An unequal recovery

 •  Filed under inequality, Own charts

Some time ago, I looked at wage growth in advanced economies since 2007 and saw that falling or stagnant wages were not just a southern-European disease: the mean, inflation-adjusted wage in the U.K. was nearly 6% lower in 2013 compared to 2007:

Today, I am writing an op-ed about pessimism in central Europe (revisiting a topic I wrote a paper about) and couldn't refrain from tweeting data on labor income changes in Greece, Spain and Portugal when I saw them:

The average person in Greece has lost 1/2 of his or her income since 2007. The pain of Greek citizens received some attention during the various phases of the eurocrisis (not infrequently with the tone that implying "they only have themselves to blame") but the low-income citizens of Spain and Portugal seem to have largely been forgotten...

The data for central and eastern Europe, the initial reason for looking at the numbers, look bleak for low-income workers as well, but the averages are a lot better:

In Northern Europe, incomes of low-income workers have been falling or stagnant, although most people have felt an actual recovery in Sweden and Norway. The Finnish data look fine relative what I would have expected, given the long and stubborn recession:

A table with major OECD economies confirms that the people at the top are nearly everywhere "safer" when the recession hits than a typical (not to mention a poor) worker:

The first and third column are visualized in the chart below:

Zooming in on the average worker, unadjusted market income is growing solidly in some middle-income countries, but not in Mexico:

Is the dark picture accurate?

Since 2010, labor incomes have grown at least modestly (I define "modest growth" after 2010 as annual growth of gross income of at least 1.5%.) in 13 OECD countries (New Zealand, Ireland, Australia, Sweden, Iceland, Korea, Norway, Japan, Israel, Turkey, Hungary, Chile, Latvia). So the tables and figures above partly look appalling because of the deep post-2007 plunge.

Although market income is flat or falling in many countries for too many people, the safety net and the tax system typically modify market outcomes for workers quite significantly. Once public transfers are taken into account, the share of people who are not experiencing rising incomes falls from about 70 percent to 20-25 percent:

Source: McKinsey Global Institute: Poorer than their parents? A new perspective on income inequality

A separate but important question is: what should count as "government redistribution"? Should we only count direct monetary transfers? That's "redistribution of income". But aren't subsidies to public transport or to public health insurance programs a redistributive activity? Many governmental actions, including regulations, have different effects on poor vs. rich people. And, if private social spending is massive, then a modest social spending of a particular country (such as the United States) can tell a misleading story about the quality of life of those people who rely on subsidized services (see this paper by Jacob Kirkegaard).


Data for OECD countries