The problem of greater equality

Inequality has fallen in the UK - which might be worrying.

This sounds like an odd thing to say. But it's the natural implication of what Ben Chu rightly says. He notes that whilst the Gini coefficient hasn't changed much since the early 90s, the share of income going to the top 1% has risen.

However, we can think of the Gini coefficient as a single measure of all inequalities: the gap between the top 1% and the second percentile, plus the gap between the second and third percentiles, and so on. For this reason, the same Gini coefficient can describe very different societies.

The Gini coefficient can therefore be stable if one inequality increases and another diminishes. As Ben says, inequality has risen in the sense that the top 1% has gotten relatively better off. But it follows, therefore, that some other inequality has fallen.

My chart, taken from the IFS,  shows one of these inequalities - the ratio of the 80th to 20th percentiles, but neighbouring ratios such as the 70/30 show a similar pattern.

Now, these figures refer to incomes after tax and tax credits but before housing costs and they are adjusted for household size. A childless couple with a disposable income of £288 per week in 2012-13 (the latest date available) was at the 20th percentile, whilst £689 per week got the couple onto the 80th percentile; the latter is equivalent to a pre-tax income of just under £50,000.

What's going on here, I suspect, are two separate developments.The 20th percentile are often lower-wage workers, who have benefited from tax credits: since 1996-97 their incomes have risen by 23.7% - more than any group except the 1% who got a 40% rise. However, the 80th percentile has seen growth of less than 13% - as have the 65-85th percentiles. This, I suspect reflects a combination of the relative decline of the lower middle-class and job polarization hurting white-collar workers: you can picture the 80th percentile couple as a man on £30,000 and woman on £20,000 - or more for a couple with kids.

In fact, I suspect their relative decline might be worse than this, because working conditions for such people might also have deteriorated.

Worse still, it's possible that robotization (pdf) will worsen their relative position still further.

And here's the thing. It's these sort of people who have, in politico-speak, worked hard and played by the rules. And yet they've seen their position decline relative both to lower-paid workers and the top 1%. Their response to this, in some (many) cases has been resentment against the political class generally: when I picture a Clarkson-loving resentful white man, it's someone on the sort of decentish wage that gets him and his family into to the 65th-85th percentiles.

It is often said that a strong middle-class is necessary for a healthy, stable free society. Insofar as this is the case, then the sort of increased equality we've seen might be a problem.

Comments

[Blissex]

«these sort of people who have, in politico-speak, worked hard and played by the rules. And yet they've seen their position decline relative both to lower-paid workers and the top 1%. Their response to this, in some (many) cases has been resentment against the political class generally: [ ... ] someone on the sort of decentish wage that gets him and his family into to the 65th-85th percentiles.»

When I read the media read by the 65-85th percentile people, the Mail and the Telegraph, I get a completely different impression.

The 65-85th percentile is largely made of people who live in the South East, work in the licensed professions and in finance, are middle aged and older, started working when final salary pensions were the norm, and bought their houses in the 80s and 90s.

These people don't care about wages or unmployment or benefits, because they think their jobs are secure and because they have been making 10%-per-month profits on their leverage property speculation, tax free and effort free,, for 30 years, by voting for Thatcher, Blair and Osborne. That's has made them rich beyonmd their dreams, not working hard, even if some did, and certainly not playing by the rules.

So from the Mail and the Telegraph my impression is that these people love their political class for delivering for 30 years massive tax-free effort-free capital gains on property, and resent the Northern scroungers who they think gobble up their taxes to live lavishly on benefit way above average earnings in mansions with many empty bedrooms.

They love their immigrants from very poor countries because they can pay them a lot less than those Northern scroungers, and pack them 4 to a room or in thei garden sheds for huge rents and (often) tax-free profits.

These people are the 65-85% that actually exist and vote in the UK.

[magistra]

Blissex,

If the people at the 80% have a household income of just under 50K a year, they are almost certainly not middle-aged professionals, because middle-aged professionals normally earn quite a bit more than that (especially since most of them will be duel-earner households). What profession do you know where at the relatively senior levels you'd get to after 20 years or so of career you're earning less than 40K? And as for the regions, only about 30% of Daily Mail readers are in the South-East: see http://www.mailclassified.co.uk/advertising-tools/regional-splits. I know you don't want actual facts to dilute your rants, but the lack of evidence is getting fairly tedious.

[rogerh]

I reckon the voters can have as much resentment as they like, Cameron has no need to care a toss until 2020 or more likely 2025. On past history 2025 is the likely time all the chicken come home to roost. So the question to my mind is - how will the economy develop in the next 10 years - will we see the middle and lower middle classes getting stronger and more confident over the next decade?

I suspect we will still be muddling along, probably a little bit worse off. Big corporates will pick and choose and play one off against the other. No miracle inventions will be ours alone. Our political zeitgeist will still hover halfway between Europe and the USA. Therein lies our undecided (undecidable) future - Tories as Republicans and Labour as Democrats or do we have Tories as the Moderate Party and Labour as the Social Democratic Party - or vice versa if you prefer. Neither most like, most likely we will get an unreconstructed Labour party in 2025 and repeat the same sorry cycle over again.

[Blissex]

«the media read by the 65-85th percentile people, the Mail and the Telegraph,»

http://www.telegraph.co.uk/advertising/
"Average age 62"
"The average AB Telegraph reader has savings of over £100k"
http://i.telegraph.co.uk/multimedia/archive/02520/Our_audience___pdf_2520793a.pdf
"ABC1" 87% (and I remember seeing "AB" as 60-65%; the Guardian reports their ABs as 59% of their readers).

«The 65-85th percentile is largely made of people who live in the South East, work in the licensed professions and in finance,»

The 65-85 percentiles are the midpoints of the 7th, 8th and 9th deciles and this handy table shows fairly detailed numbers about the median (gross) incomes in those deciles:

http://www.theguardian.com/money/2014/mar/25/uk-incomes-how-salary-compare

These go from 24,800/y for single adults at (around) the 65% position and £91,100y for 2 adults and 2 children. A lot of licensed professions and jobs in finance give incomes around those points, perhaps not in London, or major South East urban centers. Also there are quite a few licensed professions (and trades with similar incomes) where not everybody makes London solicitor incomes, for example engineering and teaching; and many finance jobs are not paid as much as City traders, from accountants to estate agents. For example the same source says:

«Teachers, who outside of London earn between £34,523 and £37,124 in the "upper pay ranges" according to the Department for Education, fall into the bottom third and fourth decile of households with two children, although if their partner works then they will be further up the decile ranges.»

As to the largish differences in house prices:

http://www.ons.gov.uk/ons/rel/hpi/house-price-index/march-2015/stb-march-2015.html#tab-Average-house-prices-in-countries-and-regions

and in regional incomes (disposable here):

http://www.neighbourhood.statistics.gov.uk/HTMLDocs/dvc168/index.html

[Pension60]

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