Britain's recession: Harsh but fair?

 
Job centre plus sign If the economy had behaved as it did in the 1980s there could be a million more people out of work

Britain's latest labour market statistics have again provided happy news - in an environment that would otherwise be rather grim.

Economists have spent a lot of time pondering the jobs puzzle. So have I (sigh). But one consequence of the surprising strength of employment is both welcome and hard to dispute. It may have been an unusually difficult period for our economy but it has also been a surprisingly equitable one.

You might think that sounds mad. How can it be fair that so many people have had their incomes squeezed in real terms - and often nominal terms as well? Or that so many people - young people especially - have been left out of work?

But I didn't say it was less painful than past recessions. In fact, by some measures this has been the worst four-year period for the economy since at least the 1920s. Real household incomes may not be much higher in 2015 than they were in 2001 - that would be unprecedented.

There has been no shortage of economic pain since 2007. What is striking is that the pain has been much more evenly distributed than when we have lurched from boom to bust in the past. For that we can thank the curious strength of UK employment - and the weakness of UK earnings. Put simply: pay packets have been squeezed instead of jobs.

The Institute for Fiscal Studies pulled together the key figures in a report published in the summer.

There's been so much talk of city fat cats and the soaring incomes of the top 1%, you might be surprised to hear that the latest figures show the largest one-year fall in income inequality in nearly 50 years.

The most widely used measure of income inequality - the Gini coefficient - fell from 0.36 to 0.34 in 2010-11. (The coefficient ranges from 0 to 1. Roughly speaking, a coefficient of zero would mean everyone was getting the same income. A coefficient of one would mean everything was going to one person.)

That fall to 0.34 may not sound like much, but it takes the level of inequality back to where it was in the late 1990s - and it occurred in a year in which average household incomes went back to where they had been in 2004-05.

Average incomes have fallen in large part because earnings across the economy have fallen. No surprise there: that's what usually happens in a recession. What is not so usual is that the fall in earnings has mainly come through everyone in work being paid less - not from a relatively small fraction losing their jobs.

Incomes in 2010-11 fell in every part of the income distribution - and inequality fell across the board as well. Whether it's the gap between the top tenth and the bottom tenth, or between the middle and the bottom - they all got smaller in 2010-11.

graph

Of course, there have been job losses. There are now around 55,000 more people unemployed than there were in May 2010.

But if the economy had behaved as it did in the early 1980s or 1990s, there could easily be a million more people out of work today. And employment would certainly not be 750,000 higher than it was at the start of the parliament. In fact, we might well not have seen any rise in employment at all.

It's worth mentioning that the fall in inequality also owes something to the government's decision to continue uprating benefits in line with consumer prices - at a time when inflation was well ahead of target, and most working people's incomes have been failing to keep up. Famously, that led to a 5.2% increase in the level of most benefits this April, at a time when average earnings have been rising by around 2%.

The fall in inequality may well be a short-term phenomenon. Earnings at the very top were affected by the introduction of the 50p rate, because a lot of people had tried to shift income into the previous year to avoid paying the higher rate.

As the IFS also point out, there are welfare cuts now under way worth £18bn a year by 2014-15 which cut incomes relatively more toward the lower end of the income scale. And after this year's large increase in benefits, George Osborne might push for a below-inflation increase in benefits in 2013.

People will continue to debate the fairness of these and other government efforts to cut borrowing. They will also continue to debate what a "fair" distribution of economic pain might be. There will, rightly, also be discussion of the long-term implications of employing 750,000 more people to make the same amount of national output.

What we can say for sure is that the past few years have been different. Instead of the costs of recession being concentrated among the people unlucky enough to lose their jobs, the pain has been shared by nearly every household in the land. That sounds like a good thing. Even if there is, unfortunately, more than enough pain to go around.

 
Stephanie Flanders, Economics editor Article written by Stephanie Flanders Stephanie Flanders Former economics editor

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  • rate this
    +7

    Comment number 26.

    A narrowing of the gap between rich and poor. Something the Labour government failed to do in all their time in government, despite their rhetoric. Part-time working is a good choice for many, with a lot of people living within their means and enjoying the extra free time. Having more full-time workers flat out to pay for a huge unemployed mass makes no sense.

  • rate this
    +1

    Comment number 25.

    20

    Depression has nothing to do with money, having been with and without both in my life.

    I wouldn't pay too much attention to poverty wages. Have you seen what "poverty wages" buy you in the UK? Includes sattelite TV, for one. Suggest you take a trip to somewhere they suffer from REAL poverty.

    Food bank usage is a concern, but I tend to see it as a positive that the safety net is there.

  • rate this
    +2

    Comment number 24.

    It's a cliche, but 'bring me solutions not problems'

    Nobody is saying there aren't serious hardships, but what's the answer? Perhaps we should increase benefits (sarcasm)

  • rate this
    +1

    Comment number 23.

    Politicians of a certain party are spied upon, phones hacked etc, the persons accused of being behind it are friends of and later work for the leader of a rival party who has been in contact throughout - only in this Country would nothing be said. this post will have a life span of minutes. you will then know how Saville got away with it.

  • rate this
    0

    Comment number 22.

    "Britain's latest labour market statistics have again provided happy news - in an environment that would otherwise be rather grim."

    Just like prozac!

  • rate this
    -3

    Comment number 21.

    @16 - I'm sure every Tory is driven by an intense internal desire to victimise those with less just as every Labour politician is driven by a completely altruistic desire to help all and 'equalise' society.
    Acheiving equality of outcome shouldn't be the aim. Equality of opportunity is a must. In a free society where people can decide on their own values there will always be inequality.

  • rate this
    0

    Comment number 20.

    The REALITY
    A record number of people received emergency food from UK food banks in the last six months, a charity says.
    The Trussell Trust said its food bank network fed almost 110,000 people since April, compared with a total of 128,697 in the whole of
    2011-12. One in five workers on poverty wages. The number of people living with depression in England has increased by nearly half a million

  • rate this
    +5

    Comment number 19.

    7.

    I assume you mean temporary work, rather than part time. Part time workers have as many priveleges as full time.

    Assuming this is what you meant (and apologies if not), I can assure you that temporary contract workers cost far more than full time ones. The advantage of contractors is we don't have to keep them if things go bad. Not ideal, granted, but good temps tend to stay employed.

  • rate this
    +2

    Comment number 18.

    Well said sweet chariot. As usual, there's plenty of complaints about austerity, but no other creditable alternatives put forward to cut the deficit. We have to get the debt falling. Most of that has to come from cuts due Labours largesse

  • rate this
    +8

    Comment number 17.

    Stephanie, Your colleague Andrew Verity did an excellent report on last nights Newsnight about decent want to work families and the effect of this recession.

    As you have said there are many features of monetary policy that has been different to previous recessions but this time food, utilities and fuel prices have risen to a level that is really hurting the ordinary family domestic budgets.

  • rate this
    -3

    Comment number 16.

    15 sweetcharriot
    no we dont believe the rich are vitimising the poor - The Tories are victimising the poor on behalf of the rich.

  • rate this
    +3

    Comment number 15.

    Delighted to see that this message board is already being colonised by those that believe the 'rich' are victimising the rest, presumably under the impression that this is an ideological given.
    @10 - any suggestion BBC coverage is biased towards the Tories is laughable

  • rate this
    0

    Comment number 14.

    I am scrating my head in disbelief, what is the point of this article? If you take away 5% from a low income family's income, they will struggle. On the other hand, if you take away 5% from a weathly family's income, they will have a bottle less of champers....Can someone please explain to me how is that fair?

  • rate this
    +1

    Comment number 13.

    if the chancellor/hmrc ensured the nearly£1trillionuncollected from blue chip companies like apple boots plc amongst other even bigger corporations the deficit would be all but gone there should be no austerity untilall that tax is collected and found to be inadequate meanwhile the most vulnerable take the biggest hit immoral,un-british uncivilised

  • rate this
    +6

    Comment number 12.

    Before I took early retirement, many workers at my old firm were taking a week to turn out a set quantity that they would have polished off in 3 days some years earlier. The company tended to turn a blind eye to the hit in their profit figures as they wanted to retain skilled staff for when the market picks up. That's why there are so many part timers now.

  • rate this
    -7

    Comment number 11.

    GOVERNMENT SOLUTION HAMMER THE DISABLED AND GIVE THE MILLIONAIRES INC. THOSE IN THE MEDIA AS WELL AS THE CABINET A HANDY 40+K PER YEAR IN UNWARRANTED TAX CUTS

  • rate this
    -5

    Comment number 10.

    UNDER FORMER YOUNG TORY LEADER n.Robinson economic and political coverage of Goverrnment policy has been at best skewed in favour of the government at worstutterly biased. No where near enough has been made of the type of work being created and the desirability of an economy of part-time workers which is already having serious social effects hence the poliferationof food banks in areas like the SE

  • rate this
    +1

    Comment number 9.

    Harsh but fair??
    Oh yes,HARSH on the lower paid,unemployed and the sick.
    FAIR on the bankers,politicians and the better off.
    Oh and don't forget,we are all in this together(Idon't think).

  • rate this
    +1

    Comment number 8.

    As someone who travels regularly to most countries in Europe my comment would be - what ever we are doing, keep doing it! I do not know how the UK is treading water but I can assure you it is MUCH better than most - germany is the obvious exception. This observation is not based on analysis of statistics but what is observed 'on the ground'.

  • rate this
    +3

    Comment number 7.

    @"Notayesmanseconomics":

    The reason more people are going into part time work now is because part time work is all that seems to be available.

    Employers, especially in my sector (retail) are no longer taking any full timers at ground level; in such cases you'll only ever see full time positions at managerial level or higher.

    Reason: it saves them money. (holidays, pensions, sick pay etc)

 

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