The hollowed middle

What has happened to inequality in recent years? By one standard, it's increased; the share of pre-tax incomes going to the top 1% has rose from 10.4% in 1993 to 13.9% in 2010. By another standard, though, it hasn't much changed lately. Gini coefficients rose sharply between the mid-70s and early 90s but have since moved more or less sideways (figure 5 here).

There's no inconsistency between these two facts. The Gini coefficient measures all inequalities whilst the top 1% ratio measures just one. It's possible, then, for the top 1% to pull away from everyone else without increasing the Gini, as long as inequalities elsewhere in the income distribution are falling.

Which poses the question: if inequality between the top 1% and the rest has risen, in what offsetting sense has inequality fallen?

My table helps answer this. It shows ratios of income to the bottom decile for three years: 1977 (when current data began); 1993, when the Gini peaked; and 2010-11, the latest year available. I'm using two measures of income: original, which is pre-tax incomes from wages, savings and suchlike; and disposable, which are after directs taxes and benefits*.

This shows that between 1977 and 1993 all income deciles pulled away from the bottom two deciles. In 1977, the top decile's disposable income was 5.23x that of the bottom, but in 1993 it was 9.2x.

However, since 1993 these trends have greatly slowed, and in some cases reversed; I'm not sure how far what matters is the level of relative income rather than the rate of change. In terms of original incomes, the top deciles have lost relative to the bottom two. And because the top 1% has gained, we can say that they have also lost relative to the very rich.

Take, for example, the 6th decile.Since 1993, it's disposable income has barely changed relative to the bottom decile, and it has fallen relative to both the second and top deciles. Much the same is true for the surrounding deciles.

In other words. what we've seen is a squeezed middle, with median earners losing out relative to the poor and very rich. This, I suspect, is due in part to job polarization - the fact that technical change has reduced demand for what used to be moderately well-paid routineish white-collar jobs.

Yes, most people are better off in absolute terms than they were 20 years ago. But we don't compare our incomes merely to those of our 1993 selves. We compare them to our contemporaries. And these comparisons show that the improvement relative to the poor for the middle deciles has more or less ceased since the 1980s, and in some ways it has gone into reverse.

I suspect this is important socially and politically. Politically, it might explain the the increased hostility towards the poor, whom the middling sorts perceive to be a greater threat to their relative position; envy, remember, isn't always directed towards those better off than us. And it might also explain resentment towards the "political class" which has failed to improve the relative position of median earners.

But I have a sense that it's worrying at a broader, social level. Is it really healthy for a society to see a hollowing out of its middle class, with those who are in it feeling threatened by and resentful towards both the poor and the rich?

* Taken from table 16 here, for non-retired households; the disposable incomes are equivalized - that is, they take account of differences in the size of households.

Comments

[paulc]

Just the sort of trends that one would expect to lead to a more extreme right wing reaction than anything else.
A well educated subset of the population who have the tendency to regard themselves as capitalist or supporters of capitalism, who at the same time feels disdain for the proles and unemployed, is more likely to move to the right politically than the poorest subset of the populace ever would. UKIP and their 'flat tax' and migration phobia is just what their doctor ordered. Wasn't it the middle classes who suffered disproportionately in the thirties who supported Hitler's rise to power more than either the working classes or the industrialist class?

[Metatone]

Worth noting that away from the realms of the very rich, we are richer than 1993 in very uneven ways. Food costs more, housing costs more, energy prices are on the up & with it, travel costs.

Consumer electronics cost less. You can argue that computers and the internet have brought a rise in the quality of life. Other consumer manufactured goods cost less.

In a boom all this works out - but in a recession, with essentials costing more, the declining prices of non-essentials looks less valuable...

[Simon]

Have a look at the Resolution Foundation Commission on Living Standards which is great on this, and chilling.

[guthrie]

I was just about to make the point MEtatone has, that house costs and the like have greatly increased. This puts an even greater squeeze on the middle, and we can also see the effects on the poor as they are exported from parts of London with poor social housing to other areas, cutting their social networks.
Has nobody looked at how living costs have changed and linked that to income?

[George Carty]

Actually, the Nazis were supported not just by the lower-middle classes (who were motivated by bigotry), but also by the peasantry (who were motivated by hunger for more land).

The Nazis held an annual harvest festival at the Bückeberg (near Hameln) which had an even bigger attendance than the more famous Nuremberg Rallies. They also helped the peasantry by fixing food prices artificially high, with the result that urban workers under the Nazis had to spend almost half of their entire income on food.

[FromArseToElbow]

We should be careful not to confuse median-income deciles and the middle class.

Job polarisation tends to disproportionately affect well-paid clerical and skilled manual roles (often filled by the self-identifying working class) through automation and globalisation, but it also tends to cause managerial and pseudo-professional or pseudo-technical roles to proliferate. There is a distinct class bias at work.

[john malpas]

Like it or not the people with fire in their belly will prevail. The bigots , the fanatics , the giants and the cuning will leave you all for dead.
A desparate desire for equality is the hope of the suplicants.