UK low and middle income households have not suffered from globalisation, a report released today states, contrasting with protectionist rhetoric in the lead up to the Brexit referendum.
The Resolution Foundation’s report takes aim at conclusions drawn from the so-called ‘elephant curve’, which compares how much richer each part of the global income distribution became in the two decades leading up to 2008.
The report, Examining an elephant: globalisation and the lower middle class of the rich world, argues the world’s 80th percentile of global incomes – the “lower middle class of the rich world” – has seen a stagnation of incomes since 1988.
The global growth curve has been described as “the most important chart for understanding politics today” and has been cited in regards to the growing level of populism in both the UK, in the lead up to the referendum on EU membership, and the US, ahead of general elections in November.
The economic think tank argues when Japan and post-Soviet economies are removed from the data set real income had risen 52 per cent in mature economies.
Source: RF analysis of Lakner-Milanovic World Panel Income Distribution
It argues Japan skews the data due to its two ‘lost decades’ of growth, while Eastern European states saw large falls in income following the collapse of the Soviet Union after 1988.
In the UK, the report used Households Below Average Income data to determine “strong and equal average growth” of around 2 per cent a year for most.
However, it argued living standards have faced an “unprecedented squeeze” since the early 2000s and that this has been “greatly exacerbated” by increases in housing costs.
In the mid-1990s and early 2000s growth was shared in the UK, the report found.
The Resolution Foundation found in the US most closely mapped the elephant curve with 41 per cent growth unequally shared and poorer deciles experiencing with low, but not zero, growth.
The report also argues massive population growth in developing economies drags the data down.
“Because the population of poorer countries has grown disproportionately, and the population share of mature economies has shrunk, average incomes have been dragged down.”
Where incomes have stagnated or declined, the report said some of this could be attributed to factors such as rising housing costs, welfare policy and economic shocks, suggesting that global forces are “only part of the story”.
It argued therefore that domestic policy is central to determining living standards for working people.
“Changes to trade policy, even where desirable, are not a substitute for progressive taxes and benefits, fair wage policies and sufficient housebuilding,” the report concluded.