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That’s an interesting thing. Between about 1980 and the late 1990s, the English-speaking world experienced an explosion of concern about inequality, corresponding to a clear widening of the gap between rich and poor on both sides of the Atlantic. But the second surge in public concern about income inequality in the past decade came during a period when most measures of inequality they do not show an increase or even a slight decrease.
By inequality we mean some measure of dispersion between the top and the bottom. The Gini coefficient of income inequality, which shows the overall fairness of distribution, has been either flat or falling over the past two decades in Britain, America and much of Western Europe. The ratio between the earnings of the top 10 percent and the bottom is not different. If anything, it was raining.
Public concern about income disparity has apparently become disconnected from measured reality, but why? One theory is that what people they really feel is the recent slowdown in economic growth. That’s almost certainly true, but I think there might be something else at work.
You can think of the ratio between the highest and the lowest income as the product of two ratios: the difference between the highest and the median and between the median and the bottom. And it turns out that a flat or falling combined gap masks the opposite stories in these two halves of the equation.
The gap between top and middle incomes has widened since the turn of the millennium, matching what the public feels. But at the other end of the spectrum, the gap between the bottom and the middle has narrowed considerably.
Since the late 1990s, the lowest earners have seen the fastest wage growth in the US and the UK. Steady increases in the minimum wage are a big part of this story in Britain. In both countries, low-skilled workers benefited (and medium-skilled workers suffered) from the hollowing out of the middle of the job distribution, as well as tight labor market in general.
So we haven’t seen an increase in aggregate inequality. The story for the lowest paid is undeniably good, but for most people sitting somewhere in the middle, it could be argued that two different trends are combining for a decidedly unpleasant situation.
If the middle class is looking up, the rich are pulling back. Living at the highest level seems more elusive than ever. But look down, the floor is rising fast. This simultaneous rise in resentment and insecurity is a dangerous cocktail, and it certainly could have worked recent political undercurrents.
Occupations that were once considered ambitious are now at the very end. In Britain, doctors, nurses and police officers have fallen down the income ladder in recent years. In the US, the highest-paying jobs are increasingly shared among a handful of ultra-high-status occupations. Tech workers now account for one in six of the top 5 percent of wage earners, up from one in 20 in 1990. No single group has had this dominance in the past.
This is important because we tend to think of ourselves as members of groups rather than just individuals. In the 1980s, 40 percent of the highest paying jobs in America did not require a bachelor’s degree. The upper reaches of the income scale included scores of engineers and doctors, but also high school teachers and the most skilled factory and construction workers. People from the most diverse backgrounds with the most diverse skill sets could dream of it.
Today, the upper part of the scale is dominated by highly qualified technical and health workers. Almost half of the top jobs require an advanced degree. And a large part of the population knows very early on that it is not on that path.
To be clear: these changes are organic, not planned. Economies change. Occupations rise and fall in rewards and prestige. It’s a story as old as time. But that doesn’t mean it should be ignored.
Aggregate inequality statistics certainly have their place, but they can obscure important nuances. And this may be more useful in explaining how large segments of the population experience disparities in opportunity and outcome. The gap between the richest and the poorest may not be widening, but it is not irrational for the middle class to feel that their position in society is in decline.
