Earnings inequality in the UK reaches new high

By TruePublica: For most who keep an eye on politics know a bit about the term ‘Thatcherism.’ It is a form of British conservative ideology – quite obviously named after Conservative Party leader Margaret Thatcher. From an economic standpoint – it has driven a level of earnings inequality in the UK not seen for decades – moving the UK up to being one of the higher earnings inequality countries in the developed world. In this regard, so-called trickle-down economics has failed.

Ideologically, Thatcherism has never really been fully defined, but generally speaking, it was introduced as a political platform emphasising free markets with restrained government spending and tax cuts, coupled with British nationalism both at home and abroad.

Throughout the last four decades, the Conservative party have been right behind this ideology. Political observers would agree that many of the tenets of Thatcherism have now gone too far or too deregulated. Thise on the more extreme right of the political spectrum believe not enough has been done to truly see the effects of the free market. However, one only needs to analyse the devastating effects of deregulating the banking industry that led directly to the financial crisis and therefore one of the most destructive recessions this country has ever faced. Its lingering effects have caused huge economic and social problems.

The Daily Telegraph stated in April 2008 that the programme of Tony Blair’s New Labour, basically accepted the central reform measures of Thatcherism such as deregulation, privatisation of key national industries, maintaining a flexible labour market, marginalising the trade unions and centralising power from local authorities to central government. Largely speaking this was seen to be true.

The principles of Thatcherism is what Jeremy Corbyn opposed and many saw this as a new form of policy decisions that would support working-class people more than the middle-classes.

The middle-classes are somewhat difficult to define as people have different views on what it means – but broadly speaking about 45 per cent of the population define themselves as so. This is what led to Corbyn’s defeat at the last general election as a high proportion of the middle-classes are ‘floating’ voters and voted Conservative in fear of increased taxes, especially on wealth such as property.

However, one fact is now clear, no matter where your political affiliations lie. Wage and earnings inequality has been on the rise in the UK since the late early 1980s, and with faster increases than comparator countries, it is now one of the countries with the highest levels of wage and earnings inequality in the developed world. Labour market inequality arises in various forms: inequalities in employment opportunities, wages and hours worked, but also in other dimensions of employment, such as job security.

Zero-hours contracts and the so-called ‘gig-economy’ has done much damage to household incomes and the UK is only one of half a dozen in the Western world that allows them.

The world has changed dramatically in the last four decades, which has shaped labour market inequality in the United Kingdom. Technological changes and skill demand have been key drivers.

The Institute for Fiscal Studies (IFS) is an economic research institute based in London. Its most recent research on labour market inequality* is summarised as follows:

• Earnings inequality is considerably higher in the UK than it was 40 years ago, moving the UK up to being one of the higher earnings inequality countries in the developed world by 2019.
• The evolution of earnings inequality over the four decades between 1980 and 2019 shows distinct temporal and distributional differences. In the 1980s, earnings inequality went up sharply at all points in the distribution. In the 1990s and 2000s, upper-tail inequality rose significantly but lower-tail inequality grew less, especially in the 2000s. After the global financial crisis, the 2010s saw a modest narrowing of upper-tail earnings inequality and a more pronounced reduction of lower-tail earnings inequality.
• The long-run structural trend of rising earnings inequality was driven by technical changes that benefited skilled workers doing more complex tasks, whilst the minimum wage that was introduced in April 1999 played a crucial role in stopping and reversing the upward trend of lower-tail earnings
• The past 10 or 15 years have seen real earnings growth of most workers slow down and stagnate, giving the labour market a double whammy of more inequality coupled with little or no earnings improvement in real terms (with the exception of the low-paid who benefited from above-inflation upratings of the minimum wage).
• The nature of work has changed dramatically over the past 40 years. Traditional work patterns have become less delineated in the face of big compositional shifts in who works and the definition and structure of modern jobs. Worker power has fallen in the light of rapid union decline and increased employer power in pay determination.
• Two related significant shifts have been the rise in solo self-employment and the emergence of new informality via the gig economy. These have radically changed the jobs landscape and the way people work. In addition, the share of the lowest-earning quintile who are self-employed has increased by 54%, or 8 percentage points, from 15% to 23%, between 1999 and 2019.
• Higher earnings inequality, with low real earnings growth, and a very different labour market from 40 years ago have placed the world of work in a much more unequal and divisive place. To halt or reverse this trend requires significant attention be devoted to ways to restore and reinvigorate real earnings growth and to generate decent jobs with good career opportunities in an inclusive way.

The conclusion to these findings can be put more simply – but there are other complexities. The reality is that generally speaking, wage inequality has risen significantly. Couple that with rising house prices, along with institutional costs such as university fees, privatisation of utilities and other basic services – and you end up with a much more divided society.

In reality, corporate profits have risen significantly over the last 40 years – effectively taking the purchasing power away from its workers. Steeply rising profits, economic growth and stock market highs – coupled with near-stagnant wages – has been the story of the British economy for decades. In other words, most economic gains have gone to the top – and not as promised – trickled down.

These findings by the IFS tell us that all the gains made in combating inequality are being lost and the greater that loss the more divided society becomes.

 

*Research findings by the IFS by Giupponi, G., Machin, S. (2022), ‘Labour market inequality ’, IFS Deaton Review of Inequalities: https://ifs.org.uk/inequality/labour-market-inequality/

 

 

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