What has happened to UK household income inequality historically?

UK ONS figures suggest that the income growth of the middle 1/5 of households (only) has tracked national GDP since 1977, in contrast to the trend of declining incomes (relative to GDP) in the USA.



However (for reasons which emerge below), the following report tells a different story for household incomes across the entire distribution:



“Income inequality is relatively high in the UK compared with many other European countries.”


It says that 1977-1991 was “a period of substantial change to the income distribution”, whereas 1992-2002 was “a period of relative stability”. It continues: “During the 1980s there was a substantial increase in income inequality caused by increased inequality in the distribution of income …”. “No shit, Sherlock”? (if you will pardon the expression!)


“Between 1977 and 1996/97 the proportion of retired households in the bottom income quintile group decreased, while the proportion of children living in households in the bottom quintile group increased.” So that’s an increase in inter-generational income inequality (a term that I have just invented).


“The extent of inequality within an income distribution is commonly measured by the Gini coefficient [see my previous post on measuring inequality]. On the basis of this measure, inequality increased substantially between 1977 and 1990, with the most rapid increase taking place in the mid and late 1980s” … In the discussion of alternative measures of inequality and why they disagree with each other: “much of the increase in inequality was due to income growth at the top of the income distribution” …”the households which benefit from growth in income from employment are predominantly in the middle and upper part of the income distribution. Consequently, in periods of rapid growth in employment income, these households ‘pull away’, while during periods of low or falling employment income other households, those predominantly reliant on benefit and pension income, have a chance to ‘catch up’.”


Others (in the OECD) have mentioned an increasing disparity in the way certain skills are rewarded in the economy. This seems broadly consistent with the ONS report.


The income growth at the top of the income distribution explains why the ONS report based *only* on the middle 1/5 of households fails to reflect the full story.

More here: https://www.equalitytrust.org.uk/how-has-inequality-changed




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