MENU
Your location:

Have the ‘rich got richer and the poor got poorer’ over the past 25 years?

    That’s the question I examine in my City AM column today. The answer is a resounding ‘no’. I’m not going to rehearse the arguments from the column again here, but thought it might be an idea to provide some graphical representation of the arguments.

    1)      Everyone has got better off in the past few decades in real terms

    Inequality 1

    Source: http://www.ons.gov.uk/ons/dcp171776_286266.pdf

     

    And this is robust to looking at households and disposable income:

    Inequality 2


    2)      Inequality has increased, but has been pretty static or falling over the past ten years

    From 4 minutes:

     

    And again, similar trends at a household level

    Inequality 3



    Ratio between top 1% and bottom 1% has been falling since 1998:

    Inequality 4

     

    3)      There is substantial income mobility over time

    A recent book by Stephen Jenkins of the London School of Economics provides us with a time series view of mobility between decile groups. His analysis, undertaken using the British Household Panel Survey, uses real equivalised net household income data belonging to the original sample starting from 1991 and tracks households right the way through to 2006.

    Splitting the income distribution into 20ths, he examines where individuals find themselves after one year, three years, seven years, eleven years and fifteen years from the start of the sample period, by examining the changes in their position in the income rank compared to others.

    The base year, 1991, is represented by the image below. The shades of blue represent the poorest in 1991, the shades of red the richest in 1991, and where the colours occur on the 20 strips indicate where the individuals appear on the distribution in any given year.

    1991 base year:

    The versions of the chart below represent what would happen over time if we had perfect immobility or perfect mobility. Perfect immobility would be seen with all the same individuals occupying the same deciles over time. Perfect mobility is interpreted as complete independence from original position.

    Inequality 6

    Jenkin’s analysis shows that there is significant mobility between income rank, even after just one year. In fact, 54 per cent of those in the bottom income decile moved out of that decile by 1992. Furthermore, around 35 per cent of those in poverty moved out in just one year. Over the full fifteen year period, although there is still some association with origin, the charts show that there is highly significant mobility between income rank – to something relatively close to origin independence.

    Inequality 7

    The correlation of incomes fifteen years apart is just 37 per cent – with just 17 per cent remaining in the same tenth of income distribution in 2006 compared to their original 1991 position. All of these findings are robust to controlling for age, suggesting that there is significant mobility between decile groups over time.

     

    Conclusion

    Higher household disposable income inequality might not be as much of a problem as considered by egalitarian campaigners, because:

    • Everyone has got better off in absolute terms
    • Inequality has increased but now appears to be stable or falling
    • The UK has relatively high mobility between income rank over time


    For a good overview of these arguments, watch this:

     

    Ryan joined the Centre for Policy Studies in January 2011, having previously worked for a year at the economic consultancy firm Frontier Economics.

    Centre for Policy Studies will not publish your email address or share it with anyone.

    Please note, for security reasons we read all comments before publishing.


    Comments

    Anonymous - About 2492 days ago

    You need to take the same % increase and run a simulation for 300 year: the top 10% will own everything. You also need to include debt and have net wealth changes.

    I also question the inflation calculations as they ignore property and financial assets - part of the wealth gain has been in those but also makes it unlikely that people without assets can save effectively for retirement (2% yields won't get you a decent pension).

    Do deciles 1,2 & 3 change a lot whilst 4-10 interchange, meaning a wealth divide?

    I am a fan of Saez's work on the US in wealth/income inequality. He does propose a different conclusion - but every angle implies a different answer.

    Best Regards

    Comment on This

    Centre for Policy Studies will not publish your email address or share it with anyone.

    Please note, for security reasons we read all comments before publishing.


    Anonymous - About 2492 days ago

    To Ryan Bourne;
    You've actually shot yourself in the foot with your article in "City A.M" simply because over the period assessed there were both punitive and non-puntive regimes operating so how can you then argue that high-tax, redistribution etc is self defeating. Honestly you are not qualified to make an analysis like this given they way you skew data to try to make a point when the data cannot support your claim either way. Utter garbage I'm afraid

    Comment on This

    Centre for Policy Studies will not publish your email address or share it with anyone.

    Please note, for security reasons we read all comments before publishing.