The full version of this paper is available at http://sticerd.lse.ac.uk/dps/case/spcc/RR05.pdf. Analysis of changing economic inequality in London is also available.
Detailed examination of the qualifications, employment, pay, incomes and wealth of different groups since the economic crisis reveals an uneven legacy. Young people in their twenties have lost out most across a wide range of outcomes, despite gaining higher qualifications than previous generations.
This summary examines what has changed since the situation described in the 2010 report of the National Equality Panel, An Anatomy of Economic Inequality in the UK. That looked at how economic outcomes varied between different kinds of people, not just between groups, such as those defined by gender, age and ethnicity, but also within groups. The data then available centred around 2007 - showing what the anatomy of inequality in the UK looked like immediately before the financial and economic crisis. Much has changed since then. The report summarised here uses 2013 data (or for the financial year 2012/13 in the case of incomes, or July 2010-June 2012 for wealth) to show how different groups have been affected over the six years. Which have fallen behind and which have got ahead?
We compare the positions around 2007, 2010 and 2013. We examine: the highest qualifications of the working age population; employment patterns; hourly wages and weekly earnings for those who are full-time employed; people's net incomes based on those of the household in which they live both before and after housing costs; and household wealth. The results look at the population as a whole, by gender, by age group, ethnicity, housing tenure, region, and disability status.
Changes in overall economic inequalities during and since the economic crisis have been complex. As a backdrop, qualification levels of the working age population have continued to rise, particularly for women, who are now better qualified than men in terms of higher education and degrees. The rise makes the continuing falls in real wages all the more striking. While men were worst hit in terms of employment between 2006-08 and 2010, they gained more between 2010 and 2013 than women.
Pay distribution became more unequal for both men and women, with real hourly wages down by 8.4 per cent for the worst-paid men and 7.1 per cent for the worst-paid women, but by 4.2 per cent for the best-paid men and 5.0 per cent for the best-paid women. What happened to the gender pay gap is ambiguous: the gap in mean hourly wages narrowed, but the gap in median pay widened slightly.
With falling hours for those in full-time work, weekly earnings for full-timers fell even faster - by 7.6 per cent overall, and more for men than women. Inequalities in full-time weekly earnings grew - earnings fell by more than 8 per cent for the lowest paid men and women, but by only 2.2 per cent for the best-paid men, and only 3.5 per cent for the best-paid women (in the survey used here).
But this did not mean rising inequalities in household incomes, up to 2012/13, at least, as through that period the Labour and Coalition Governments continued to protect most benefit and pension levels in real terms (before the main cuts in benefits and tax credits were introduced from April 2013). This meant reduced inequality over the period as whole. Before allowing for housing costs, real incomes grew near the bottom of the income distribution between 2007/08 and 2010/11, while they fell in the top half of the distribution. They then fell by similar proportions for all income groups between 2010/11 and 2012/13.
Measured after allowing for housing costs, however, real incomes fell across the distribution; particularly at the top before 2010 and at the bottom afterwards. As a result, the overall reduction in inequality was much smaller after taking account of housing costs than before. There was also a clear reduction in gender inequalities at the bottom and middle of the income distribution over the period (Figure 1). In particular, this reflected single men experiencing a much larger fall in income than other household types, while single women with children and pensioners benefited from the price-linked protection of benefits.
Figure 1: Changes in net income after housing costs by gender, 2007/08 to 2012/13 (adults, %)
CHART "equalities/summary/figure/1" NOT FOUND - COMING SOON
Source: DWP/CASE analysis of HBAI dataset. Bars show the fall in real income (adjusted for household size).
Inequality in wealth (assets as opposed to income), considered in its own terms, generally fell between 2006-08 and 2010-12. However, bigger absolute gaps in wealth between wealthier and less wealthy households meant that it would take more years of annual income to move up the wealth ladder.
Of all the breakdowns we examine in this report, the differences between age groups are the clearest and most consistent. The following stand out:
CHART "equalities/summary/figure/2" NOT FOUND - COMING SOON
Source: Labour Force Survey (UK).
The ethnic groupings used in the different surveys vary, but some broad patterns emerge showing that the experiences of different ethnic groups have varied considerably since the start of the economic crisis. They do not reduce to a simple message that some groups have done uniformly better than others.
CHART "equalities/summary/figure/3" NOT FOUND - COMING SOON
Source: Labour Force Survey (UK).
Economic divisions by housing tenure were already wide before the economic crisis and have widened further since. Social tenants generally have much lower levels of qualifications than those in other tenures, and much lower levels of employment. Full-time employment fell and unemployment rose by twice as much for male social tenants as for owner-occupiers and private tenants. By 2013 fewer than half of all working-age adults in social housing were in any kind of employment or self-employment (Figure 4). For those social tenants that were in full-time employment, real hourly wages had fallen by 8 per cent for men and 9 per cent for women since 2006-08, to only £8.48 for men and £7.77 for women. This was 40 per cent or more below the wages of men and women with mortgages. Falls in weekly full-time earnings were even faster - by 11 per cent for men and 9 per cent for women in social housing.
Figure 4: Employment status in 2013 by housing tenure, men and women (%)
CHART "equalities/summary/figure/4" NOT FOUND - COMING SOON
Source: Labour Force Survey (UK).
Nevertheless, a higher proportion of social tenants' incomes comes from social security benefits than in other tenures - and the real value of many of those benefits was protected until the end of 2012-13. This meant that median net incomes before housing costs rose slightly for social tenants, while falling (roughly in proportion to weekly earnings) for those in other tenures. But after deducting housing costs, median incomes fell as much for social tenants as for owner-occupiers, while those of private tenants fell even further, by 13 per cent. The best-off private tenants lost 19 per cent between 2007/08 and 2012/13 after housing costs, but the poorest social tenants also lost nearly 10 per cent.
Wealth differences between tenures widened in absolute terms between 2006-08 and 2010-12, with median non-pension wealth for outright owners reaching £307,000, compared to less than £20,000 for social and private tenant households.
Looking across regions, two things stand out - differences between London and other regions - with Northern Ireland often in the least favourable position - and differences within London:
Interpreting results by disability status is harder than for other characteristics, both because of definition variations between surveys and over time, and because many of the raw differences are heavily related to age. However, there are clear differences between disabled groups and others in the positions shown by the most recent data:
Many of the inequalities we examine in this report remain wide, and some have widened since the economic crisis. But the clearest change has been the deteriorating economic position of young adults, and in differences between the way younger and older people have been affected. At older ages, rising employment is encouraging as a response to increased longevity. For the generation approaching retirement or recently retired, rising wealth levels are an advantage, but are very unequally distributed.
At the other end of adulthood, those in their twenties and early thirties are better qualified than any previous generation. But they were hit harder by far than any other age group after 2007, with the greatest drop in full-time employment, largest rises in unemployment, and greatest falls in real wages. While wealth rose for households aged over 65 between 2006-08 and 2010-12, it fell for younger ones.
These generational developments have ramifications across society and for many social policies. What can be done to improve the position of even well-qualified young people in today's labour market? Is there a generation who entered the labour market in the toughest times who will now be 'scarred' by comparison with younger, future cohorts who may enter in better times? If real wages for people in their twenties and early thirties are so much lower than they were in the late 2000s, what does that mean for the assumptions that were made when designing the current student loan system. Was it predicated on a level of graduate wages which no longer exists?
Meanwhile, the generational wealth divide has grown immense in relation to annual incomes. Median wealth (including pension rights) of households aged around 60 reached £425,000 in 2010-12. For those aged around 30 it was £60,000. For the younger generation to bridge the gap between the two would require them to find £365,000. To do that through their own savings or pension contributions would mean putting aside £33 every day for the next thirty years. For most people, this is unlikely to happen. Instead, what will matter most will be the wealth of older generations, and to whom it is passed on. That wealth is, however, highly unequally distributed. Therefore the way it is passed as financial assistance or inheritance to a younger generation most affected by the earnings squeeze will also be highly uneven.
The economic crisis and its aftermath have not affected everyone equally. These differences in economic fortune and misfortune over the last seven years will form a key part of the social inheritance of whatever government is elected, or re-elected, in the coming General Election. That in turn will affect the way society and public policies evolve over years and decades to come.
The full version of this paper Falling Behind, Getting Ahead: The Changing Structure of Inequality in the UK, 2007-2013, is available at http://sticerd.lse.ac.uk/dps/case/spcc/RR05.pdf. Further detailed tables and breakdowns, and an interactive web-tool for their analysis will be available on www.casedata.org.
The paper is part of CASE's research programme Social Policy in a Cold Climate (SPCC), funded by the Joseph Rowntree Foundation, the Nuffield Foundation, and Trust for London. The views expressed are those of the authors and not necessarily those of the funders.
Papers from the project are available as follows:
Analysis of the Coalition government 2010-2015
RR04: The Coalition's Social Policy Record 2010-2015, Ruth Lupton, with Tania Burchardt, Amanda Fitzgerald, John Hills, Abigail McKnight, Polina Obolenskaya, Kitty Stewart, Stephanie Thomson, Rebecca Tunstall and Polly Vizard http://sticerd.lse.ac.uk/dps/case/spcc/RR04.pdf.
RR05: Falling Behind, Getting Ahead: The Changing Structure of Inequality in the UK, 2007-2013, John Hills, Jack Cunliffe, Polina Obolenskaya and Eleni Karagiannaki http://sticerd.lse.ac.uk/dps/case/spcc/RR05.pdf.
RR06: The Changing Anatomy of Economic Inequality in London (2007-13), Polly Vizard http://sticerd.lse.ac.uk/dps/case/spcc/RR06.pdf.
WP11: The Coalition's Record on Cash Transfers, Poverty and Inequality 2010-2015, John Hills http://sticerd.lse.ac.uk/dps/case/spcc/WP11.pdf.
WP12: The Coalition's Record on the Under Fives: Policy, Spending and Outcomes 2010-2015, Kitty Stewart http://sticerd.lse.ac.uk/dps/case/spcc/WP12.pdf.
WP13: The Coalition's Record on Schools: Policy, Spending and Outcomes 2010-2015, Ruth Lupton and Stephanie Thomson http://sticerd.lse.ac.uk/dps/case/spcc/WP13.pdf.
WP14: The Coalition's Record on Further Education, Skills and Access to Higher Education: Policy, Spending and Outcomes 2010-2015, Ruth Lupton, Stephanie Thomson and Lorna Unwin http://sticerd.lse.ac.uk/dps/case/spcc/WP14.pdf.
WP15: The Coalition's Record on Employment: Policy, Spending and Outcomes 2010-2015, Abigail McKnight http://sticerd.lse.ac.uk/dps/case/spcc/WP15.pdf.
WP16: The Coalition's Record on Health: Policy, Spending and Outcomes 2010-2015, Polly Vizard and Polina Obolenskaya http://sticerd.lse.ac.uk/dps/case/spcc/WP16.pdf.
WP17: The Coalition's Record on Adult Social Care: Policy, Spending and Outcomes 2010-2015, Tania Burchardt, Polina Obolenskaya and Polly Vizard http://sticerd.lse.ac.uk/dps/case/spcc/WP17.pdf.
WP18: The Coalition's Record on Housing: Policy, Spending and Outcomes 2010-2015, Rebecca Tunstall http://sticerd.lse.ac.uk/dps/case/spcc/WP18.pdf.
WP19: The Coalition's Record on Area Regeneration and Neighbourhood Renewal: Policy, Spending and Outcomes 2010-2015, Ruth Lupton and Amanda Fitzgerald http://sticerd.lse.ac.uk/dps/case/spcc/WP19.pdf.
Analysis of the Labour government 1997-2010
RR01: Labour's Social Policy Record: Policy, Spending and Outcomes 1997-2010 Ruth Lupton, with John Hills, Kitty Stewart and Polly Vizard http://sticerd.lse.ac.uk/dps/case/spcc/RR01.pdf.
RR02: Winners and Losers in the Crisis: The Changing Anatomy of Economic Inequality in the UK 2007-2010, John Hills, Jack Cunliffe, Ludovica Gambaro and Polina Obolenskaya http://sticerd.lse.ac.uk/dps/case/spcc/RR02.pdf.
RR03: Prosperity, Poverty and Inequality in London 2000/01-2010/11, Ruth Lupton, Polly Vizard, Amanda Fitzgerald, Alex Fenton, Ludovica Gambaro and Jack Cunliffe http://sticerd.lse.ac.uk/dps/case/spcc/RR03.pdf.
WP01: Small Area Measures of Income Poverty, Alex Fenton http://sticerd.lse.ac.uk/dps/case/spcc/WP01.pdf.
WP02: Labour's Record on Health, Polly Vizard and Polina Obolenskaya http://sticerd.lse.ac.uk/dps/case/spcc/WP02.pdf.
WP03: Labour's Record on Education, Ruth Lupton http://sticerd.lse.ac.uk/dps/case/spcc/WP03.pdf.
WP04: Labour's Record on the Under 5's, Kitty Stewart http://sticerd.lse.ac.uk/dps/case/spcc/WP04.pdf.
WP05: Labour's Record on Poverty, Inequality and Cash Transfer's 1997-2010, John Hills http://sticerd.lse.ac.uk/dps/case/spcc/WP05.pdf.
WP06: Labour's Record on Neighbourhood Renewal in England, Ruth Lupton http://sticerd.lse.ac.uk/dps/case/spcc/WP06.pdf.
WP07: Hard Times, New Directions? The Impact of Local Government Spending Cuts in London (Interim Report) http://sticerd.lse.ac.uk/dps/case/spcc/wp07.pdf.
WP08: Education and Intergenerational Mobility: Help or Hindrance? Jo Blanden and Lindsey Macmillan http://sticerd.lse.ac.uk/dps/case/spcc/wp08.pdf.
Social Policy in a Cold Climate is a research programme funded by the Joseph Rowntree Foundation, the Nuffield Foundation, and Trust for London. The views expressed are those of the authors and not necessarily those of the funders.