This article was published in the Times newspaper and is reproduced with permission.
Perceptions of the world often take a while to catch up with reality. Revelations from the BBC last week will have strengthened the sense that incomes and earnings in the UK are getting more and more unequal, and that we are making no progress in closing the pay gap between men and women.
That would be a shame. Because while income and earnings are very unequally distributed, and women do earn less than men, the gaps have been closing in recent years. Income inequality is lower now than it was before the financial crisis, and indeed no higher than it was 25 years ago. And while progress has been painfully slow, women’s earnings are higher relative to those of men than they have ever been. Though here the BBC figures do tell a wider story. While the gender pay gap is closing for most, it has closed very little for the very highest paid.
That’s not to say that all is well. The gender pay gap remains. We will all have our own views as to the justice of Chris Evans and Gary Lineker, along with the bankers and senior executives, earning quite as much as they do. But in worrying about these gaps let’s not lose sight of bigger and newer trends.
It is, I think, just about sinking in to the public and political consciousness that pensioners as a group are no longer society’s poor relations, as they undoubtedly were 30 years ago. Their incomes are on average now at least as high as those of younger people and poverty rates among pensioners are lower than among other groups. Not onlythat, they are sitting on most of the nation’s wealth while younger generations are facing an uphill struggle to accumulate assets of their own.
Those facts haven’t stopped recent governments giving money away to pensioners while cutting working-age benefits in a way that will hit some of the poorest very hard indeed. Such cuts still seem to be far easier to implement than the most modest of adjustments to pensioner benefits. While we may know that we have a new form of intergenerational inequality, favouring the old and squeezing the young, our political system still seems wholly unable to respond.
It is also struggling to respond to the fact that by far the biggest challenge to have reared its head over the past ten years or so has little or nothing to do with inequality — it is the massive squeeze on incomes right across the population. After taking account of inflation, average earnings remain below where they were in 2008. That’s unique in at least 150 years.
What has not happened has been a widening in income or earnings inequality. Quite the reverse in fact. Earnings for those in the middle of the distribution have done terribly. Earnings for those right at the top have fallen even further.
That’s most dramatically true in London where, once you take account of housing costs, Londoners are actually slightly worse off than the UK average. That’s partly because so many of them spend so much on renting privately. It’s also because earnings in London have fallen particularly rapidly. The streets are still paved with gold for some. Inequality is and always has been higher there than elsewhere in the country, but income inequality in London has fallen fast. Like the rest of the country on steroids, a combination of huge employment growth and falling wages, especially at the top, has seen to that.
Increasing employment and dreadful earnings growth have put paid to another verity. Poverty is no longer overwhelmingly associated with lack of employment. The majority of those officially classified as poor live in a household where someone is in work. More than four in ten children in families where one parent works now fall below the poverty line.
And this reflects another remarkable trend. In most of those families it is the father who is in work. And while earnings in general have done badly in recent years, men’s earnings have done even worse. Over the past 20 years the earnings of mothers have grown by more than 2 per cent a year on average, and the earnings of fathers by less than 0.5 per cent a year. That represents a huge and continuing social change with profound consequences for public policy and family life. One-earner couples are struggling to keep up.
Another profound change relates to what it means to be in the middle of the income distribution. The incomes of those in the middle are no further behind the top than they were 20 years ago. But today half of middle-income families with children live in a rented property. Less than a third did so in the mid 1990s. With the extension of in-work benefits they are also more reliant than before on welfare. In the mid-1990s both the rich and the middle were generally owner-occupiers dependent on their own earnings. Increasingly the renting, benefit-dependent middle earners have, and perhaps feel they have, more in common with the poor than with the rich.
Our society is being shaped by these trends, not by a non-existent spiralling in income inequality. In any case, one word of caution for those worried about earnings at the top. If lots of French, and indeed English, bankers do leave London for Paris or Frankfurt in the next few years after the Brexit vote, inequality may well fall further. But before anyone starts cheering, that would also mean a big dip in tax revenues. Losing a lot of high earners might make us feel better about our own earnings, but it would also mean more years of austerity and higher taxes for the rest of us.
Paul Johnson is director of the Institute for Fiscal Studies. Follow him @PJTheEconomist