The Office for National Statistics today published its latest figures (pdf) on income inequality. These show that, in 2007-08, the richest 10% received 28% of all post-tax income - that is, incomes including benefits after direct and indirect taxes - whilst the poorest 10% got just 2%. That means the best-off 10% have 14 times the income of the worst-off 10%.
What the figures also show is that this inequality is barely changed at all in recent years.
Indeed, what is striking is just how insensitive inequality is to either policy or to the economic “cycle.” Looking at this chart, you would struggle to identify either a change of government or any macroeconomic boom or recession; the exception here is that the 1990-92 recession increased the gap between the two Gini coefficients slightly, because increased numbers of people on benefit meant that the state did more redistribution.
One reason - of many - why inequality hasn’t changed much is that the tax system (as distinct from benefits) does nothing to reduce it; direct taxes have a small equalizing effect, reducing the Gini coefficient by four points, but this is exactly offset by the regressive effect of indirect taxes.
The only message I’d take from this is that if you want to reduce inequality, you need something much more radical than has been tried in recent years. I suspect that one reason why James Purnell claims to be interested in equality of capabilities is that he’s realized that it’s just too damned hard to achieve much greater equality of income this side of revolution.
What the figures also show is that this inequality is barely changed at all in recent years.
Indeed, what is striking is just how insensitive inequality is to either policy or to the economic “cycle.” Looking at this chart, you would struggle to identify either a change of government or any macroeconomic boom or recession; the exception here is that the 1990-92 recession increased the gap between the two Gini coefficients slightly, because increased numbers of people on benefit meant that the state did more redistribution.
One reason - of many - why inequality hasn’t changed much is that the tax system (as distinct from benefits) does nothing to reduce it; direct taxes have a small equalizing effect, reducing the Gini coefficient by four points, but this is exactly offset by the regressive effect of indirect taxes.
The only message I’d take from this is that if you want to reduce inequality, you need something much more radical than has been tried in recent years. I suspect that one reason why James Purnell claims to be interested in equality of capabilities is that he’s realized that it’s just too damned hard to achieve much greater equality of income this side of revolution.
Take a longer time-series. Gordon (no relation) and Dew-Becker looked at the proportion of income taken by various income percentiles, and found that the share of the top one percent rose dramatically from about 1985 in UK, US, and other countries. Gini doesn't move so radically, but Wikipedia shows a US Gini of about .35 in 1970 and about .43 just after year 2000. UK was about .25 in 1960 and about .37 about 2000.
Over a longer period, inequality has got significantly worse.
I can't make the links work.
Posted by: gordon | July 31, 2009 at 02:26 AM
Sir,
I think you know the papers written by Saez, Piketty and Landais. They show that the most important thing is not the gap between the richest 10% and the poorest 10% but the gap between the richest 1% and the rest of the population...
You post is totally flawed.
Posted by: Jacques B. | August 01, 2009 at 09:45 AM
Agree with Jacques (although he didn't need to be so harsh!), and I will also say that wealth inequality (i.e. stuff you own) is just as important.
See this for instance (though it's mostly on the US):
http://economistsview.typepad.com/economistsview/2009/07/wealth-inequality.html
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