Economic papers we\’d like to see

I\’ve mused before that inequality is high in the UK because of regional variations in incomes. London and the SE dominate the economy in a way that I\’m not sure is true of most other countries. The high pay there means that inequality of income is therefore higher than in most other countries.

And I also have mused that inequality of consumption isn\’t nearly so high: it\’s not just houses that cost more in London and the SE.

There seems to be some support for this view:

Britain\’s richest and poorest regions have drawn farther apart since 1995, with households in London and the south-east seeing their income race ahead of the national average, while those in the rest of the country fell behind, official figures revealed today.

Analysis by the Office for National Statistics shows that while London households took home just over 20% more than the national average in 1995, by 2008 the gap had stretched to 28%. Meanwhile every other region, apart from the south-east, lost out.

In 2008, average disposable household income was £19,038 in London and £16,792 in the south-east, the ONS said, compared to £12,543 in the north-east.

If we\’re measuring inequality on the basis of income, nationally, then of course the inequality complained about is still there.

If we measure it on inequality of income, I\’m sure it\’s less (despite those figures being for disposable income, ie, after housing costs).

But what I would like to see (and I\’ve certainly not got the technical skills to try and do the work) is how much of Britain\’s higher inequality is to do with regional differences and how much to do with the gap between poor and rich within regions.

For example, Newcastle is several hundred miles from London so that someone in the first earns 40% less than the second is no more of a problem (and no less) than someone in Dresden earning 40% more than someone in Lodz or Szeged or Prague….things that we don\’t worry about very much.

It\’s also true that the reason for the national inequality matters for if you want to close the gap (something I\’m not all that bothered by but others are) that reason for it will obviously influence possible solutions. The more it\’s all caused by regional differences then the more the solution is about regional differences and not just taxing the \”rich\” to give money to the poor.

And finally, the more income differentials are to do with regional differences the more it becomes obvious that we shouldn\’t be having national pay scales for the public sector.

As I say, I\’ve not the technical skills to look into this and last time I asked Mr. Dillow he said that he didn\’t know of anyone who had studied this.

But it would be very interesting to know: how much of Britain\’s greater than European average inequality is to do with the greater than average regional inequality (assuming that even that is true) and how much is to do with greater inequality within local economies?

The two are rather different and would demand different treatment (if any) after all.

4 thoughts on “Economic papers we\’d like to see”

  1. That’s an interesting threory, I’m sure with some merit.

    But, the UK isn’t the only place with startling regional inequality.

    Look at West versus East Germany, where one is still significantly poorer than the other. Likewise, Italy’s mezzogiorno is also very poor compared to the still prosperous norther.

    Northern Europe to me (and without doing any research) seems to lack this regional inequality, but the UK sees an inequality disparity with most of Europe, not just the Northern European countries which seem to back up your statement.

    Like I said, interesting, but I’m not sure all your starting premises are correct.

  2. You mean inequality of consumtion in the second paragraph below the quote.

    ——

    One problem with this theory is that historically the UK’s inequality of regional income has not been that great compared to many other European countries, essentially due to industrialisation and a small farming sector. Then again perhaps the country’s income inequality full stop wasn’t that great so maybe it supports your thesis.

    On the other hand income inequality within London is extremely high and I’d note that just because some areas of a country are wealthy and some not only really deflects the concern if you believe price levels are hugely different and don’t reflect quality differences. But this wasn’t your view on council housing in Westminister.

  3. If this is true of European countries, how much truer must it be of the USA. Is it not foolish to produce statistics capturing the inequality between the poor of Alabama and the rich of Vermont?

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