The Resolution Foundation’s “Missing Out” report reveals that the share of GDP paid as wages to the bottom half of earners has fallen 25% in the last 30 years.
Matthew Whittaker is a senior economist at the Resolution Foundation
The Resolution Foundation today publishes the latest report to the Commission on Living Standards. The report, Missing Out, (pdf) reveals that the share of GDP paid as wages to the bottom half of earners has fallen by a quarter over the last 30 years.
In 1977, workers in the bottom half of the earnings distribution received £16 of every £100 of value generated in the economy; by 2010, their share had fallen to just £12. By contrast, the share of GDP flowing to the top 10% of earners increased from £12 per £100 of GDP to £14.
As Figure 2 below shows, when bonuses are factored in, these figures are even starker.
If the full extent of bonus payments are included in the calculations the share of GDP going to the top 10% of earners increases from £14 per £100 to £16, while the share of the bottom half reduces from £12 to just £10.
So what explains these trends? The report shows that the growth of the financial sector only tells part of the story. Wage inequality between those at the top and those in the middle has grown across all sectors.
As Figure 15 below shows, the ratio of earnings of the top and middle grew in all sectors between 1999 and 2008.
The sense of public outrage provoked by bankers’ bonuses is justified, but a closer inspection of the figures shows that it’s not just in finance where wage inequality is of concern.
30 Responses to “Share of GDP paid to low earners down 25% in 30 years”
Richard
And the front page of today’s Excess was trumpeting the news that millions of people will be better off because share dividends had risen!!
George McLean
@ 1. Ash
“Tax credits” – aren’t they those things used to subsidise capitalists who pay low wages?
Ash
@ 3 George
I supposed that’s part of their purpose, yes. Although plenty of families (mine included) get Tax Credits even though their wages are not remotely low.
In any case, it would be nice to get clear on what’s happened over the past thirty years – are those in the bottom half of the income distribution getting a smaller slice of the pie overall, or has there simply been a shift from wages to benefits?
Matt Whittaker
Hi Ash, thanks for the question about tax credits and benefits. They’re not actually included in the GDP (or, more accurately Gross Value Added) equation because they’re transfer payments rather than the new generated value. The £16 and £12 figures therefore relate specifically to wages.
In simple terms, GVA can be broken down into labour payments and profits. Over the 30 years, profits have increased at the expense of wages (and explain part of the decline for those in the bottom half), but the much bigger factor (explaining about two-thirds of the overall fall) is growing wage inequality.
In short, the wage pie has shrunk as a share of GVA, and the share of the pie taken by workers in the bottom half has also shrunk, creating a double-whammy. The full report goes into all this in much more detail and puts figures next to the various contributions.
Hope that helps clarify.
Paul Evans
Share of GDP paid to low earners down 25% in 30 years http://t.co/saqS17O (via @summify from @TheRightArticle, @FalseEcon, and 3 others)