No comfort from falling inequality

The ONS reports that inequality, measured by Gini coefficients for both pre-tax and post-tax incomes, has fallen slightly in the last ten years. I fear this is an example of how statistics sometime don’t tell us very much.

 - Even if inequality is now falling, the damage done by the previous rise in it still lingers. To paraphrase Joseph Schumpeter, if a man has been hit by a lorry you don’t restore him to health by reversing the lorry. And this damage is considerable. It consists not just of slower economic growth but of increased distrust and coarsened politics: the oft-heard allegations that "elites" are out of touch with the “people” are the product of that earlier rise in inequality.

 - ONS data tell us nothing about the incomes of the super-rich. But we know that the salaries of CEOs of big companies have risen far faster than average incomes, as have incomes of richer bankers. Rising incomes of the super-rich are consistent with a flat or falling Gini if inequalities between the moderately well-off and moderately poor narrow – as has happened.

 - The same Gini coefficient can describe very different economies. A bourgeois society in which many are doing OK whilst only a few are very poor or very rich can have the same Gini as a winner-take-all society in which some have massive incomes whilst there’s income support for the poor but a hollowed-out middle class. But these will be different societies with (ultimately) different cultures. I suspect that the stable-ish Gini hides the fact that we’ve shifted from the former to the latter.

 - Gini coefficients tell us nothing about how inequality arises. The same Gini might arise from people happily paying a man for his great talents (as in Nozick’s Wilt Chamberlain example) or from that man ripping people off. What troubles some of us is that our current inequality is due a lot to the latter.

 - It’s not just inequality of income that matters. Inequalities of status and power also do – not least because they contribute to bad decision-making and degrading working conditions. These are very much still with us.

My point here is a trivial one. We should ask of all statistics: what exactly is it that these are telling us, and what aren’t they? I fear that inequality statistics might not be telling us much. Of course, my concerns about the causes and effects of inequality might be mistaken. There’s a debate to be had here, but it won’t be settled by the ONS’s data.  

Comments

[Dave Timoney]

Michael O'Connor also made the point that a disproportionate increase in poorer households can paradoxically result in narrowing inequality between the top and bottom quintiles, essentially because the top 5th expands to include more households that were previously in the 4th.

See: https://medium.com/@StrongerInNos/more-or-less-equal-c6c16fb533f5#.8xpvg15li

What we should also ask of statistics is why they are presented in a particular way, given that this is potentially subject to ideological bias - e.g. the occlusion of the top 1% by using quintiles instead of centiles.

[aragon]

The greatest variation is within the top percentile (a finer grained measure is required).

Apparently £140K will get you into the top 1%, however Martin Sorrel of WPP remuneration of £70 millions or £14 million for the head of BP.

https://www.theguardian.com/media/2016/mar/15/wpp-sorrell-pay

http://www.bbc.co.uk/news/business-36157729

It may be an outlier but £70 million represents 1444 times the average WPP employee salary.

Statistics embody value judgments (Facts are no enough), in the selection, presentation and assumptions.

Blind stateist policies are resistant to gaming.
A cap on income from any source is much harder to avoid than more complex policies.

Re:Nozick
Wilt Chamberlain playing in a public park is unlikely to accumulate $250,000. He is the beneficiary of a winner take all system where the broadcast media, brings his performance to the attention of a large percentage of the population. It is society that provides the infrastructure and should not be expected to contribute further.

The status quo involves controlled access to the performance both physically and electronically, with copyright providing a (absolute and exclusive) monopoly.

Singing in the shower (at home), no matter how good, will not reach an audience beyond your immediate family. D2 fails because of the social expectation of payment for watching a televised performance, as currently required by copyright.

Salary is a reflection of status and power.

[aragon]

The Guardian has an analysis of the figures:

"The Institute for Fiscal Studies said 20 years ago only one in 20 men aged 25 to 55 worked part-time with low hourly wages. Today one in five of this group works part-time.

Meanwhile the proportion of middle and high–wage men working part-time remains low at less than 1 in 20, which the thinktank said showed that earnings inequality among men had risen significantly over a single generation.

Jonathan Cribb, an IFS economist, said: "The number of low-wage men working part time has increased sharply over the past 20 years. To understand the drivers of inequality in the UK it is vital to understand the growing association between low hourly wages and low hours of work among men.""