Tackling rising inequality and technological progress

Published at 07:39 AM on 18 October 2016

 

  • Household spending growth has lagged behind GDP in most advanced economies since 2008
  • Inequality has increased in most rich economies since 1980, but remains relatively lower in Nordic economies where policy is to redistribute income and opportunity across society
  • Rise of the robots – this will boost productivity but it is unclear yet how evenly these benefits will be spread

September marked the eighth anniversary of the collapse of Lehman Brothers, but UK households aren’t feeling the effects of the recovery, according to the latest Global Economy Watch from PwC, published today [Tuesday 18 October 2016].

The report says that, while UK GDP in Q2 2016 was up by 7.6% since Q1 2008, real household spending per person declined by 0.9% over the same period. 

GDP household GEW1

Replicating this analysis across the G7 and other Eurozone countries shows the recovery in real household spending per person has not kept pace with real GDP in the majority of these 12 advanced economies.

John Hawksworth, chief economist at PwC, commented:

“While GDP is undoubtedly a useful economic indicator, it doesn’t always resonate with the general public’s experience. Real household spending per person gives a more realistic – and less flattering – picture of post-recession performance. This gap has closed a bit in the last three years as consumer spending has strengthened, but this could slow again next year as a weaker pound increases import prices and squeezes real household spending power.”

In addition to this, income inequality is increasing. Data for OECD economies show a gradual rise over the past 35 years, as measured by the Gini coefficient [see Notes] with implications including lacklustre economic growth and social friction.

Since 1980 the US has experienced the largest rise in inequality and has the highest Gini coefficient, followed by Greece and the UK.

Inequality GEW1

Analysis by PwC finds three common policy features for countries that have been successful in creating or maintaining low levels of inequality:

  • providing equal access to educational opportunities
  • supporting low income workers; and
  • maintaining a fair and transparent tax system

Barret Kupelian, senior economist at PwC, said:

“Access to high-quality education with strong links to employers is a feature associated with most economies that have low levels of income inequality.

“Protecting the vulnerable by ensuring low-income workers earn a living wage is another feature, alongside a strong welfare system and transparency of tax returns that extend through government.”

Technological progress has been the key driver of rising standards of living since the Industrial Revolution, with innovation shaping the way households, business and society operate and interact. However, recently the debate has focused on the impact technological change will have on the labour market and income inequality.

While technology can create jobs and there is less scope for robots to replace people where human contact is important, it is likely that future technological change will eventually displace some groups of workers. As well as impacting those workers who could face declining job prospects, there will also be knock-on implications for society and on the level of income inequality.

Barret Kupelian said:

“Technological breakthroughs are a disruptive force for businesses and workers. But for businesses that can adapt quickly to new technologies, and workers with characteristics that machines don’t currently have – such as creativity and empathy – improvements in technology could deliver substantial economic gains.

“Developing vocational and flexible skills in younger generations will be crucial, as technological advances continue to transform jobs.”

Ends.

Notes for editors.

About the Gini coefficient

The Gini coefficient is a way of measuring inequality by comparing how distribution of income in one society compares with a similar society. Inequality on the Gini scale is measured between 0, where everybody is equal, and 1, the extreme of inequality, where all the country's income is earned by a single person.

For further information please contact Tilly Parke: tilly.parke@uk.pwc.com / +44 20 7804 8761

 


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