Scottish Income Inequality Briefing, December 2014
Scottish Government: Communities Analytical Services
Income inequality has economic and social impacts
Income inequality is now widely accepted as a cause of various social and economic problems. The
OECD estimates, for example, that rising inequality in the UK reduced growth by nearly 9
percentage points between 1990 and 2010. The effects of this have not just hit those with the very
lowest incomes, but all those in the bottom 40 per cent of the income distribution.
Widely unequal societies can also be less stable due to a greater concentration of income/wealth at
the top of the income distribution. This may reduce an economy’s resilience to shocks.
Scotland has lower income inequality than the UK
Income inequality (after tax and benefits) in
Scotland has generally been lower than the UK
since the mid-1990s. Between 1994/95 and
2012/13, Scotland’s income inequality was, on
average, 3 percentage points lower than in the
UK.
Chart 1: Income inequality (Gini) - UK and Scotland
The Gini coefficient measures overall inequality
across the entire income distribution. It ranges
from 0 to 100 and – the higher the Gini, the
greater the inequality. Chart 1 shows that, over
the five years to 2009/10, the Scottish Gini slowly
but consistently became less slightly equal and
closer to the UK Gini. But in 2010/11, the Gini fell in both Scotland and UK, followed by an increase
and flattening in the latest two years in Scotland.
UK fiscal policy has less impact on Gini than in most other EU countries
Across the 34 OECD countries, the UK ranks 29th in terms of its Gini ranking – in other words, it is
the 6th worst in terms of income inequality. Scotland is not formally ranked as it is not a member of
the OECD, but would come 20th in the rankings if it were. Income inequality can be reduced through
redistribution (via tax and benefit changes), but the impacts of redistribution depend on the
effectiveness of policy and the initial level of inequality.
UK inequality starts high in comparison with OECD countries and, after redistribution, remains high.
In 2011, the UK ranked 20th out of 32 (with data available) in terms of the percentage reduction in
the Gini achieved by redistribution.
Changes in inequality have been driven by
changes in top earnings
Recent changes in the Scottish Gini were mostly
driven by changes in top earners’ total income.
The top line in Chart 2 shows total income of the
top income decile. This shows there is a
particularly large gap between top earners and
the next highest income decile.
These increases in top earners’ income over
recent decades is likely to be due to technological
progress increasing competition for the highest
managerial skills, and globalisation allowing top
executives to compete in a larger market.
Chart 2: Real income by decile (net, before housing
cost)
Scottish Income Inequality Briefing, December 2014
Scottish Government: Communities Analytical Services
The share of jobs in middle income occupations has reduced
Over the decade up to 2010, there was overall growth in the share of jobs amongst the lowest and
highest paid occupations and reductions in middle income occupations’ share of jobs and hours.
This polarisation increases inequality. This is partly due to factors like computerisation of middleincome routine tasks and structural shifts away from manufacturing towards low-income services.
The gender pay gap contributes to inequality
Chart 3: Gender pay gap, median full time hourly
pay
The overall gender pay gap in Scotland is lower than
in the UK but remains high and has increased since
2011. By occupation, the highest gender gaps occur
between full time men and part time women in
skilled trades, managerial/senior roles, and process,
plant and machine operatives. Women tend to do
more part time, lower skilled (and lower paid) work.
What this means in basic terms is that for every
pound a man makes, a woman makes 91 pence (in
full-time work; hourly rate, excluding overtime).
Increasing the lowest wages can reduce inequality
Before October, the UK national minimum wage (NMW) had not increased in real terms in nearly a
decade and had not increased in line with the cost of living since 2008. The NMW increased by 3%
from £6.31 to £6.50 in October 2014. This is slightly higher than inflation (forecast for 2014 at 2.4%)
and could be expected to have some effect on inequality.
The Scottish Government supports the Scottish Living Wage (current rate: £7.65 per hour or
£14,975 p.a. full-time as of 1 April 2014, rate from April 2015: £7.85). Analysis by KPMG (Nov 2014)
suggests that 19 per cent of Scottish workers earn below the Living Wage – the lowest level in the
UK outside of London and the south-east.
The effects of wage floors (like the Living Wage) on inequality depends on how recipients are
distributed across the household income distribution. Increased wages can, in some cases, result in
withdrawal of benefits for those with entitlements.
Wealth inequality in Scotland is more unequal
than income inequality
Chart 4: Total household wealth, Scotland, 2008-10
The Wealth inequality Gini (2008/10) is 63 in
Scotland, compared to a Gini of 32 for income
inequality.
In Scotland in 2008/10, the wealthiest 10 per cent
of households were over 5 times wealthier than the
bottom 50 per cent of households combined. The
wealthiest 10 per cent had 900 times the wealth of
the bottom 10 per cent of households.
For income, the top 10 per cent households only
had 9 times the income of the bottom 10 per cent in 2010.