The most unequal rich country in Northern Europe
Last month the Organisation for Economic Co-operation and Development (the rich countries’ club) published In it Together: Why Less Inequality Benefits All. It develops the argument the OECD has been making for some time about the malign economic consequences of inequality, and presents evidence to show that it is the growing distance between the bottom 40% and the rest that is particularly bad for growth.
There was a time when anyone who wrote those sentences would have been accused of crude satire. Twenty years ago the OECD published an influential Jobs Study that promoted benefit cuts and labour market de-regulation but for a decade they have been saying more about poverty and inequality. The latest report is more of a warning than a prescription, and it describes how, in the rich world during the decades before the Great Recession, most of the gains from economic growth went to the rich and the poor were left behind. Since 2008, these problems have worsened “and in many OECD countries inequality is today at its highest since data collection started.”
Income inequality is not just a British problem – but the data in this report shows that the scale of the problem is worse here than most other OECD member states. Now, it has to be admitted that, yes, inequality is worse in countries like the USA, Israel and Chile than it is here:
But that isn’t who we’d normally choose to be compared with. In this post I’m going to compare this country with other rich European countries – those that are members of both the EU and the OECD. The UK has been a member of the EU for over 40 years and the OECD since its inception, so this is a reasonably fair comparison. In this group, using the ‘Gini coefficient’ measure of inequality we are at the bottom of the league:
The Gini coefficient is widely used to measure inequality; its advantage is that it measures inequality across the whole range of incomes and inequality at the bottom, in the middle and at the top all count equally. That is comprehensive, but it doesn’t necessarily tell us about other aspects of inequality that we find worrying.
One of the things that worry many of us about income inequality is the disparity between the rich and the poor. A useful measure of this is the ratio of the income of the top 10 per cent of the distribution to that of the bottom 10 per cent – the ‘90/10 ratio’. Again, the UK is one of the worst performers:
Indeed, we are clearly one of group of half a dozen poor performers. Another way of thinking about inequality is to ask what share of total income goes to the poor. Unfortunately, whether you look at the position of the bottom 10 per cent, the bottom 20 per cent or the bottom 40 per cent, poorer people in the UK get a much smaller proportion of total income than in most other European countries:
And yes, what you must have suspected after looking at the last three charts is true – the top 10 per cent get a significantly higher share of total income in the UK than in other countries:
Indeed, if we measure the gap between the share of total income taken by the top 10 per cent and that taken by the bottom 40 per cent, guess who comes top of this league Sepp Blatter would be proud of?
And all these inequalities feed through to poverty rates. In this country, when talking about child poverty we’re used to measuring poverty in two ways; first we have a relative measure – a child is poor on this measure if she lives in a family with an income below 60 per cent of the median. And we have an ‘absolute’ measure – a child is poor on this measure if she lives in a family with an income below the cash value of the threshold for the relative measure when the government was elected, updated for inflation.
The OECD has two similar measures for poverty generally. First there is a poverty rate for the proportion of people with incomes below 50 per cent of median disposable income for that country. The UK is where, by now, you will expect it to be:
The second measure is what the OECD calls ‘anchored’ poverty – having an income below the poverty threshold for 2005, i.e. before the Great Recession. Again the UK is one of the under-performers:
How justified is my headline? It all depends on what you mean by rich. If we take it to mean rich enough to be in the EU and the OECD, we’re one of a group of unequal and poverty-stricken countries that fail on most definitions of inequality. We’re certainly the most unequal country in the part of the world we’d normally taken to be occupied by countries similar to ourselves.
And that, I’d say, is bad enough for anyone.
Note – all figures are for 2013, or most recent year for which data are available