British Association - report - section F

David Dickinson, University of Birmingham, reports on the British Science Festival that took place at the university, 6-11 September 2014.

The President of Section F(Economics), Prof John Van Reenen (LSE), organised a session on The Economics of Inequality. In addition to John the speakers were Brian Bell (Oxford) and Barbara Petrongolo (QMUL). All speakers are members of the Centre for Economic Performance.

John Van Reenen started the session with an overview of trends in inequality over the last 40 years, using the income difference between the top 10 per cent and bottom 10 per cent of the income distribution as a measure. He identified that there had been an increase in inequality within most OECD countries and then went on to discuss, in more detail, the trends observed in the UK. He noted that the pay-off to education had risen over time due to an increase in the demand for skills which outpaced the very substantial increase in supply since the 1970s. One possible reason for the increase in inequality was trade with low wage countries and the resulting downward pressure on unskilled wages. Further social/political changes e.g. the decline in Trade Union power (UK) and the fall in the minimum wage (particularly in the US) also impacted on the labour market. However Van Reenen argued that technology was a more important explanation. He based this conclusion on a closer examination of the jobs and wage distribution across industries. An interesting twist since the early 1990s was polarisation: demand for jobs in the middle occupational groups had fallen the most. Technology was replacing the sort of routine tasks that had previously been done by many non-manual workers. Lower wage occupations doing non-routine tasks like cleaning were relatively untouched and new technologies actually complemented the tasks of high income groups further accelerating their demand.

Brian Bell focussed on the top 1 per cent of the income distribution, a group that has received a lot of attention recently since it contains a large number of workers in the financial sector. He showed that this top 1 per cent have been getting better off even as the rest of the working population has suffered. In the early 20th century he noted that the predominant group of high income earners were rentiers while in the later period running into the 21st century they were predominantly from the financial sector. Trends in the UK and US were similar, reflecting the importance of the financial sector whereas elsewhere in Europe there was less emphasis on these type of occupations. He then turned to explain why these trends existed. There appeared to be a relationship between the pay of CEOs and the performance of the company. However Bell pointed out that this was only for 1970-2005 and that for other time periods it did not operate. He therefore conjectured that rent-extraction was at work based on the unwillingness of companies to fire their CEOs. He also noted that tax rates had moved significantly in favour of the highest earners.

Barbara Petrongolo examined gender differences in income. She began by noting that, whilst women have become more involved in the labour market and at senior levels, and there has been a reduction in wage inequality, there is still a 22 per cent gap in wages compared to men in the UK. She compared this with Continental Europe where the wage gap was lower but there was much less employment of women. She identified a number of factors that underlined the trends in female employment: more women in Higher Education, less emphasis on physical strength in the workplace, more flexible working patterns, the rise of the service economy. She also identified that women's expectations had changed such that a career had become an important life choice. She then discussed that behavioural economic research was providing further insight into the trends in employment and participation of women. Petrongolo also identified studies that showed women seemed to underperform in terms of income because of child rearing responsibilities. She further noted that there was greater inequality in countries where cultural identities place women firmly in the home.

Following the talk there was a very lively discussion with the audience which raised a number of interesting issues and continued even after the official close of the session.

From issue no.167, October 2014, p.12

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