1. IFS Understanding recent trends in income inequality Alissa Goodman Institute for Fiscal Studies

2. Overview Recent changes in income inequality very different to the 1980s Remarkable stability across much of the distribution Inequality still high, if not rising much

3. How unequal are we? 2002/03 Share of top 1% 8.0% Share of top 10% 27.7% Share of bottom 10% 2.8% 90/10 ratio 4.0 Gini coefficient 0.34

4. The Gini Coefficient, 1961-2001

5. Why did income inequality rise? Labour market outcomes –Less skilled workers lost out Falling male participation rates Increasing wage returns to education Union decline Demographic change –increasing numbers of single adult households Fiscal policy changes –regressive through 1980s

6. How were the 1990s different? Growth in income inequality slower

7. Inequality growth was slower Gini coefficient

8. How were the 1990s different? Growth in income inequality slower Growth in income inequality localised –Concentrated in very small parts of the distribution –Remarkable stability across most of the population

9. Inequality growth was localised 90/10 ratio

10. Inequality growth was localised 1996- 2002

11. Inequality growth was localised 1996/7- 2001/02

12. Inequality growth was localised 1996/7- 2001/02

13. Inequality growth was localised 1996/7- 2001/02

14. Inequality growth was localised 1979- 1990

15. How were the 1990s different? Growth in income inequality slower Concentrated in small parts of the distribution –Remarkable stability across most of the population Low income groups kept pace

16. Low incomes kept pace

17. How were the 1990s different? Growth in income inequality slower Concentrated in small parts of the distribution –Remarkable stability across most of the population Low income groups kept pace Consumption inequality did not grow

18. What changed? Early 1990s recession equalised the distribution Increased supply of skilled workers dampened increase in returns to education Fiscal policy progressive from the late 1990s

19. Fiscal policy since 1997

21. Conclusions Top and bottom incomes drove inequality growth over 1990s Most of the distribution if anything, equalised Longer-term context: inequality at 1950s levels Future: child poverty targets imply more redistribution

23. Fiscal policy since 1997

24. Top income shares, 1908-1998