The growing gap between the rich and the rest of us is not just a problem in the United States. Over the past two decades income inequality has soared around the world. But a new report from the Organization for Economic Cooperation and Development (OCED) says if nations make the right policy decisions, income inequality is not inevitable and can be reversed.

At a forum today at AFL-CIO in Washington, D.C., John Martin, OECD Director of Employment, Labor and Social Affairs; AFL-CIO President Richard Trumka, chairman of the Trade Union Advisory Council to the OECD; and Charles Heeter, chairman of the Business Advisory Council to the OECD, discussed the report and how to close the widening income gap.

The report looked at income inequality in all 34 OECD nations and found that the United States had the second largest increase between 1985 and 2008. Mexico led in the growth of income inequality. In addition, the United States led all nations in the growth of the share of a nation’s income that went to the top 1 percent.

While Trumka praised the OCED for focusing on income inequality, he said the report ignored an important aspect of the growing gap between the 99 percent and the 1 percent, “the dramatic shift in bargaining power between workers and their employers since the 1970s.”

I think the OECD’s work on inequality would be strengthened by a more explicit treatment of power and the policies that have diminished the bargaining power of workers.

According to the report:

Rising income inequality creates economic, social and political challenges. It can stifle upward social mobility, making it harder for talented and hard-working people to get the rewards they deserve… Inequality also raises political challenges because it breeds social resentment and generates political instability…The resulting inequality of opportunity will impact economic performance as a whole.

One of the “most direct and powerful” instruments to address income inequality is through tax and benefit policies. For low-income groups, the report calls for “well-targeted income support policies” to ensure that that “low-income households do not fall further back in the income distribution.”

Changes in tax policy are especially necessary

in the case where the share of overall tax burdens borne by high-income groups has declined in recent years (e.g. where tax schedules became flatter and/or where tax expenditures mainly benefitted high-income group.)

The report also calls for better investments in training, education and employment access aimed at young workers, women, older workers and migrants. Click here for the full report.