The income distribution over the long run
Robert Joyce, IFS
June 14th, 2013
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Outline of what’s to come
• Changes by family type
− Income levels
− Income inequality
• Changes by age
− Income levels
− Income inequality
• Conclusions
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The big picture
• Over last 30 years, incomes have generally
1.
Grown (e.g. by about 50% at median since 1979; 70% at mean)
2.
Become more unequal
−
...but at very different speeds for different parts of population
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INCOMES BY FAMILY TYPE
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Real income growth by percentile point (BHC, GB)
1978-1980 to 1996-97
Average annual real income change
4.0%
Parents and children
3.5%
Working-age without children
3.0%
Pensioners
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
-0.5%
10
20
30
40
50
Percentile point
60
-1.0%
Notes and source: see Figure 5.2 of Living Standards, Poverty and Inequality in the UK: 2013
70
80
90
Real income growth by percentile point (BHC, GB)
1996-97 to 2011-12
Average annual real income change
4.0%
Parents and children
3.5%
Working-age without children
3.0%
Pensioners
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
-0.5%
10
20
30
40
50
Percentile point
60
-1.0%
Notes and source: see Figure 5.2 of Living Standards, Poverty and Inequality in the UK: 2013
70
80
90
Real income growth by percentile point (BHC, GB)
1978-1980 to 2011-12
Average annual real income change
4.0%
Parents and children
3.5%
Working-age without children
3.0%
Pensioners
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
-0.5%
10
20
30
40
50
Percentile point
60
-1.0%
Notes and source: see Figure 5.2 of Living Standards, Poverty and Inequality in the UK: 2013
70
80
90
The big picture
• Over last 30 years, incomes have generally
1.
Grown (e.g. by about 50% at median since 1979; 70% at mean)
2.
Become more unequal
−
...but at very different speeds for different parts of population
• Higher income growth for pensioners than non-pensioners
– e.g. ~ 2% per year vs ~ 1% per year at the median
– Particularly slow growth for working-age childless
• Larger rise in inequality for non-pensioners
– This has slowed or been (partially) reversed since 1996-97, particularly for
families with children
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The result: convergence across family types
Position in income distribution (BHC, GB)
100%
1979 1996 2011
1979 1996 2011
1979 1996 2011
Parents and children
Pensioners
Working-age without children
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
1st quintile (lowest income)
2nd
3rd
4th
5th quintile (highest income)
Notes and source: see Figure 5.1 of Living Standards, Poverty and Inequality in the UK: 2013
...and on an after-housing-costs (AHC) basis
100%
1979 1996 2011
1979 1996 2011
1979 1996 2011
Parents and children
Pensioners
Working-age without children
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
1st quintile (lowest income)
2nd
3rd
4th
5th quintile (highest income)
Notes and source: see Figure E.1 of Living Standards, Poverty and Inequality in the UK: 2013
Summary: convergence across family types
• ‘Catch-up’ of pensioners is most striking
− % in lowest (BHC) income quintile down from 47% in 1978-1980 to
21% in 2011-12...
− ...while proportion in top two quintiles rose from 18% to 31%
• Working-age childless (the highest-income group) now
less/more likely to be relatively rich/poor
• Parents and children more likely to be relatively rich and
relatively poor than in late 1970s (more unequal)
− But % relatively poor has come down since 1996-97
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Long run growth in pensioner incomes
1. State benefits
2. Private pensions
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Pensioner income sources (GB)
State pensions and other benefits
Private pensions
Savings and investments
Earnings and self-employment income
Other
Contribution to income (£ per week)
1,000
2011–12
1978–1980
900
800
700
600
500
400
300
200
100
0
-100
1
2
3
4
5
All
1
2
Pensioner income quintile
Notes and source: see Figure 5.3 of Living Standards, Poverty and Inequality in the UK: 2013
3
4
5
All
Long run growth in pensioner incomes
1. State benefits
•
e.g. more entitlements to state pensions; Pension Credit
•
Biggest driver of growth for lower-income pensioners
•
Bottom quintile: 43% real growth in benefits income since 1978-80
2. Private pensions
•
Biggest driver of growth for higher-income pensioners
•
Top quintile: four-fold real growth in private pension income since 197880; up from 18% to 36% as share of income
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INCOMES ACROSS THE
AGE SPECTRUM
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Median income by age (GB)
Before housing costs, 2011-12
After housing costs, 2011-12
Before housing costs, 1978-1980
After housing costs, 1978-1980
600
Median income (£ per week)
550
500
450
400
350
300
250
200
150
100
Age
Notes and source: see Figure 5.6 of Living Standards, Poverty and Inequality in the UK: 2013
The elderly
–
–
Incomes now dip much less at older ages, especially AHC
•
In 1978-80, median household income for those in late 60s lower
than for any younger age-group
•
Now higher than for children; about the same AHC as for those in
their early 40s
And inequality now dips at pensioner ages, especially AHC
•
In early ‘60s, inequality among pensioners was higher than it is now,
and higher than for non-pensioners
•
By 1978-80, inequality quite flat across age spectrum
•
Since late ‘70s, inequality has risen much less among pensioners
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Young adults
–
More recent trend is the falling-behind of young adults
–
Began pre-recession, and has accelerated since...
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Growth in median income by age (BHC, GB)
2001–02 to 2007–08
2007–08 to 2011–12
4%
Average annual growth
3%
2%
1%
0%
-1%
-2%
-3%
-4%
0s
10s
20s
30s
40s
50s
Age
Notes and source: see Figure 5.7 of Living Standards, Poverty and Inequality in the UK: 2013
60s
70s
Young adults
–
More recent trend is the falling-behind of young adults
–
Began pre-recession, and has accelerated since...
–
•
No growth at median among those in 20s between 2001-02 and 2007-08
•
And a fall of 12% between 2007-08 and 2011-12
...which is not surprising, given employment trends
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Employment rates by age (GB)
20–24
25–29
30–39
40–49
50–59
60–64
100%
90%
80%
70%
60%
50%
40%
30%
2002
2003
2004
2005
2006
2007
2008
Notes and source: see Figure 5.9 of Living Standards, Poverty and Inequality in the UK: 2013
2009
2010
2011
Young adults
–
More recent trend is the falling-behind of young adults
–
Began pre-recession, and has accelerated since...
•
No growth in median income among those in 20s between 2001-02 and
2007-08
•
And a fall of 12% between 2007-08 and 2011-12
–
...which is not surprising, given employment trends
–
Though bear in mind longer term perspective
•
Income growth quite uniform across working-age spectrum since late ‘70s
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Growth in median income by age (BHC, GB)
2001–02 to 2007–08
2007–08 to 2011–12
1978–1980 to 2011–12
4%
Average annual growth
3%
2%
1%
0%
-1%
-2%
-3%
-4%
0s
10s
20s
30s
40s
50s
Age
Notes and source: see Figure 5.7 of Living Standards, Poverty and Inequality in the UK: 2013
60s
70s
Incomes for young adults since recession
• About 4 in 10 adults under 30 live with parents
−
So individual incomes of young adults and their partners (‘benefit unit’
incomes) often only part of total household income
−
Living with parents has reduced the hit to household income for many
Real incomes for adults under 30, 2006-07/2007-08 to 2010-11/2011-12
Living on own or
with partner only
Living with parents
Living with others
Median household income
-10.8%
-5.7%
-14.7%
Median benefit unit income
-10.8%
-16.8%
-16.9%
Notes and source: see Table 5.4 of Living Standards, Poverty and Inequality in the UK: 2013
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Conclusions
• We’ve got richer and more unequal in recent decades
• But also big changes to who is relatively rich and poor
– Other groups have been catching up with the working-age childless
• Incomes now dip much less at pensioner ages
• And inequality now falls at pensioner ages
• More recent trend is falling-behind of young adults
– How persistent will effects of these early experiences be for these
cohorts?
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