brazil and the Russian Federation (, Panel A).

Cash transfers for working-age people provide a major income safety net in periods of high unemployment. In most countries two different layers of support can be distinguished: a primary out-of-work benefit (generally unemployment insurance benefits); and a secondary benefit (unemployment assistance or minimum-income benefits such as social assistance) for those who are not or no longer entitled to insurance benefits.