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The minority control the story: What do we know about the income distribution and what do we think we know?

02 Apr

The way in which resources are distributed across society has been receiving increasing attention in recent years as a growing number of academics attempt to understand and explain why our society continues toward a ‘winner-takes-all society’ whereby some people have the capability to access almost everything, whilst others are limited as a result of their unequal share of resources. Part of current interest attempts to understand the vast scale and speed of changes in levels of income inequality. Though Dorling sums it quite well that ‘inequalities do not rise by accident’ much research interest is involved with understanding the processes behind the dramatic & rapid changes in the income distribution. There has also been a surge of interest among sociologists, psychologists, economists and political theorists to explain the impact across all social groups that extreme disparities in resources have on outcomes. Essentially research is focused on determining what has roused these rapid changes in the income distribution, what are the advantages and disadvantages of high levels of income inequality and who are the winners and who are the losers.

But as academic research interest has been rising, why has public concern been so reserved? Do we as a society not care that the bottom twenty percent of the income scale have only 5.3% of the country’s total income between them, whilst the top twenty percent have almost 50%? Do we not as a society not care that the numbers of those who live in poverty is rising so that the extreme wealthy can fund lavish lifestyles? Do we as a society not care that as the rich have got steadily richer, average incomes of those in the middle have been stagnant or even falling for the last 30 years, even as per capita GDP has grown? Do we as a society not care that the principle divide in our society today is no longer between the top, the middle and the bottom but between a tiny group at the very top and everyone else? Fundamentally, have our values of fairness and social justice changed so much over the past thirty years that we now think that this is just an ‘inevitable part of modern life’ or that the extreme inequalities we see in resources across society exist because those who have more resources earned them and thus are deserving of what they have got.

I refrain from concluding that the majority of people do not care that a small minority of people have control of almost all resources, whilst the rest share a declining proportion of the resources, as I do not think this is an adequate nor an accurate response. I instead will make a couple of observations on why I think the extreme levels of inequality that we witness continue to exist and why public interest has been retained. After all, inequalities do not occur by accident.

One critical issue behind the continuation of the extremely unequal distribution of income in society is how little people know about the way in which income is distributed across the scale, people’s misperceptions of what the income distribution really looks like and how few people can accurately place themselves on the income distribution scale. This lack of public knowledge about what is really going on contributes to the continuation of an extremely unequal society.

There is a vast lack of knowledge evident throughout society regards the income of particular positions across the income distribution. That is, people tend to accurately estimate the earnings of those at the lower end of the scale, but underestimate those at the top. For example, people estimate that a shop worker earns £12000, which is about accurate however when asked about the average earnings of a CEO compared to the shop worker, the average response is about 10 to 1. A more accurate ratio is 100 to 1. Along with this, there is a marked tendency for people, when asked, to assume that they are in the middle of the income distribution, regardless of where one truly sits. John Hills reckons that this is because we all know someone both better off and worse off than ourselves. Thus our tendency to inaccurately place ourselves on the middle of the income distribution inevitably affects our perceptions of fairness and in turn skews reality. I would add to John Hills analysis a tendency in society to justify our perceived position in the middle by categorising people we perceive to work harder than us as more deserving of a higher place on the distribution and people who work less as less deserving of our position.

I do not believe that the public realise that we are currently witnessing levels of inequality across the distribution of income, which have not occurred since the late 1920’s/30’s. But more than this I am not convinced that the public realise that over the past thirty years household income has increased annually by 0.9% for the bottom decile (those in the bottom tenth of the income distribution) and 2.5% for the top decile (those in the top tenth of the income distribution). This means that over time, those at the top have been enjoying annual income increases that are disproportionate to the increases of those at the bottom. The story is more extreme if we compare the extreme wealthy (the top 1%) and everyone else whose pay increases have been greatly outstripping the rest of the workforce at about levels of 9 to 1 in real terms between 1999 and 2006. This means that the average pay of CEO’s in Britain’s largest companies had been increasing by about 11% per year between 1999 and 2006, while the average increase for the rest of the workforce was 1.4%. This leaves us with a situation whereby the extremely wealthy are taking increasing shares of the pie so as the rich get richer, everyone else is left sharing a continuously smaller portion of the pie.

Time and time again those who believe in the necessity of these extreme levels of income inequality revert back to notions of merit and deservedness & to the idea that income inequalities are an inevitable part of modern life. However purely through observing trends and levels of income inequality over the past 30 years I question the perception that extreme inequalities are justified as a result of hard work and inevitability. In 2006 the average gap between CEO’s and the average worker was 100 to 1, in 1980 it was less than 25 to 1. I mean, it is highly unlikely that not only are those at the very top of the income distribution are working 100 times harder than everyone else, but it is also unlikely that they are working 4 times harder than their counterparts at the top twenty five years ago. Indeed a common anecdote is often made about hard work and the increased productivity and contribution that those at the top of the income distribution make to society. It is often posited that unless we pay these superiorly talented people extortionate & disproportionate wages to keep our economy going all of our living standards would fall. However the link which is often cited to exist between productivity and wages is inaccurate. Productivity has been deteriorating since 1980’s, with average productivity per year 1.9% compared to 2.9% between 1961 and 1973. Further evidence comes if we consider that even in 2008 at the height of the banking failure extortionate bonuses in the financial sector continued which led to a situation whereby ‘pay was high when performance was good and pay was high when performance was bad’ (p7 Stiglitz). In reality an ever increasing & convincing body of evidence demonstrates that the more unequal a society the less productive both economically and socially.

I have presented two of the key reasons why I believe income inequality is allowed to be so pervasive and accepted in today’s society. I conceive there to be a lack of accurate public knowledge on actual levels of income inequality along with distorted notions that levels of inequality exist only because those at the top of the income distribution deserve their disproportionate share of resources based on an argument which vastly disconnects itself those at the top from both the average worker and their counterparts in the past as extremely superior. Throughout the past number of years the public have been constrained to a discussion led by both politicians and the media which continuously degrades the bottom of the income distribution as undeserving, lazy skivers. The tone of current politics and the media, which, in turn, has been echoed by the public, has been concentrated on reverting the language used in discussions about the social security system to terms used during the Poor Law era. The language which has renewed itself over the past number of years has been focused on distinguishing the deserving poor from the undeserving poor, the strivers from the skivers. It is unsurprising that we are likely to know the income of those towards of the bottom of the income distribution – our newsfeed has been telling us all about their position and their deserving/undeserving status for years now. Added to this, we’re more likely to be in these positions than anywhere else!

Yet, we don’t hear about those toward the top very much. All too often all we hear is that they are hard working, talented and deserving of their reward. But, public knowledge of the income of those at the top of the income distribution is very limited. Thus, if we don’t even know what they earn how can we be so sure that they deserve it? We are continuously told that those who have an income which is extremely disproportionate to everyone else deserve it, yet what do we know about them? There has been a narrative created which exudes that people at the top contribute so much to society and to the economy that they deserve massive rewards. But if the mass don’t know much about the life of those at the top how can we be so sure that they contribute so much? The evidence certainly doesn’t agree that the contribution of those at the top matches their reward. Also, how can we measure any single person’s contribution to society? Given division of labour, surely what one person does only makes a difference when many other people do their part. And, what kinds of contribution are good contributions? For me, those at the top have created the narrative which paints them as deserving, as a means of justifying and maintaining their superior position in society.

Given a climate whereby we can identify almost straight away those at the lower end of the distribution as deserving or undeserving, yet know almost nothing about those at the top, it becomes imminent, the minority control the story, they dont want us to know their story. The poor have been a good distraction.

Find out where on the income distribution you and people you now sit

http://www.ifs.org.uk/wheredoyoufitin/welcome.php

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Posted by on April 2, 2013 in Uncategorized

 

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