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Narrowing the gap between rich and poor

Research shows that policies to tackle inequality are beginning to work 

Over the past two decades, the rich have been getting richer and the poor have been getting poorer and generally less able to improve their lot in life. This growing inequality has been blamed for every social ill, from crime to addiction. But there are now encouraging signs that policies to narrow the gap are slowly beginning to work and people are now more able to work their way out of poverty.

Researchers at the Centre for Economic Performance and Centre for the Analysis of Social Exclusion at LSE have found that wage mobility - how much a person's earnings change from year to year - has risen since 2000. Long-run inequality - the difference between how much the poorest and richest people earn over a number of years - has fallen.

The study, The Changing Pattern of Earnings: employees, migrants and low-paid families, analysed the earnings of a large group of people over 30 years.

It found that since the late 1970s, inequality of annual earnings - the difference in the amount individuals earn - grew considerably, which contributed to large increases in child poverty, so that by 1997 about a third of all British children lived in relative poverty. Important contributory factors were low skill levels, high unemployment, and benefit levels that were insufficient to lift families out of poverty.

cashHowever, it concludes that since 2000, wage mobility has risen and wage inequality has fallen. And since the late 1980s, women earners have overtaken men in achieving higher wage mobility.

The study, for the Joseph Rowntree Foundation, also concludes that the introduction of Working Families Tax Credit in 1999 seems to have increased employment and job retention, increasing the incomes of many low-income families. There is also no evidence that employers have used WFTC to keep pay increases down. This may have been helped by the simultaneous introduction of the National Minimum Wage.

Richard Dickens of the Centre for Economic Performance at LSE and the University of Sussex, concluded:

'After a very long period of increase, there is some evidence that inequality is finally falling due to increases in employment among women in particular.

'Earnings mobility also appears to be on the increase after a long period of decline.

'Tax credits have led to increases in employment and job retention, increasing the incomes of many low-income families.'

Examining migrant pay, the study also found that when migrants first find work in Britain they earn significantly less than their British-born counterparts. Male migrants experience, on average, a 30 per cent pay gap and women are paid 15 per cent less.

Different nationalities experience different rates of wage parity, with Europeans catching up fastest and Asian men showing little sign of catching up at all. More recent groups of migrants have fared better, but this is largely due to smaller pay gaps on entry into Britain, rather than faster wage growth.

There is a marked difference between the rates that migrant women and men achieve parity with native workers. For migrant men it takes, on average, 20 years to close this gap. For migrant women, it takes just six years. Researchers believe that migrant women may be closing the pay gap faster partly because they work relatively longer hours than their British-born counterparts.

Abigail McKnight of the Centre for Analysis of Social Exclusion at LSE said: 'Women migrants catch up faster than men because the initial pay gap for migrant women is lower and it would appear that they are more likely to work full-time rather than part-time. It could also be that some migrant women are, on average, more educated than their native counterparts and take fewer breaks from work to have children.'


Useful links

The Changing Pattern of Earnings: employees, migrants and low-paid families  |  [opens in new window]

For full details of Richard Dickens' and Abigail McKnight's research and publications see the Centre for Economic Performance (CEP) and Centre for Analysis of Social Exclusion (CASE) websites:

Centre for Economic Performance|

Centre for Analysis of Social Exclusion|

For full details of Richard Dicken's research and publications see his profile in the LSE Experts Directory: Richard Dickens   |