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It’s a curious thing. Around the 1980s and late 1990s, the English-speaking world saw an explosion in concern about inequality, coinciding with a clear widening of the gap between rich and poor on both sides of the Atlantic. But a second sharp rise in public concern about income inequality over the past decade has occurred during a period when most measures of inequality show no growth, or even a slight decline.
By inequality we mean a measure of the distribution between the top and the bottom. The Gini coefficient of income inequality, which captures overall distributive fairness, has been either flat or falling over the past two decades in Britain, America and much of Western Europe. The ratio between the earnings of the top and bottom 10 percent is no different. If anything, it has fallen.
Public concern about income gaps is clearly disconnected from sober reality, but why? One theory is that what people are really feeling is the recent slowdown in economic growth. This is almost certainly true, but I think there may be something else at work as well.
You can think of the ratio between top and bottom incomes as the product of two ratios: the gaps between the top and the middle and between the middle and the bottom. And it turns out that the combined flat or falling gap masks opposite stories in these two halves of the equation.
The disparity between top and middle earnings has been trending wider since the turn of the millennium, matching what the public feels. But at the other end of the spectrum, the gap between the bottom and the middle has narrowed significantly.
Since the late 1990s, the lowest earners have seen the fastest wage growth in both the US and the UK. Steady rises in the minimum wage have been a big part of this story in Britain. In both countries, low-skilled workers have benefited (and medium-skilled workers have suffered) from the hollowing out of the middle of the job distribution, as well as a generally tight labor market.
So we haven’t seen an increase in total inequality. The story for the highest paid is clearly a good one, but for the bulk of people who sit somewhere in the middle, it could be argued that the two divergent trends combine for an uncomfortable situation.
If the middle class is looking up, the wealthy are retreating further. A high life feels more out of reach than ever. But look down, and the floor is rising fast. This simultaneous rise in discontent and insecurity is a dangerous cocktail and may well have fueled recent political currents.
Professions that were once considered aspirational are on the way out. In Britain, doctors, nurses and police officers have all fallen down the income ladder in recent years. In the US, the highest-paying jobs are increasingly shared among a small number of ultra-high-status occupations. Tech workers now make up one in six of the top 5 percent of earners, up from one in 20 in 1990. No single group had this dominance in the past.
This matters because we tend to think of ourselves as members of groups, not just as individuals. In the 1980s, 40 percent of the highest paying jobs in America did not require a degree. The upper end of the income scale included many engineers and doctors, but also senior school teachers and more skilled factory and construction workers. People from all kinds of backgrounds with all kinds of abilities can dream of doing it.
Today, the top end of the ladder is dominated by highly skilled technology and healthcare workers. Almost half of the top jobs require an advanced degree. And a large part of the population knows from a very early age that they are not on that path.
To be clear: these shifts are organic and not by design. Economies change. Professions rise and fall in rewards and prestige. It’s a tale as old as time. But that doesn’t mean it should be ignored.
Aggregate inequality statistics certainly have their place, but they can mask important nuances. And these may be more useful in explaining how a large part of the population experiences variations in opportunities and outcomes. The gap between the richest and the poorest may not be widening, but it is not irrational for the middle classes to feel that their position in society is declining.
john.burn-murdoch@ft.com, @jburnmurdoch
