The Problem of Income Inequality

Living standards change in line with GDP per head only if the distribution of incomes is unchanged. If incomes become less equally distributed the living standards of most people will fall even if GDP per head is stable. The Gini Coefficient is the most widely used indicator designed to measure the distribution of income. UK inequality, on this measure, has risen since 1977, stabilized since 1987, and fallen in recent years. In the US there has been a long-term increase in income inequality. Unless this US trend for increased income inequality halts, it is quite likely that even if GDP per head rises in the US, the living standard of the average voter will fall. The recent data suggest that changes in income inequality pose less of a threat to living standards in the UK then they do to those in the US.