About Economic Inequality

UK income inequality is among the highest in the developed world and evidence shows that this is bad for almost everyone, because more equal societies work better for everyone

Abridged from http://www.equalitytrust.org.uk/

The Equality Trust works to improve the quality of life in the UK by reducing economic inequality

UK income inequality is among the highest in the developed world and evidence shows that this is bad for almost everyone.

People in more equal societies live longer, have better mental health and have better chances for a good education regardless of their background. Community life is stronger where the income gap is narrower, children do better at school and they are less likely to become teenage parents. When inequality is reduced people trust each other more, there is less violence and rates of imprisonment are lower.

The Equality Trust’s focus on economic inequality 

Economic inequalities are most obviously shown by people’s different positions within the economic distribution – income, pay, wealth.   However, people’s economic positions are also related to other characteristics, such as whether or not they have a disability, their ethnic background, or whether they are a man or a woman.   While The Equality Trust recognises the importance of these measures, the focus is specifically the gap between the well-off and the less well-off in the overall economic distribution.

There are three main types of economic inequality

1. Income inequality

Income is not just the money received through pay, but all the money received from employment (wages, salaries, bonuses etc.), investments, such as interest on savings accounts and dividends from shares of stock, savings, state benefits, pensions (state, personal, company) and rent.

2. Pay inequality

A person’s pay is different to their income. Pay refers to payment from employment only.

3. Wealth inequality

Wealth refers to the total amount of assets of an individual or household. This may include financial assets, such as bonds and stocks, property and private pension rights.   Wealth inequality therefore refers to the unequal distribution of assets in a group of people.

How is Economic Inequality Measured?

There are various ways of measuring economic inequality.

Commonly used measures of economic inequality

1. Gini coefficient

The Gini coefficient measures inequality across the whole of society rather than simply comparing different income groups.  If all the income went to a single person (maximum inequality) and everyone else got nothing, the Gini coefficient would be equal to 1.  If income was shared equally, and everyone got exactly the same, the Gini would equal 0.  The lower the Gini value, the more equal a society.

Most OECD countries have a coefficient lower than 0.32 with the lowest being 0.24.

The UK’s Gini is 0.34.

2. Ratio measures

Ratio measures compare how much people at one level of the income distribution have compared to people at another. For instance, the 20:20 ratio compares how much richer the top 20% of people are, compared to the bottom 20%.

  • 90/10 – describes inequality between the top and the bottom

 

What is poverty and how is it different to inequality?

People in poverty are those who are considerably worse-off than the majority of the population.  Their level of deprivation means they are unable to access goods and services that most people consider necessary to an acceptable standard of living.

The most commonly used definition of poverty in the UK is a relative measure: poverty is defined as having a household income (adjusted for family size) which is less than 60% of median income.  This is one of the agreed international measures used throughout the European Union.

Inequality, by contrast, is always a relative term: it refers to the difference between levels of living standards, income etc. across the whole economic distribution.   In practice, poverty and inequality often rise and fall together but this need not necessarily be the case. Inequality can be high in a society without high levels of poverty due to a large difference between the top and the middle of the income spectrum.

UK income inequality

People in the bottom 10% of the population have on average a net income of £8,628. The top 10% have net incomes almost ten times that (£80,240).

Income spread between the UK’s regions and nations

Income is also spread unequally across the UK’s regions and nations. The average household income in London is considerably higher than in the North East.

 UK wealth inequality

The richest 10% of households hold 44% of all wealth.  The poorest 50% own just 9.5%.

Income

Out of the 30 OECD countries, the UK is the fourth most unequal.

Compared to other developed countries the UK has a very unequal distribution of income  and is the most unequal in Europe.

Inequality in recent years

Since the early 1990s, changes in inequality have been less dramatic than the change from 1979 to 1991. After falling slightly over the early to mid-1990s, inequality, rose again from 1997, reaching a new peak in 2000–01. Despite falling for three years from 2000-01, inequality rose again from 2005-2010. Inequality fell in 2010 and has stayed relatively level since.

Inequality since the financial crisis

The unequal way that income is shared across society has, however, changed very little over the last few years. The financial crisis, which occurred in 2008, has had only a very small effect. Inequality in 2011-12 was lower than before the recession.  This was due to falling incomes at the very top of the distribution and increases at the very bottom, largely from social security payments.

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