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If you’ve caught the tail-end of a news report or interview where the Prime Minister or the Chancellor of the Exchequer have been pressed on the economy, you’ll have heard the same word again and again: income inequality. According to Mrs May and Mr Hammond, while things may seem bleak, inequality has been reduced to its lowest level in 30 years. But what income inequality mean? How does it affect you? And – importantly – is the government right when they say things are getting better?
What is income inequality?
In the most basic sense, income inequality is the extent to which money is distributed in an uneven manner across the population. Put another way, it’s the gap between how much money the richest people have and how much everybody else has. In the United States, for instance, income inequality has been growing at a rate of knots for the past three decades – at the most recent count, America’s top 10 percent earned more than 900% more than the bottom 90% of the population. If you look at just the top 1%, the numbers are even more eye-watering – they earn over 4000% more than the remaining 90%.
But what about in the UK?
Well, compared to other developed countries, the UK’s distribution of wealth is very uneven. The Organisation for Economic Co-operation and Development (OECD) is an international, intergovernmental department to monitor and improve the economic and social well-being of people around the world. In fact, in a recent study, the OECD found the UK’s income inequality to the seventh-most unequal, behind the USA, Russia, Mexico, Turkey, Chile and Lithuania.
What does this mean, in real terms?
In real terms, it means that the poorest fifth of society have only 8% of the UK’s total income, while the top fifth have an eye-watering 40%. Or, put another way, it means that the households in the bottom 10% have an average income of £9,644, while, like in the USA, the top 10% have incomes of almost 900% more (£83,875). And when you look at the extremities of the top 10% – often called the 1% – the situation is even worse: at last count, in 2012, the top 1% had an average income of £253,927. Digging a little further, the top 0.1% had an average income of £919,882 – almost a hundred times more than the bottom 10% of the UK population.
How does income inequality affect you?
Aside from the obvious injustice of these statistics, the extent of income inequality in the UK also has some unsuspected effects for those not in the upper 10%.
Income inequality creates an endless cycle for you and your family
According to The Inequality Trust, there is a very strong relationship between income inequality and low levels of social mobility. In other words, in countries like the UK where income inequality is particularly bad, the rich stay rich while those with less money struggle to make more money. And it’s not just a one generation deal either – children of rich parents are more likely to be highly paid as adults, while children of lower-paid people more likely to be low earners. It’s a cycle that continues generation after generation after generation…
Income inequality can lead to financial crashes and crises
High levels of income inequality are commonly associated with economic instability, while equal societies seem to have longer periods of growth and stability. This is because income inequality leads to higher levels of personal and institutional debt. In fact, there’s a great deal of evidence to show that the increase in income inequality played a role in the build-up to the UK financial crisis.
Income inequality can affect your trust in other people, your safety and your happiness
Trust in other people:
Because income inequality widens the social distance between you and the other members of society, it’s much easier to believe that they are different from you. This distance has a direct effect on how likely you are to trust them and build relationships with them.
This epidemic lack of trust across countries with high levels of income inequality means that strong relationships with others in society are less likely, which has an effect on how much people trust each other, their politicians and their government. The study also found that people in European countries with higher levels of inequality (like the UK) are much less likely to help each other out with acts of selflessness or altruism.
Unequal societies have much higher rates of violence and crime – not just in the UK, but across the world. That means that you’re more likely to commit a crime or be the victim of crime, just because of the income inequality in the UK. High levels of inequality seem to stimulate a sense of social competition, which in turn leads to either violence to get what you need or a sense of helplessness.
This feeling of helplessness can then morph into fear or violence. Why? Because feelings of inequality can lead to a decreased respect for the system and less of a reason to act in a socially acceptable way. This leads to higher rates of crime, violence and murder.In fact, even decreases in inequality can have a huge effect on crime. Dropping a few places on the OECD table (from 12th to 18th) not only reduces murders by 20% but leads to a 23% long-term reduction in robberies.
Health and happiness:
On the whole, levels of health are much worse in countries with high levels of inequality. While equal societies enjoy better life expectancies, lower rates of adult mortality and infant mortality, less mental illness and lower rates of obesity, the opposite is true for countries with high levels of income inequality; life expectancies are down and the rates of adult mortality, infant mortality, mental illness and obesity are all much higher. The mental illness statistic is particularly shocking: in more unequal countries; countries with high levels of income inequality have almost 300% more instances of mental illness than equal societies. In other words, the more unequal the state, the higher the rates of depression.
Statisticians and sociologists don’t have a concrete answer to this question yet – they know that this happens because they can see the stats – but they have a pretty plausible hypothesis: status anxiety. Income inequality causes people to live their lives in a society that increases status competition and causes lots of low-level stress (as well as instances of extreme stress), which in turn leads to poor health and other negative outcomes. Others have suggested that stress in the womb and early life can also have an effect on your health in later life.
So, are things getting better?
According to the Financial Times, ‘since 2008, income inequality has declined because higher-income households were hit harder by falling earnings and asset returns during the recession. At the same time, the value of benefits received by lower-income families was largely protected’. So, yes, in a way, income inequality is getting better by virtue of the fact that the very rich have a little less money. But, income inequality is still significantly higher than it was in the late 1970s and is still extremely high compared to other developed countries.
As of 2018, the average UK citizen has lived through a decade of stagnant wages and interest. Since 2008, the average household income has grown by an average of 0.1% a year – before 2008, the average increase was 1.8% a year from 2000-2008, and 2.4% a year before 2000. The Governor of the Bank of England has called the last decade a ‘lost decade’ as it is the first time since 1860 when real wages have fallen over a 10-year period of time. So, while income inequality may have improved – on paper, at least – because the very rich have less money than they did in 2008, in reality, this doesn’t equate to better living conditions or equality for the average UK citizen.
Because when the tougher times arrive – as they have over the past decade – an average income of £919,882 growing at 0.1% is much easier to live on than an average income of £9,664.
In fact, just the 0.1% growth of the very rich – the 0.1% of £919, 882 – is almost equal to the average income of those in the bottom 10% of UK society.
Pair these facts with the fact that the cost of living has increased by 4.1% over the past year and you can see the problem.
A £1 bottle of milk increasing to over £1.40 is a huge increase for those earning £9,664 a year, but is almost insignificant to those on £919,882 even though, on paper, those people are suffering the same effects of the poor economy as the rest of the country.
What is being done to fix the income inequality?
The Equality Trust is dedicated to helping reduce income inequality across the UK. They campaign ‘for changes that will have a significant impact in reducing inequality and advocate a range of policies that can reduce inequality’, as well as work with helping organisations even the playing field and help educate the public about the dangers of income inequality.
Head to mental health website to see everything they’re doing and – if you want to – to have a nose around at more facts and figures about the negative effects of income inequality.
- Author The Bamboo Team
- Posted 20 July 2018