Why Income Inequality Isn’t The Problem

Is income inequality something we need to focus on? Or, are there more important trends which need our attention?

From time to time statistics grab the headlines and divert attention from what’s really going on. Take income inequality as a case in point. This is defined as:

… the unequal distribution of household or individual income across the various participants in an economy.

A high profile example is the 2017 furore over BBC pay scales. This attracted so much attention that you would be forgiven for thinking that UK incomes are getting more unequal. And in turn the pay gap between men and women larger. But this isn’t actually the case.

The gap between the top and bottom 10 per cent of earners across the Great British economy fell during the global financial crisis starting in 2007 and has remained steady since then, according to the Institute for Fiscal Studies (IFS).

The figures correct a common misperception that income inequality has soared since the financial crisis. However, the perception of rising inequality has been fueled by sluggish growth in real wages and, therefore, living standards.

So, income inequality is lower than it was before the financial crisis. What about the pay differences between men and women?

Contrary to popular belief, it is not because employers pay women less than men for doing the same jobs. According to data from 25 countries, gathered by Korn Ferry, a consultancy, women earn 98% of the wages of men who are in the same roles at the same employers. Women, however, outnumber men in lower-tier jobs, such as secretarial and administrative roles, whereas men predominate in senior positions. And women cluster in occupations and industries that pay lower salaries overall.

In conclusion, it’s not rising inequality that presents the biggest challenge of the past decade, but

Rising prices in the wake of the Brexit vote have put the tightest squeeze on household incomes for more than five years, according to official figures on Britons’ economic wellbeing. In the opening three months of 2017, real household disposable income per head dropped 2% from the previous year.

And average real incomes are below their 2008 level; from Paul Johnson, the IFS director

“We are in danger of losing not just one but getting on for two decades of earnings growth,” he said. “We will all have to get used to the idea that steadily rising living standards may be a thing of the increasingly distant past.”

The nascent recovery in earnings, which were growing through 2014 to the first half of 2016, had been choked off, Johnson said. “That they might still be below their 2008 level in 2022 as the OBR forecasts is truly astonishing. Let’s hope this forecast turns out to be too pessimistic,” he added.

The statistics also reveal that for middle-income families with children, a striking trend is that half now rent their property. In the 1990s, more than two-thirds were owner-occupiers. Many also get in-work benefits, so they increasingly feel they’ve more in common with the poor than the rich.

These are the true key trends shaping our society, not some non-existent out of control income inequality.

Photo by brookenovak on Foter.com / CC BY-NC-ND

Originally posted 2018-01-07 13:35:00.

Leave a Reply