Inequality

This post deals with income and not wealth.

In Britain, the median (average in ranked order)  full time salary in 2010-11 was £26,200 per year, but someone working full time for the minimum wage would only earn around £11,000, while the top 10% earned over £52,600.  This is before taxes and benefits and these reduce inequality.

Gini - standard

Since the world financial crisis the Gini coefficient, a commonly used method to measure inequality, has fallen.  This coefficient summarises the degree of inequality in the income distribution in one number. The Gini coefficient takes a value of between 0 and 1, where the higher the value, the higher is inequality. Gini

However, summarising inequality in just one number can mask different patterns in changing inequality. To illustrate this, the chart above shows the change in the ratio of income at different points in the income distribution over time. For example, the 90/50 ratio is the level of income at the 90th percentile (the level of income that 90% of the population fall below and 10% fall above) divided by the level of income at the 50th percentile (the median). Again a higher number indicates greater inequality.

As the blue line compares the poorest 10% to the average we see that relatively the poorest 10% have approached the median in recent years suggesting that equality is improving.  Likewise, the red line, which compares the people on the 90% percentile to the median 50%, shows that in recent years equality is improving.

Reason that people consider inequity is increasing is because of what is happening above the 90% level. The gap between the people on 90% and the people on 99% has increased dramatically in recent decades – the green line.  The gap between the people on 99% and 99.999% has increased even faster.

This phenomenon has occurred throughout the world and it has not been caused by the coalition government.

Taxing the people in the 99.9999% bracket is notoriously difficult because of the nature of their business and because they can employ more tax accounts and lawyers than the government.

There interesting articles on this subject in both The Economist and Prospect magazines.

Leave a Reply

Your email address will not be published. Required fields are marked *