Distribution of income in the United Kingdom
The income distribution in the United Kingdom considers the distribution of income in the UK. Personal income distribution looks at how the income of an economy is distributed among individuals or groups (e.g. private households ). The equivalised disposable income is often used to examine the development of income distribution . According to Eurostat, the United Kingdom had a Gini coefficient of 0.33 in 2017 , making it one of the countries with a comparatively high level of inequality in the European Union.
Distribution indicators - methods of representation
When developing the distribution of income, a distinction should be made between market income and disposable income . The market income is the sum of labor and property income. The disposable income also takes into account all transfer payments (including unemployment and pension payments) and taxes. The comparison between the development of market income and disposable income enables an analysis of the redistribution mechanisms in an economy . The distribution of personnel is mostly measured by Eurostat on the basis of available equivalised income.
Median and mean of household disposable income
The median of the income denotes the value that lies in the middle of the distribution when the income is sorted according to its level. The median is also known as the central value and, in comparison with the mean value, also provides information about the form of the distribution. In 2017, the median income in the United Kingdom was the equivalent of 20,995 euros. It is thus higher than the median income of the entire euro zone as well as the European Union , which is 16,909 euros. At the same time, it is lower than that of other Western European (e.g. France, Germany, Benelux ) and Scandinavian countries. Even after adjusting for purchasing power , the median income in the United Kingdom falls behind the countries mentioned. At the beginning of the observation period in 1996, the median income was 10,188 euros. Adjusted for inflation, this is an increase of 37% in the observation period from 1996 to 2017.
The mean , on the other hand, represents the average income in an economy. In 2017, the average disposable household income was 25,244 euros. The increase since 1996 corresponds to an inflation-adjusted increase of 40% in the observation period. The mean income exceeds the UK median both in terms of development and in absolute terms. This suggests an inequality in favor of the upper half of the income. The economic trend is clearly visible in terms of income in the UK. After the increase up to 2008, there followed a slump due to the global financial crisis. It is noteworthy that the pre-crisis level was not reached again in 2017 after adjusting for inflation. The average income of the EU countries is 19,387 euros. This puts the United Kingdom in 9th place in comparison.
Gini coefficient
The Gini coefficient is a measure used to determine the unequal distribution of income in a country. It enables comparison across national borders and is therefore often used as an indicator. Values between 0 and 1 describe the extent of inequality, with a Gini of 1 meaning that a person has the entire income of an economy. A value of 0, on the other hand, corresponds to a perfect equal distribution among all people.
Before taxes and transfers, the Gini in the United Kingdom in 2015 was 0.52 according to data from the OECD . Over the past twelve years, inequality in market income rose by 1.3 percentage points, peaking in the crisis year 2009. In the same period, income inequality after taxes and transfers increased from 0.353 to 0.360 by a little less than 1 percentage point. This speaks in favor of constant redistribution by the state.
The UK thus has a rather unequal distribution of income at household level compared to, for example, France or Germany. Zsolt Darvas and Guntram Wolff (2016) also note this relatively high income inequality compared to other European countries, who associate it with low social mobility in the United Kingdom.
Share of the top 10%
Another measure of inequality describes the proportion of total income made by the richest 10% of the population. For the EU-27 this value has remained relatively stable at 24% since 2005. In the UK, it was 27% in 2005 and between 23% and 26% in 2017. While the value for the United Kingdom shows quite strong fluctuations between the individual years, a comparatively flat trend is evident for the EU-27 during the observation period. The global economic crisis of 2008/2009 does not seem to have any clear effect either, which indicates a parallel decline in incomes in the top decile and in the rest of the population.
In all years with the exception of 2013, the United Kingdom has a higher share of the top 10% and thus a higher inequality than the EU average.
Gender inequality
S80 / S20 income quintile ratio
The S80 / S20 indicator describes the ratio of the total income of the 20% of the population with the highest income (top quintile ) to the total income of the 20% of the population with the lowest income (bottom quintile ). The larger this value, the more unequal the income distribution. Between 2005 and 2017, this level for both men and women in the UK ranged mostly between around 4.5 and 5.5. This means that the richest 20% of the population earned 4.5 to 5.5 times more than the poorest 20% of the population. The significantly higher value for men in 2005 and the decrease for men and women in 2013 are striking.
The development of the income share ratio is very similar between the sexes, with the value for men always being higher than that for women. In the United Kingdom, therefore, there is no strong gender inequality with regard to the income quintile ratio, but income among women is similarly unevenly distributed as income among men. The aggregated S80 / S20 ratio of women and men was around 5.4 in 2017 and is therefore higher than the EU average of 5.1.
Gender Pay Gap (unadjusted)
The gender pay gap is seen as the most important indicator of inequality between the sexes . The unadjusted gender pay gap is the gender-specific wage gap without taking into account differences in job profiles. For the calculation, the average hourly wages of women and men in an economy are compared. On average in the EU-27, men have 16 to 17% higher wages than women. In the United Kingdom, the gender pay gap is 20 to 23% over the entire period under review, well above the EU average.
Since 2010, however, there has been a slight decrease in the gender pay gap in the United Kingdom. However, before job profiles are corrected, the United Kingdom is characterized by an above-average wage gap between men and women.
Regional inequality
Disposable household income by region
Average household disposable income by region corresponds to the average household income at the level of the NUTS-2 regions.
The regions with the highest household disposable income in the UK in 2016 in England are the different regions of London ( Inner London , Outer London South, Outer London West & North West). Inner London stands out again with an average income that is almost twice as high (approx. 45,100 euros) than the second-ranked region, Outer London West & North West. Other regions with above-average disposable household income are the regions of Surrey , East & West Sussex (approx. 22,700 euros) in the south and Berkshire , Buckinghamshire and Oxfordshire in west London (approx. 22,600 euros). Another, higher-income region in the north of the United Kingdom is the region of North Eastern Scotland (approx. 20,600 euros).
Regions with lower disposable household incomes are the West Midlands (approx. 14,100 euros) Tees Valley & Durham (approx. 14,600 euros) and West Wales & The Valleys (approx. 14,600 euros). Even Northern Ireland and some other regions of the Midlands recorded below-average disposable household income.
Metropolitan inequality
| city | Population in% | Average in euros |
|---|---|---|
| London | 18.3 | 35,113 |
| Manchester | 5.1 | 25,046 |
| West Midlands | 4.5 | 24,508 |
| Leeds | 4.0 | 25.127 |
| Newcastle | 1.8 | 24,460 |
| Sheffield | 1.8 | 24,049 |
| Liverpool | 1.8 | 24,178 |
| Leicester | 1.4 | 25,636 |
| Bristol | 1.4 | 28,862 |
| Nottingham | 1.4 | 25,218 |
| Cardiff | 1.2 | 23,319 |
| Southampton | 1.0 | 31,497 |
| Coventry | 0.9 | 25.168 |
| Kingston | 0.9 | 24.005 |
| Bournemouth | 0.8 | 27,028 |
| Portsmouth | 0.8 | 30,445 |
| Oxford | 0.8 | 34,463 |
| Middlesbrough | 0.7 | 24,431 |
| total | 100.0 | 24,602 |
The average household income in the UK in 2016 was € 24,602. Many metropolises have a similar income level. What is particularly striking, however, is the clear deviation of by far the largest metropolis and capital, London , which has an average income of 35,113 euros and is thus 43% above the national average. Other metropolises, such as Southampton and Oxford in particular, have an income average well above the national average.
The sometimes significant positive deviations of metropolises from the national average indicate a significantly higher income level in the United Kingdom in the metropolises compared to the rural regions.
backgrounds
Development of incomes in the United Kingdom
After 2008 there was a kink in the income trend, so that a decrease in the average and median income can be observed. Jonathan Cribb et al. (2018) attribute this to the effects of the Great Recession . Income has since recovered and after 2013 has returned to the nominal level of 2008. Since the Gini coefficient fell over the same period, it can be concluded that particularly high income groups suffered the greatest losses from the aftermath of the financial crisis. Jonathan Cribb et al. (2018) observe that the median income of the top 15 percent fell more sharply after the crisis (approx. 1% p. A.) Than that of the entire population (0.6% p. A.). Over a longer period of time, the authors observe that income inequality, measured by the Gini, has remained relatively constant between 1960 and around 1980, averaging 0.25. In the 1980s the Gini coefficient rose sharply to 0.34 in 1990. This sharp rise is often justified by the liberal economic policy of Margaret Thatcher 's government. AB Atkinson (2005) sees lowering the top tax rate on investment income as an important driver of this development. These tax rates were lowered from 98 percent to 75 percent in 1979 and gradually further reduced to 40 percent in the 1980s. In the 1990s until the financial crisis, the Gini continued to rise, albeit to a much lesser extent than in the 1980s. With the decline after the financial crisis, a level has now been reached again as in the early 1990s.
Development of income inequality before 2000
Stephen Machin (1996) dealt intensively with the development of the distribution of income in the United Kingdom since the end of World War II . He notes that the assumption of a trickle-down effect is outdated in Great Britain and the United States , as income inequality in these countries has worsened dramatically since the late 1970s. Accordingly, since the late 1970s, economic growth and unemployment can no longer be used as reliable variables to explain poverty and inequality. While the growth rates of real incomes in different income groups kept pace with each other in the 1960s and early 1970s, lower income groups have seen hardly any growth since the 1980s, while middle and especially high incomes have benefited. Machin (1996) mentions an increased demand for qualified workers in the course of increasing technology, but also the dwindling power of trade unions and comparable organizations as possible explanations . Increased free trade, on the other hand, does not provide clear results with regard to income inequality.
The role of the financial sector and "extreme inequality"
Brian Bell and John Van Reenen (2010) identified the increase in the frequency and amount of non-regular pay ( bonuses ) in the financial industry as a factor in the rise in income inequality in the UK . The authors concentrate on the upper percentile of the income distribution and describe the phenomenon as "extreme wage inequality" (" extreme wage inequality" ). It can be seen that the earnings share of the top 10% top earners in the UK increased significantly over the period from 2000 to 2010 and that the increase in bonus payments is also concentrated in the top 1% top earners. In addition, Bell and Van Reenen show that a majority of the income gains actually came from employees in the financial sector.
Influence of monetary policy on inequality
In 2018, the Bank of England carried out a study of the extent to which the expansionary monetary policy after the financial crisis had an impact on inequality in the United Kingdom. The study's authors state that most households have benefited from monetary policy in terms of both income and wealth, compared to a scenario in which the central bank would not have eased monetary policy. The effects were therefore not so much an absolute increase in incomes as a cushion against the negative consequences of the financial crisis. The overall effect of monetary policy on income inequality comes about through two channels: On the one hand, through the negative effect of low interest rates, as a result of which interest income on savings fell; On the other hand, due to the positive effects of higher earned income and lower unemployment. For both channels, the effect that is measured by the Gini is rated as minor; However, there were different effects related to different population groups. In terms of income, “younger” households have benefited marginally more than older ones, since they are less dependent on income from savings, which was lower due to the low interest rates. In addition, younger households are more dependent on earned income, which has been strengthened by the positive effects of monetary policy on unemployment. In terms of wealth , however, older sections of the population were able to benefit more, as the prices of assets such as real estate and financial investments were stabilized through the expansionary monetary policy. These, in turn, are held disproportionately by older population groups.
Web links
- Eurostat - Database. Retrieved January 24, 2019 .
- Report on Living Standards, Poverty and Inequality in the UK. Institute for Fiscal Studies, accessed January 24, 2019 .
Individual evidence
- ↑ Eurostat: Gini coefficient of equivalised disposable income. Source: SILC. Retrieved July 8, 2019 .
- ↑ Eurostat: Glossary: Equivalent disposable income. Retrieved July 8, 2019 .
- ↑ Eurostat: table on median income (PPS). Retrieved February 27, 2019 .
- ↑ Eurostat: Purchasing Power Standard Explanation. Retrieved February 27, 2019 .
- ^ Zsolt Darvas, Guntram B. Wolff: An anatomy of inclusive growth in Europe . Bruegel, Brussels 2016, p. 8 .
- ↑ Eurostat: Disposable income of private households by NUTS 2 regions. Eurostat, accessed 8 May 2019 .
- ↑ a b Jonathan Cribb, Agnes Norris Keiller, Tom Waters: Living standards, poverty and inequality in the UK: 2018 . Ed .: The Institute for Fiscal Studies. 2018, ISBN 978-1-912805-00-6 , pp. 8 & 32 .
- ↑ AB Atkinson: Top incomes in the UK over the twentieth century . In: Journal of the Royal Statistical Society . No. 168 , p. 325-343 .
- ↑ Jonathan Cribb, Agnes Norris Keiller, Tom Waters: Living standards, poverty and inequality in the UK: 2018. Ed .: The Institute for Fiscal Studies. 2018, ISBN 978-1-912805-00-6 , pp. 30 .
- ↑ Stephen Machin: Wage Inequality in the UK . In: Oxford Review of Economic Policy 12 . No. 1 , 1996, p. 47-63 .
- ^ Brian Bell, John Van Reenen: Banker's pay and extreme wage inequality in the UK . Ed .: London School of Economics and Political Science: Center for Economic Performance. April 2010.
- ^ Philip Bunn, Alice Pugh, Chris Yeates: The distributional impact of monetary policy easing in the UK between 2008 and 2014 . In: Bank of England (ed.): Staff Working Paper . No. 720 , March 2018.