Income inequality falls post financial crisis

Income inequality falls post financial crisis

Income inequality between low earners and high earners has fallen post-financial crisis, as poor wage growth persisted, according to a new report.

Most recent figures suggest the bottom 20 per cent of people saw incomes rise by 9 per cent between 2008 and 2017, the middle 20 per cent by 6 per cent and the top 20 per cent actually saw a 2 per cent fall in incomes.

The report 10 years on - have we recovered from the financial crisis?, which was published by the Institute for Fiscal Studies (IFS) today (12 September), said the combination of high employment growth, and the pattern of poor earnings growth was behind the fall in household inequality.

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But income across the age groups painted a different picture. While income for people in their 60s, after housing cost is taken away, has risen by almost 10 per cent since 2008, it has dropped for people in their 20s, the IFS said.

Earnings growth of employees has also differed for different groups over the last 10 years. For those in the 20s or 30s, median earnings in 2017 were 5 per cent and 7 per cent lower than in 2008 respectively, while for those aged 60 and over, they were merely 1 per cent lower than in 2008. 

Overall, median real earnings for employees are still 3 per cent below where they were in 2008 and are 13 per cent below where they would be expected to be, based on rates of growth seen in the years prior to the crisis, the IFS said.

On the upside there has been a period of strong employment growth, the IFS said.

There are 2.7 million more people in paid work today than there were in 2008. At 75.6 per cent overall the working-age employment rate is at its highest ever, it added.

The report stated: "Strong employment growth is one reason that average household incomes are higher than in 2008, despite lower earnings. 

"Median real household income has risen from £24,300 to £25,700 since 2008. But had incomes continued to grow at the same rate as the decade before the crisis, average household income would now be £29,900 - £4,200 higher than it actually is."

The IFS said the slow recovery from the financial crisis was partly to blame for lacking earnings growth. At the same time interest rates set by the Monetary Policy Committee of the Bank of England have been at their lowest levels since 2009 and that this has helped cushion the economy from a worse outcome.

It stated: "The financial crisis broke in 2008 and was followed by the deepest recession experienced in the UK, and much of the western world, since the Second World War. What has proved most remarkable about the crisis and recession though was not its initial scale but the persistence of its effects.

"We had got used to the economy, and with it the public finances and household incomes, bouncing back strongly following previous downturns. That has not happened this time.

"While the economy has been growing for eight years now, it has been growing only slowly by historic standards.