Crunched: is the inequality gap really widening?

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Previously on "Crunched" we looked to the global reduction in poverty and whether capitalism has played a role in that.

And something that came up a lot was inequality.

So I looked at this really cool database, this survey that Ipsos MORI has been running since 1973. They basically ask 1,000 Britons every month what they're most concerned about. And it came out that concern about inequality is at a 21-year high. You can see here that it remains stable, and then when the financial crisis hit it became really high. And now it's rising again.

So looking at these numbers you'd expect that these are reflecting what's actually going on beneath the surface. That inequality has been rising over that similar sort of 20-year trail.

Yeah, you would expect it to be almost a parallel trend. But - plot twist - that's not what happened.

OK, so what do the numbers actually show?

So we're looking at the Gini coefficient, which is a measure of inequality. So this is the trend - '60s, '70s, you know, pretty stable. It even drops a little bit in the late '70s. 1980s it starts picking up.

Thatcher era.

Yeah. Goes high up. And then since then, look at that, it's remained pretty stable. Even in the years of the recession, it didn't go that much up. Trend is more or less like this.

So we've seen a rise in inequality in the UK. But this was mainly during the 1980s. And then so things have got worse, but they then sort of stagnated.

Yes.

And just to make the point, if we then contrast that with the Ipsos MORI chart that we looked at earlier...

Which is a different time frame.

The time period here...

The time period here...

Is starting around that. So we've got inequality staying roughly level during a period when public concern about inequality was really shooting up.

Yeah.

What is it that's happened over these last sort of 10, 15 years that has led people to be so concerned about something despite the on the ground saying that perhaps things are bad, but they're not worsening?

So one thing we could look at here is internationally, even if things haven't been getting worse in the UK for the last few years, they're still pretty bad. So we looked at some numbers from the OECD, which tracked that same measure of the Gini coefficient. So again, low is better, high is worse. And they track this for every country in the OECD.

So shall we start with the most unequal country in the OECD, is Chile, which has a Gini coefficient by about 0.46. We've got Turkey, which is at about 0.4. Number three on the list...

The US.

Is Big Sam.

Big Sam, Uncle Sam.

They are about just under 0.4. And fourth, we've got Lithuania. And fifth, Israel. The sixth most unequal country in the entire OECD is the UK. So more than 20 countries in the OECD, but the UK is the sixth least equal. So even though inequality hasn't been rising rapidly, the sheer fact that it is this high kind of explains why it's been high on people's minds.

So things are pretty bad in the UK. But we've been talking a lot about this one measure of the Gini coefficient, and specifically, the Gini coefficient for the amount of income people have to spend simply as soon as they've been paid. One of the big issues is the Gini coefficient doesn't account for housing costs.

Which for us millennials, is a really big issue. And so once put a roof over my head, then with that income, how does that compare to others? Because as we discussed in the previous video, relativity is very important when it comes to poverty.

Sure.

So let's break it down, Gini coefficient before and after housing costs, and let's see if that has increased.

OK.

So this is what we looked at before. It's just above... it's like, 0.24 in the '60s, '70s. And then we've got this big increase in inequality in the '80s. That then remained stable through the '90s and 2000s, just sort of like a jagged line.

Whereas when we say how unequal are incomes after people have paid for the roof over their heads, what we see is so it's always been very slightly higher. But when inequality started shooting up in the '80s, it shot up more steeply after housing costs had been factored in. And then again, has sort have remained a couple of percentage points higher.

So what we're saying is the standard Gini coefficient measure for the UK has stagnated over recent years. But when you look at people's actual lived experiences, i.e. after they've paid their rent or their mortgage, we are more unequal than that would suggest. And things are perhaps trending slightly in a more upward direction.

Another issue that you have with the Gini coefficient is it's a very good sort of single holistic average measure of inequality, but it can miss what's going on at the very extremes. So this time, I'm going to do a little chart which starts in the year 1900 and then we are coming through to about 2016. So the y-axis here is just showing the percentage of all income earned in the UK by individuals that goes to the very top 1 per cent .

So in 1900, this was probably around 17%, but then started trending down fairly steadily to 1950. There was an inflexion point at around 1975. So things are pretty low coming down towards 5%. But then started trending up again around the recession. We're getting back up towards 20% debt, where then in the last couple of years, they've pretty much recovered.

So this is the percentage of all income earned going to the people at the very top end of the spectrum. So things got better. But then things got worse again.

FEDERICA COCCO: So this was more equal, more equally spread, you would assume.

JOHN BURN-MURDOCH: Yes, so more equal down here. But then it got worse.

FEDERICA COCCO: Now it's going up again.

JOHN BURN-MURDOCH: And now it's going up again.

FEDERICA COCCO: So it's the war that really affected them.

JOHN BURN-MURDOCH: Yeah, so the war was a great leveller in that sense. But then '70s and '80s, the rich were earning more and more. The recession, there was a little dip, but that soon got turned back into an upward trajectory. So the rich are still getting richer and the UK.

FEDERICA COCCO: Now the Resolution Foundation has also dived into this debate. And one of the conclusions that they drew is that inequality is already quite high-- and I think we've proven that it is in the UK-- then it's exacerbated if the economy isn't growing. So we need to focus also on growth, on economic growth. What's really useful is if we compare growth as it is now to how it was in the past.

JOHN BURN-MURDOCH: OK, so we're sort of saying here that even if things are pretty tough, if everyone has the expectation that the whole economy is growing, then they're still going to be optimistic. Whereas even if things aren't getting worse anymore--

FEDERICA COCCO: Yeah, if growth stagnates, then you have less expectations for the future.

JOHN BURN-MURDOCH: Right. So you focus more on what's wrong right now.

FEDERICA COCCO: So--

What we're going to do is look at how income per capita is growing. And we're going to start from the same baseline. We start at zero. It grows by 10%, 20%, 30%. And then this goes negative, decreases.

JOHN BURN-MURDOCH: OK.

FEDERICA COCCO: Let's assume I am my grandmother.

JOHN BURN-MURDOCH: OK.

FEDERICA COCCO: Or maybe my great grandmother. It's 1929. This is what's happening to my household income. 1929, as we know, bad recession. So my collective household income goes down. And then by 1943, it's gone up--

JOHN BURN-MURDOCH: Strong recovery.

FEDERICA COCCO: Yeah, it's grown by nearly 30%.

JOHN BURN-MURDOCH: All right, so I'm now going to step in as a guest, maybe my young granddad. So again, we're going to start from zero. So there was a dip initially. So incomes fell by more than 10%. But then again, a pretty healthy recovery until by 1961, we were up here very much in the black. So a downtick and a big uptick.

FEDERICA COCCO: Not too bad, yeah.

OK, let's go back to when my parents were in school. So now we're at 59. Or less-- my mum won't like it if I said that. Very, very little. Their family income grows by over 30% by 1973.

JOHN BURN-MURDOCH: Now looking at what happened in the '90s when we were both growing up. Again, little dip, but then pretty solid growth up to 2008, so up to the start of the recession.

FEDERICA COCCO: And then dun dun dun dun-- recession. And this is what happened. Big dip when the recession-- fine, as well as expected. And then today, that's where we are now.

JOHN BURN-MURDOCH: So things are totally petered out. So we've seen--

FEDERICA COCCO: We are at less than 10%. They've grown by about 4%.

JOHN BURN-MURDOCH: About 4% higher than what things were 10 years ago. So a big dip, barely recovered, and slightly-- very slightly above where we started. So you can see again why even though inequality as itself is maybe not soaring, things just aren't good generally, and that leads people to spend a lot more time looking around them and saying things aren't fair. And so let's look again at another way of slicing these numbers.

So for this one, we're going to look at a slightly different chart. So instead of having years along the bottom, we've got the different percentiles of the income distribution at the bottom. So from the very poorest people on the left to the richest people at any given time on the right, vertically, we're going to look out for someone at that level of the income distribution. Did their income grow up to about plus 6%, or did their income shrink. And we're going to draw the curve for how different people's incomes grow or shrink during different periods of economic growth, shrinkage, or stagnation. So if you want to kick us off.

FEDERICA COCCO: Yeah. So I'm going to start with again, my parents' generation, 1977 to 1991. This is what has happened.

JOHN BURN-MURDOCH: OK, so people at the very bottom end there, some of the poorest, actually got poorer during that period.

FEDERICA COCCO: Yep.

JOHN BURN-MURDOCH: But middle income and high income people definitely got richer.

FEDERICA COCCO: Yeah.

JOHN BURN-MURDOCH: All right, so I will now move on to the period from '91 to 2002, '03. You've got everyone seeing positive income growth, and it was pretty flat growth. Next up.

FEDERICA COCCO: 2003 to 2008.

JOHN BURN-MURDOCH: So I guess we've seen three periods here, where during the '70s and '80s, which we discussed was the time when things were getting more unequal. At least for most people, they were earning more. We then see another generation where everyone was earning more. And then the period leading up to the recession, where some people are getting poorer, some people getting richer. What's happened in the very most recent generation?

FEDERICA COCCO: Yeah, what happened when we left university.

JOHN BURN-MURDOCH: These glorious last 10 years.

FEDERICA COCCO: Kind of flat for everyone, including the richest. So this is 2008 to 2018.

JOHN BURN-MURDOCH: That's right. So barely above zero right the way across the income distribution. So this is a time where even though inequality hasn't been getting worse, there's just not been this sense that people's economic prospects are improving.

FEDERICA COCCO: Yeah.

JOHN BURN-MURDOCH: We started--

FEDERICA COCCO: With concern.

JOHN BURN-MURDOCH: We've seen more people in the UK now say inequality and poverty one of the most important issues facing the country than at any time in at least 20 years.

FEDERICA COCCO: Yeah, and this concern is at a 21 year high.

JOHN BURN-MURDOCH: So then we asked, why?

FEDERICA COCCO: Because inequality has basically flatlined.

JOHN BURN-MURDOCH: So we've seen a period where inequality wasn't growing, but concern was.

FEDERICA COCCO: It's, flatlined but we found out that it's really high when you compare it to other countries.

JOHN BURN-MURDOCH: OK, so across the whole OECD, Chile has the highest Gini coefficient of about 0.5. But then the UK comes in at number six. So still pretty suboptimal. One reason people are concerned is the UK seem to be pretty bad for this. Then we asked, the Gini coefficient measure that we'd been using here, maybe the problem is that it doesn't capture enough of what is actually going on the ground.

FEDERICA COCCO: Yeah, and it doesn't capture something that is really crucial for us and especially our generation, which is housing costs. Once we've put a roof over our heads, the trend is still the same, but it's higher up than we were when we didn't account for the price of housing.

JOHN BURN-MURDOCH: With the Gini coefficient, we're not really seeing what's going on at the very extremes. Whereas when we look at the percentage of incomes earned by the very richest, after a period of decline, those have been rising again. And even after the recession, are going up. So the data do seem to suggest that the very rich are getting even richer.

FEDERICA COCCO: Yeah. And also, we've made the point made by the Resolution Foundation that if the pie isn't getting larger, then what's the use of being concerned about the slices? We need to focus on growth. And we've seen that compared to previous generations in previous instances, growth hasn't been that much. It's not flatlined, but it's very low compared to the previous-- my grandparents' generation.

JOHN BURN-MURDOCH: And another way of looking at that same data, again, with a hat tip to the folks at the Resolution Foundation, was to look at how incomes right the way across the whole distribution have changed. And again, we found that this post-war recession generation is the one where--

FEDERICA COCCO: People have suffered the most.

JOHN BURN-MURDOCH: People have suffered the most. They're accounting for inflation. Incomes have pretty much been flat. Whereas in all previous eras, even when things were getting more unequal, most people were seeing that their spending, their income is going up.

FEDERICA COCCO: So if we bring this all together, then it becomes much easier to explain why people are so concerned about inequality. And if we had a couple more ingredients like the political divide after the Brexit referendum, widening social inequalities, tragedies like Grenfell, and then the perceived link between wealth and opportunity, it's much easier to see what's going on.

JOHN BURN-MURDOCH: Yeah. People don't feel happy about things, there are divides everywhere, and incomes aren't going up. So concern about the haves and the have-nots, it does make sense that they'll be rising.

FEDERICA COCCO: Exactly.

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