I have a long-standing interest in inequality, poverty and living standards in the UK, and my research has examined past trends, sought to predict future outcomes, and considered how best we should measure these concepts. I have written a short guide to economic inequalities in the UK, and what we could do to reduce inequality, and you can find out more about that here.
How should we measure living standards? Income or consumption?
It is well-known that those reporting the lowest incomes to household survey do not seem to be poor (or, at least, have more resources or a higher standard of living than those who report slightly more income). This could be due to mis-measurement of income, or standard consumption-smoothing. Either way, it suggests that using “those reporting low incomes to households surveys” as a way to count and identify the poor may not be ideal. (You can listen to an 8 minute summary here).
In, “Why are households that report the lowest incomes so well-off?” (in Economic Journal Features), Ben Etheridge, Cormac O’Dea and I document that households in the UK with extremely low measured income tend to spend much more than those with merely moderately low income. This phenomenon is evident throughout three decades worth of microdata and across different employment states, levels of education and marital statuses. We provide several arguments that discount over-reporting of expenditure and argue that underreporting of income plays the major role. In particular, by using a dynamic model of consumption and saving, and paying special attention to poverty dynamics, we show that consumption-smoothing cannot explain all the apparent dissaving.
In “Measuring living standards with income and consumption: evidence from the UK”, Cormac O’Dea and I compare consumption and income as measures of households’ living standards using UK data. We describe the different impressions one gets about trends in the level and inequality of living standards in the UK when using consumption, and when one adds an imputed income from housing, rather than near-cash income. We show that low consumption seems to be better correlated with low standards of living than income, and it describes what different impressions one gets about the composition of households with low living standards if these are identified with consumption rather than income.
In “The living standards of families with children reporting low incomes”, a report commissioned by the UK Department for Work and Pensions, Cormac O’Dea, Gillian Paull, Luke Sibieta and I use data from 4 different household surveys and many different measures of resources or living standards to show that children in households reporting the lowest incomes have more resources, or a higher standard of living, than children in slightly richer households. We later recommended that UK policy-makers not use the 40% median income threshold to monitor the number of people in severe poverty.
In earlier work, I examined what we could learn from measures of poverty based on having a low spending, and on what looking at spending patterns amongst the elderly could tell us about how their well-being had changed at a time when entitlements to casg benefits had been rising rapidly.
With Thomas Crossley and Annette Jaeckle, I am now examining how best to collect information from adults on their income, their spending and the change in their net assets in a way that reduces measurement error. This work began by experimenting with questions on the UK’s Understanding Society Innovation Panel. An initial descriptive paper is here. I am currently working on what this means for estimates for the household saving function.
Trends in inequality and poverty
In “Accounting for changes in income inequality: Decomposition analyses for the UK, 1978-2008” with Liam Wren-Lewis, in Oxford Bulletin of Economics and Statistics, we used a number of simple decomposition techniques to explore why the rise in income inequality seen in the 1980s stopped in the early 1990s. We attribute this to the equalising impact of the rise in female employment, as well a rise in the incomes of the elderly, and of families with children, some of which can be attributed directly to policy changes. The article was based on work I originally did for the National Equality Panel, available here.
Whilst working at the IFS, I produced a large number of reports analysing trends in inequality, poverty and living standards in the UK, and considering likely trends in future rates of poverty. I also made use of the administrative data from HMRC to look at trends in very top incomes through the mini-boom of the late 1990s and early 2000s.