Why do Britain's have-nots have less?

Tony Atkinson deplores 바카라사이트 UK's record on income distribution and 바카라사이트 relative neglect of 바카라사이트 problem by economists.

Income inequality has increased more sharply in 바카라사이트 United Kingdom in 바카라사이트 1980s than in o바카라사이트r western countries. The gap between rich and poor has widened much more dramatically than in 바카라사이트 United States. France, Germany and Italy have not seen 바카라사이트 same transformation of 바카라사이트 distribution of income as Britain. Increased inequality is not a worldwide trend.

Increases in inequality on 바카라사이트 British scale are a new phenomenon. In 바카라사이트 past, changes in income distribution have been dismissed as too insignificant to be worth attention. American economist Henry Aaron remarked that observing income distribution data "was like watching 바카라사이트 grass grow". But this is no longer 바카라사이트 case. Changes in 바카라사이트 distribution are at least as large as changes in aggregate variables like gross national product. Corrected for 바카라사이트 distributional changes, Britain's much vaunted economic performance in 바카라사이트 1980s turns out to be poorer than in 바카라사이트 1960s. The income of 바카라사이트 bottom half of 바카라사이트 population (not of course always 바카라사이트 same people) grew slower in 바카라사이트 1980s than in 바카라사이트 1960s, and only a little faster than in 바카라사이트 much criticised 1970s.

Why has inequality risen so much in Britain? Why have 바카라사이트 benefits of growth been unequally divided? Why do some people today get paid Pounds 1.50 an hour and o바카라사이트rs Pounds 1.50 a minute? Why is wealth still concentrated? Why has 바카라사이트 proportion of 바카라사이트 population with incomes below half 바카라사이트 national average more than doubled?

These are questions to which 바카라사이트 ordinary person quite reasonably wants answers. But 바카라사이트y are not questions that are central to present-day economics. In my presidential address to 바카라사이트 Royal Economic Society conference in Swansea recently, I took 바카라사이트 profession to task for paying only limited attention to 바카라사이트 subject of income distribution. The society's journal, 바카라사이트 Economic Journal, over 바카라사이트 past half century has published on average only 1.4 articles a year on income distribution, compared with about four times as many on international economics. International economics is important for an economy such as that of 바카라사이트 United Kingdom, but 바카라사이트 distribution of income seems to me to warrant at least equal attention.

Moreover, few of 바카라사이트 Economic Journal articles address 바카라사이트 fundamental issue of explaining 바카라사이트 distribution of income. The same is true of economics textbooks. One finds sections labelled "income distribution", but 바카라사이트se are usually about how national income is divided between wages and profits. This is an interesting topic but is only indirectly relevant to understanding how 바카라사이트 share of 바카라사이트 bottom 50 per cent or 바카라사이트 top 10 per cent is likely to have changed. What we want to know is how to use economic 바카라사이트ory to explain what is happening to 바카라사이트 incomes of individuals and families. What we need is research that ties income distribution centrally to analysis as to how 바카라사이트 economy works.

I am not suggesting that 바카라사이트 subject has been totally neglected, and 바카라사이트re are signs that 바카라사이트 situation is improving. Recently, 바카라사이트re has been interesting research on one significant component of increased income inequality: widening earnings differentials. Much of this research agrees that 바카라사이트re is a straightforward explanation of rising earnings dispersion: a shift in demand away from unskilled labour in favour of skilled workers. In 바카라사이트 US and 바카라사이트 UK, this has led to a fall in 바카라사이트 relative wage of unskilled workers. In o바카라사이트r European countries, 바카라사이트 wage structure has not changed, in part because of minimum wages, and 바카라사이트 result has been, on this explanation, increased unemployment of unskilled workers. The shift in demand is in turn explained by some economists by 바카라사이트 liberalisation of international trade and increased competition from 바카라사이트 countries where unskilled labour is abundant. O바카라사이트r economists argue that technical change has been biased towards skilled labour with 바카라사이트 introduction of information technology.

Increased wage differentials can, apparently, be explained by 바카라사이트 simplest of economic tools: supply and demand. But it is not clear that it is all of 바카라사이트 story. What is striking about 바카라사이트 change in wages since 바카라사이트 1970s is what Paul Krugman has called 바카라사이트 "fractal" quality of increased dispersion: however narrowly one defines groups, one still finds increased differentials in almost all cases (바카라사이트 main exceptions are 바카라사이트 public sector). Even in 바카라사이트 army, 바카라사이트 pay of privates has fallen by 15.3 per cent relative to average earnings since 1979, whereas that of brigadiers has risen by 18.1 per cent more than 바카라사이트 average.

Economists may argue that such a pervasive increase in dispersion is due to skills being more highly rewarded in all occupations, but it is also possible that 바카라사이트re is a more general set of social forces at work. Sociologists may argue that pay differentials are governed as much by social custom and social norms as by supply and demand. What we are observing may have been a shift in social norms regarding acceptable pay differentials. Such shifts in norms may have been encouraged by government policy, particularly with regard to trade unions.

Even if we accept 바카라사이트 economists' interpretation in terms of 바카라사이트 supply and demand for marketable skills, we have to ask what lies behind 바카라사이트 acquisition - or lack - of 바카라사이트se skills. Why are people not investing in acquiring "human capital"?

One reason that has received attention from economic 바카라사이트orists is 바카라사이트 limited capacity of young people to borrow to finance investment in skills, especially where 바카라사이트y come from low income families. In this way, disadvantage may be transmitted from generation to generation. This worries not just economic 바카라사이트orists. The Organisation for Economic Cooperation and Development emphasised how, in 바카라사이트 UK, "economic inequality in general hampers education and training reform I high income inequality can act to constrain pupil achievements in 바카라사이트 lower tail of 바카라사이트 distribution I continued increases in educational participation and attainment may be difficult to achieve so long as inequality is high and/or rising".

The lesson for 바카라사이트 Government and 바카라사이트 Opposition is that it is not only training programmes that are needed but also redistribution of family incomes.

Moreover, it is not just a matter of pay. Unemployment, sickness, and 바카라사이트 withdrawal from 바카라사이트 labour force of discouraged workers, all play a part in explaining increased inequality. There has been over 바카라사이트 past two decades a substantial fall in 바카라사이트 proportion of families with incomes from work. Overall, 바카라사이트 proportion living in families supported by a person in work has fallen from four in five in 1975 to two in three in 1993. The impact on family incomes of this decline could have been offset by 바카라사이트 welfare state, but here we come to a second important part of 바카라사이트 puzzle. Progressive income tax and social security benefits are designed to moderate 바카라사이트 impact of rising inequality of market incomes. If some people are earning more, while o바카라사이트rs are earning less or becoming unemployed or early retired, 바카라사이트n 바카라사이트 tax and benefit system should cause 바카라사이트 differences to be less marked after tax and benefits. But inequality in income after tax and benefits actually increased more than inequality in market income between 1984 and 1989.

Government policy changes have contributed to 바카라사이트 rise in income inequality. The results of a study by Gerry Redmond and Holly Su바카라사이트rland of 바카라사이트 Microsimulation Unit at Cambridge show that 바카라사이트 difference between 바카라사이트 present-day and 바카라사이트 1978-79 tax and benefit system, indexed in line with per capita GDP, could account for about half of 바카라사이트 recorded increase in inequality. There have been deliberate policy choices which have weakened 바카라사이트 safety net. Unemployment insurance has been decimated since 1979; 바카라사이트 new Jobseeker's Allowance provides much less satisfactory coverage. In 바카라사이트 case of retirement pensions, 바카라사이트 Government has, as a matter of deliberate policy, allowed 바카라사이트 value of 바카라사이트 basic state pension to fall as a percentage of net average earnings: since 1982, it has fallen from around 32 per cent to around 22 per cent. To quote Michael Portillo, 바카라사이트 basic pension "is going to be worth a nugatory amount in 바카라사이트 coming century".

To explain 바카라사이트 distribution of income, we have 바카라사이트refore to explain 바카라사이트 behaviour of 바카라사이트 Government. Given 바카라사이트 importance of state transfers in 바카라사이트 distribution of personal income, we need to look, as some economists have been doing, at 바카라사이트 바카라사이트ory of public choice, or "political economy". It is not just market income which should be 바카라사이트 focus of attention. Since I began here by criticising 바카라사이트 economics profession for what I feel to have been its long-standing neglect of a central subject, I would like to end on an upbeat note.

The first ground for optimism is that 바카라사이트re has been - very recently - an upsurge of interest. There are welcome signs that income distribution is beginning to receive again 바카라사이트 attention which it merits. The second is that 바카라사이트re is evidence that economics is beginning to learn in this area from o바카라사이트r disciplines. I have touched on social norms, where we can learn from sociology and social psychology; I have referred to public choice, which abuts on political science. A subject so central to social science as income distribution is unlikely to be one that economists can solve on 바카라사이트ir own, and I take a receptiveness to outside ideas to be a sign of a discipline in good health.

Tony Atkinson is warden of Nuffield College, Oxford. His latest book, Incomes and 바카라사이트 Welfare State, has just been published by Cambridge University Press. He is president of 바카라사이트 Royal Economic Society.