Inequality

New evidence on the growth in pay at the very top of the wage distribution has been presented in a paper by researchers at the LSE's Centre for Economic Performance. The authors point out that the remarkable rise in the share of income and wages taken by those toward the very top of the distribution is a missing element in much recent research.

Major shifts in economic structure in recent decades are to blame for rising income inequality and the declining share of national income going to wages, say two new studies. The growing importance of the financial services sector is a key factor.

The first study, from the TUC, finds the share of national income going to wages has fallen over the last thirty years from 59 to 53 per cent, whereas the proportion going to profits has increased from 25 to 29 per cent. The main reason has been the decline of industries that spend a high proportion of turnover on wages (such as manufacturing) and the expansion of new industries that have a far higher profit margin (such as financial services). In fact the whole of the rise in profits' share of national income since 1980 went to just to one industry – financial services. That trend is also closely linked with rising inequality in incomes.

Increased levels of income inequality are associated with increased material deprivation, according to a new study of European countries. Researchers used data from the EU Statistics on Income and Living Conditions (EU-SILC) to investigate the key drivers of material deprivation across countries and over time. They focused on the role of growth (or decline) in average income, and the relationship between material deprivation and income inequality.

The 2012 US Presidential elections were unusual for the relatively important role played by issues of inequality and the distribution of income and wealth, says a paper by researchers at the London School of Economics. On this occasion Americans seemed to abandon their normally 'relaxed' attitude to inequality.