Doing What Works

One of the less discussed issues in the debate about the growth of inequality over the past 30 years is that it has led to many people believing that government attempts to fight poverty and inequality have failed. This seems to have left many feeling nothing can be done. The welcome new analysis by IFS shows that many measures have been very effective and that a government that wants to improve life for those on low incomes can make a massive difference.

It is true that the one percent have increased their share of incomes but if you strip out the extremes and compare the 90% with the ten per cent then you see an increase in inequality in the 80s but this then begins to fall and it is lower now than it was 20 years ago. The tax and benefits system has “worked increasingly hard to offset the rise in inequality in pay in working households”
Both the deliberate increase in benefits and introduction of tax credits in the late nineties and early 21st century have boosted the incomes of low income households and protected those on low incomes from falls in pay.

Inequality in weekly pay for women has reduced. This is in part because there is no longer such a big variation in hours worked by women. Crucially women on lower hourly pay are more likely to be working full-time. So those women in the 10% percentile saw their weekly pay rise by 60% between 1994-5 and 2014-5 while those in the 90 percentile had 29% rise. Female weekly pay has also risen faster than male pay narrowing the gap between median weekly pay for men and women. This is partly due to rises in education levels for women relative to men.

But while net household income inequality has fallen weekly pay for men has become more unequal. Hourly pay for low paid men has been slow to grow and low paid men are working fewer hours which impacts on weekly incomes. It remains rare for middle and high wage men to work part-time but low paid men across all age groups are increasingly part-time workers. Whether men have partners or children does not seem to alter this trend. So it is not a sign that men are suddenly choosing to cut back working hours to take up a bigger share of childcare. Access to decent pay and full-time work is a grwing problem.

There is some good news: the tax and benefits system has been very effective in improving income equality across working households. Government focused on reducing poverty and inequality can make a difference.