The ‘squeezed middle’ and the ‘poor’

by Stewart Lansley

Middle and low income households have missed out on increases in prosperity in the last three decades with the gains going to the rich. As a result the numbers vulnerable to poverty are rising.

In his first speech after becoming Labour’s new leader, Ed Miliband pledged to stand up for the ‘squeezed middle’. There is nothing especially new about Britain’s political leaders attempting to woo the central layer of British society. Mrs Thatcher won the 1979 election by targeting what she called ‘middle England’ and eighteen years later, Labour won the political battle for the centre ground with an appeal to what the popular press dubbed ‘Sierra Man’ or ‘Worcester Woman’.

But while the concept of ‘the middle’ is extensively used, its usage is diverse and often contradictory. Mostly it has been used as a short-hand not for those in the middle but for ‘the middle class’, a group with incomes that take them well into the top half of the income distribution. In one report, Middle Britain in 2008, published by the insurance company AXA, the group was defined, without irony, as those households that ‘typically earn gross household incomes of between £40,000–£100,000, and have an average income of £62,000.’ This level would, in fact, put one in the top 10 per cent of earners.

In a more recent study published in December 2010, the consultancy group Experian defined what they called the ‘real middle Britain’ using the mapping technique, Mosaic. This uses over 400 social and economic variables – from age and car ownership to number of holidays and a range of social attitudes – to produce distinctive clusters of the population. Using this method, they argued that the average household income of this group was £47,300. As this is about 50 per cent higher than the average household income, the Experian definition would seem to bear little resemblance to actual middle earners.

So is there a less elastic way of defining the middle? The most objective measure is in relation to its position in the income distribution. Even this leaves two alternative ways of defining the centre. First, the ‘mean’, calculated by dividing the total incomes in the country by the number of people. It is this measure that is often implicitly used by commentators when they talk and write about ‘middle Britain’.

The alternative is the ‘median’ – the income level that divides the population in two when individuals are ranked by income. As the median income is literally the level enjoyed by the ‘middle person’ – half the population falls below and half above – it is arguably a superior definition of where the centre actually lies. Indeed it is the median not the mean that is used by the government as the benchmark to measure the level of poverty (see Income threshold approach).

If incomes were evenly distributed (corresponding to what statisticians refer to as a ‘normal distribution’, one which takes the shape of a bell curve) the median and the mean income would be the same, coinciding in the centre of the distribution. Thirty years ago, in 1980, the income distribution was much closer to a bell shape than it is today. In that year, the mean income was 7 per cent higher than the median. Since then, the gap has widened sharply. In 2008/9, the mean net household income (after tax and adjusted for household size and composition) stood at £507 per week, a quarter more than the median income of £407 (Joyce et al., 2010).

What this shows is that the gap between those on low and middle incomes and those on higher incomes has been growing, with a much larger proportion of the population bunched at the bottom. Indeed, close to two-thirds of households live on incomes that are below the mean. It is this income squeeze that accounts for two key trends in the last three decades: first, a steady rise in the extent of poverty and second, an increase in the numbers of what the American sociologist, Katherine Newman (2007) has called the ‘near-poor’, a group sitting above the poverty line, but neither comfortable nor secure. As incomes have become more bunched around and above the poverty line, the numbers vulnerable to poverty have risen compared with thirty years ago.

These trends have been driven by the increasingly uneven distribution of the gains in prosperity over the last three decades. The winners from social, economic and occupational change over this period have been the very rich and high paid professionals. The losers have been those on middle and low incomes, especially among those of working-age. There are three main reasons for the ‘sinking of the middle’.

First, the level of unemployment has risen from an average of 1.6 per cent between 1950 and 1973 to an average of 7.8 per cent between 1979 and 2009. Second, the share of economic output taken in the form of wages has been shrinking from a high of 65 per cent in the mid-1970s to close to 53 per cent in 2008 (Lansley, 2010). Third, the distribution of earnings has become much more concentrated at the top. Between 1978 to 2008, while real earnings at the 90th percentile (the point exceeded by 10 per cent of earners) doubled, real median earnings rose by only 56 per cent while real earnings at the 10th percentile rose by a mere 27 per cent (see Figure 1).

Index of rise in gross weekly earnings, full time males, 1978–2008

Base line 1978 = 100

Figure 1: How earnings have become more unequal over the last thirty years.
Source: Lansley, S. ‘How rising inequality contributed to the crash’, Soundings, Spring 2010.

So just who are the squeezed middle? Defining the middle as the fifth of the population with equivalent household incomes that straddle the median, a YouGov survey for the TUC carried out in 2009 found that middle income Britain is concentrated among socio-economic groups C1 and C2 – a mix of white collar and skilled manual workers (Lansley, 2009). The men typically work as customer service administrators, debt collectors, despatch clerks, retail managers, HGV drivers, IT workers, joiners, landscape gardeners, site maintenance engineers or warehouse supervisors. The women are clerical and administrative workers, teaching assistants, care co-ordinators, caterers, librarians, nursery nurses, receptionists or shop assistants.

This group is much less likely to have had a university education, more likely to have experienced unemployment, less likely to enjoy a final salary pension scheme and much less likely to hold shares and have significant levels of savings compared with those further up the income hierarchy.

The survey found that although many in the squeezed middle acknowledge they have moved up a class rung compared with their parents, working in white collar rather than skilled manual jobs, this has not brought a rise in status or in relative wages. Four out of ten believe they work in a job that has a lower status than their father’s when they were the same age. Respondents were asked to compare their own living standard with those of their parents. Although, on average, real material living standards have risen sharply, only a half of middle income respondents thought that their own living standard is higher than their parents, 28 per cent thought it is about the same and 17 per cent thought it is lower. Although they have high aspirations for themselves and their children, they also have high levels of frustration at their inability to fulfil them.

A study by the Resolution Foundation, Squeezed Britain, published in November 2010, took a different approach to the definition of the ‘squeezed middle’. They divided households of working-age into three separate groups – ‘benefit-reliant’ (roughly the bottom tenth); ‘low-to-middle earners’ (roughly the next 40 per cent – in deciles two to five – a group with equivalent incomes of between £12,000 and £30,000); and ‘higher earners’ (the top 50 per cent).

According to their report, this group of ‘LMEs’ – 11 million people – were ‘squeezed: often too poor to benefit from the full range of opportunities provided by private markets but too rich to qualify for substantial state support’. The report found that the share of final income (after tax and benefits) taken by LME households fell from 34 per cent in 1977 to 29 per cent in 2008/9, while the benefit-reliant share dropped from 6 to 4 per cent. The top half of the working-age population thus saw their share rise from 60 per cent to 67 per cent over the period.

The result of these changing patterns has been a significant shift in the nature of the social and economic structure in Britain. Most significantly, as incomes – from work and welfare benefits – have become increasingly bunched below the median, there has been an increase in the proportion of the population living below, on or close to the poverty line. 

References

Joyce, R., Muriel, A., Phillips, D. and Sibieta, L. (2010) Poverty and Inequality in the UK: 2010, London, Institute for Fiscal Studies.
Lansley, S. (2009) Life in the Middle: The Untold Story of Britain’s Average Earners, TUC Touchstone Pamphlet No. 6, London, Trades Union Congress.
Lansley, S. (2010) ‘How rising inequality contributed to the crash’, Soundings, Spring 2010.
Newman, K. and Chen, V.T. (2007) The Missing Class, Beacon Press.
Resolution Foundation (2010) Squeezed Britain: The 2010 Audit of Low-to-Middle Earners, London, Resolution Foundation.

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