TRENDS in economic inequality - ECO1016

Historic Trends

The trend in global inequality from 1820-1910, and its status thereafter

Rose until 1910, then stabilised at a high level

Top 10% of income earners share of global income

Around 50-60% of global income

Bottom 50% of income earners share of global income

Around 5-15% of global income

Bottom 50% of share of global wealth

Around 2% of global wealth

Since 1980, how inequality within and between countries has trended

Inequality within countries has increased, but inequality between countries has decreased

The difference in distributions of wealth, market income (wages, businesses, and investments), and disposable income (market income + transfers - taxes)

Wealth is much more unequally distributed than market income, which is more unequally distributed than disposable income

Trend in income inequality in Great Britain in the 1980s (under Thatcher)

Income inequality increased significantly. The Gini rose from 0.26 in 1980 to 0.34 by 1990. The 90:10 household income ratio rose from 3.2 to 4.4 over the same period.

Due to:

• mines closing and high skill jobs rising

• weaker trade unions

• regressive tax and benefit policy change

The 90:10 ratio in Great Britain in 2020

Roughly 4, the richest 1% earning 4 times the poorest 10%

Trends in inequality since the 1990s in Great Britain

Inequality fell and incomes grew until the Great Recession (2007-09), income inequality fell further and more progressive tax and benefit policies were enacted.

In the 2010s, fiscal austerity led to incomes at the bottom of the distribution falling, while earnings and hours worked rose

Structural change (manufacturing vs service sector) in the Great British economy since 1980

The service sector has overtaken manufacturing, which used to provide high and equally paying jobs.

The service sector offers low skill low wage jobs and high skill high wage jobs, but low wages have remained stagnant while high wages have increased rapidly.

• This has contributed to the North being generally worse off than the South (especially London)

Impact of automation (machines and software) on income inequality (in the US) (researched by Daron Acemoglu)

Automation replacing humans with machinery has meant labour productivity stagnated, rather than becoming more productive.

Lesser educated males have had jobs disappear, the remaining jobs offer lower real wages.

Automation is responsible for more than 50% of the increasing wage gap between US workers, tax policies have incentivised this investment in automation

Addressing Inequality

Educational attainment in recent decades

Increasing, both school level and higher level qualifications

More higher education degrees, and less lowest level qualifications

Trend in skill attainment across generations in England

Despite rising qualifications, skills have not improved

Parents and their children have similar literacy levels, social mobility lacks

Public spending on education in since 1960 (UK)

Rising in real terms except for the 2010s austerity, where per pupil spending decreased

In real terms, colleges and sixth forms would still have lower funding in 2024 than 2010 (due to the austerity lowering)

Relationship between education and earnings

Mathematically plotted by the mincer equation, regressing wage earnings on education and experience.

A positive relationship.

Hard to disentangle which part of earnings are caused by skills and knowledge gained from higher education, and which part is due to academic ability.

Who gains the most from higher education? (gender, ethnicity, family background, subjects, schools attended previously)

Women

Women of a South Asian background

Men from the poorest and richest quintiles

Economics and medicine graduates

Privately educated graduates

Social mobility in education (how much does your background affect your returns on education, or educational attainment)

Children from disadvantaged backgrounds obtain lower qualifications, preventing them moving above their family background. But they gain high returns.