CEP Election Analysis:
Inequality: Still Higher, But Labour's Policies Kept it Down
27 April 2010
There was no change in inequality (and even falls on some measures) for those in the bottom half of the distribution.
These are the key findings of the latest Election Analysis from the Centre for Economic Performance (CEP). Authors Professors Stephen Machin and John Van Reenen note that the increase in wage inequality is an international phenomenon driven by increases in the demand for more skilled workers. There is relatively little that any government can do about this in the long term: the best policy is to keep improving the skills of the workforce through education and training.
The tax and benefit policies of the Labour government have meant that inequality is considerably lower than it would have been under the previous Conservative administration, especially for those in the bottom 20 per cent. But since the inequality 'escalator' of pre-tax earnings has been moving upwards, the policies have at best kept inequality stable rather than significantly reducing it.
The publication is summarised below and can be found in full on the CEP Election Analysis Site
For further information, contact Romesh Vaitilingam on 07768 661095 (Email: romesh@vaitilingam.com) or Stephen Machin (Email: s.j.machin@lse.ac.uk) or John Van Reenen (Email: j.vanreenen@lse.ac.uk).
Inequality: Still Higher, But Labour's Policies Kept it Down
- Overall income and wage inequality has risen dramatically in the UK over the last three decades. Although the fastest increase was during the 1980s, there was still some (small) increase after 1997.
- In 1979, a man in full-time work at the 90th percentile (10 per cent from the top of the distribution) earned 2.5 times more per week than a man at the 10th percentile (10 per cent from the bottom of the distribution). In 2009, the equivalent figure was 3.7 times more per week.
- The increase in wage inequality between 1980 and 1990 was much stronger in the UK and the United States than elsewhere. Since 2000, there have been increases in inequality across all richer countries (except France).
- Inequality is a tale of two halves. The top half of the wage distribution has continued to become more unequal steadily throughout the last three decades. The bottom half of the wage distribution ceased to become more unequal after 1997.
- The top 1 per cent of the population has become considerably richer and this has had a large effect on the 'Gini coefficient', a widely used measure of overall inequality. In the decade since 1998, most of this change has been driven by the financial sector, especially bankers' bonuses.
- The changes in tax and spending policies that the Labour government has introduced since 1997 have significantly redistributed income to the less well off. Inequality would have been much higher otherwise.
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