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It’s a curious thing. Between around 1980 and the late 1990s, the English-speaking world saw an explosion in concern about inequality, matching 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 disparities over the past decade has taken place during a period when most measures of inequality show no rise, or even a slight decline.
By inequality we mean some measure of the dispersion between top and bottom. The Gini coefficient of income inequality, which captures the overall fairness of the distribution, has been either flat or falling for the past two decades in Britain, America and much of western Europe. The ratio between the earnings of the top and bottom 10 per cent is not dissimilar. If anything, it has been falling.
Public concern about income gaps has clearly become decoupled from the measured 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 also be something else at work.
You can think of the ratio between top and bottom incomes as the product of two ratios: the gaps between top and middle and between middle and bottom. And it turns out that the flat or falling combined gap masks contrasting stories in these two halves of the equation.
The disparity between earnings at the top and the middle has trended 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 UK. Sustained increases in the minimum wage have been a big part of this story in Britain. In both countries, low-skilled workers have benefited (and middle-skilled workers suffered) from the hollowing out of the middle of the jobs distribution as well as a tight labour market more generally.
So we have seen no increase in aggregate inequality. The story for the lowest-paid is unambiguously good but for the bulk of people who sit somewhere in the middle, it could be argued that the two divergent trends combine for a decidedly uncomfortable situation.
If the middle class looks upwards, the rich are pulling further away. A top-tier life feels further out of reach than ever. But look down, and the floor is coming up fast. This simultaneous rise of resentment and precarity is a dangerous cocktail, and could certainly have fed into recent political undercurrents.
Professions once considered aspirational are at the sharp end. In Britain, doctors, nurses and police officers have all been slipping down the income rankings in recent years. In the US, the highest-paying jobs are increasingly shared among a handful of ultra-high-status occupations. Tech workers now account for one in six of the top 5 per cent of salaries, 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 individuals. In the 1980s, 40 per cent of the highest-paying jobs in America didn’t require a degree. The upper reaches of the income scale included plenty of engineers and doctors, but also senior schoolteachers and the most skilled factory and construction workers. People from all sorts of backgrounds with all sorts of skillsets could dream of making it.
Today, the upper part of the scale is dominated by highly skilled tech and healthcare workers. Almost half of the top jobs require an advanced degree. And a huge section of the population knows at a pretty early age they’re not on that path.
To be clear: these shifts are organic rather than by design. Economies change. Occupations 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 section of the population experiences differences in opportunity and outcome. The gap between the richest and poorest may not be widening, but it is not irrational for the middle classes to feel their position in society is in decline.
john.burn-murdoch@ft.com, @jburnmurdoch
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