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Living Standards During Previous Recessions . Luke Sibieta, IFS. Outline of presentation . Review relevant theory and literature Data and definitions Living Standards Inequality Poverty What about the current recession?. Relevant economic theory and literature.

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Presentation Transcript
outline of presentation
Outline of presentation
  • Review relevant theory and literature
  • Data and definitions
  • Living Standards
  • Inequality
  • Poverty
  • What about the current recession?
relevant economic theory and literature
Relevant economic theory and literature
  • Recessions lower earnings growth and increase unemployment
    • So larger effects on working age individuals?
    • Some indirect effects via transfers and provision of public services?

Hines et al, 2001

  • Effect of recession in wider context of benefits of growth
    • Disadvantaged and low skilled have benefited less from 80s growth

Cutler, Katz Card & Hall (1991)

  • But will they share more or less of the pain?
    • Employment and hour more cyclical for low-skilled

Hines et al, 2001

  • What about the effects on poverty and inequality?
    • It depends…
definitions and measurement
Definitions and measurement
  • Standard HBAI Methodology
    • Equivalised, disposable, household incomes
    • Poverty: 60% of contemporary median (BHC)
    • Come back to “absolute” poverty
    • FRS/FES going back to 1961
  • Identifying recessions
    • Most recession definitions use quarterly data
    • Annual data on poverty, inequality and living standards
    • Need an annual classification
    • Some years will include quarters of recession and growth
the recessions
The recessions

Early 1980s: 79-81

Mid 1970s: 73-75

Early 1990s: 90-92

Source: ONS

falls in net household incomes during recessions
Falls in net household incomes during recessions

Weak growth before recession

Sources: ONS/FRS/FES

average incomes across family types
Average incomes across family types

Interrupted by recessions for others

Steady growth for pensioners and lone parents

Sources: ONS/FRS/FES

Notes: Median Income for individual family types

average incomes across age groups
Average incomes across age groups

Equal impact across ages

Bigger impact on under-25s in early 90s

Sources: ONS/FRS/FES

Notes: Median Income for individual age groups, excluding pensioners

across incomes by age left education
Across incomes by age left education

Rise or stabilise

Fall or stabilise

Sources: ONS/FRS/FES

Notes: Median Income for individual schooling groups

income inequality gini coefficient
Income Inequality (Gini Coefficient)

No single trend during recessions

Sources: ONS/FRS/FES

income inequality percentile comparisons
Income Inequality (Percentile Comparisons)

Bottom catches up with middle

No one trend in top-middle gap

Sources: ONS/FRS/FES

falls in overall relative poverty during past recessions
Falls in overall relative poverty during past recessions

Sources: ONS/FRS/FES

Notes: Poverty threshold defined using 60% of contemporary median (BHC)

no single trend in child poverty during past recessions
No single trend in child poverty during past recessions

Sources: ONS/FRS/FES

Notes: Poverty threshold defined using 60% of contemporary median (BHC)

no single trends for working age adults without children during recessions
No single trends for working-age adults without children during recessions

Sources: ONS/FRS/FES

Notes: Poverty threshold defined using 60% of contemporary median (BHC)

but big falls in pensioner poverty
BUT, Big falls in pensioner poverty

Sources: ONS/FRS/FES

Notes: Poverty threshold defined using 60% of contemporary median (BHC)

poverty during previous recessions
Poverty during previous recessions
  • Falls in relative poverty during previous recessions
    • Driven by big falls in relative pensioner poverty
  • But, relative poverty line falls in real-terms during recessions
  • Define new indicator of poverty at the start of each recession
    • Individuals are in poverty if they have less than 60% of median income in first year of a recession
    • Update with inflation, NOT average incomes
    • Refer to this as a measure of “absolute poverty”
little change in these overall measures of absolute poverty during past recessions
Little change in these overall measures of absolute poverty during past recessions

Sources: ONS/FRS/FES

what about the current recession
What about the current recession?

Early 1980s: 79-81

Mid 1970s: 73-75

Early 1990s: 90-92

Late 2000s: 08-??

Source: ONS

what about the current recession1
What about the current recession?
  • Some have suggested this is a “middle-class” or “white-collar” recession
  • But, largest rises in unemployment have been concentrated amongst:
    • Low-skilled professions
    • Workers with lower levels of education
    • And, younger workers
what about the current recession2
What about the current recession?
  • Some have suggested this is a “middle-class” or “white-collar” recession
  • But, largest rises in unemployment have been concentrated amongst:
    • Low-skilled professions
    • Workers with lower levels of education
    • And, younger workers
  • What about out-of-work benefit rates?
  • Benefit rates for working-age adults without children have declined relative to average incomes
    • Could feel a bigger impact this time round
what about the current recession3
What about the current recession?
  • Some have suggested this is a “middle-class” or “white-collar” recession
  • But, largest rises in unemployment have been concentrated amongst:
    • Low-skilled professions
    • Workers with lower levels of education
    • And, younger workers
  • What about out-of-work benefit rates?
  • Benefit rates for working-age adults without children have declined relative to average incomes
    • Could feel a bigger impact this time round
  • Larger impact on top incomes?
    • Started in financial sector
    • Top incomes and stock market performance have moved together in the past
summary of past recessions
Summary of past recessions
  • Average incomes fall during previous recessions
    • Mainly for those with higher dependence on labour market
    • Pensioners and lone parents seem less affected
    • Bigger effects on those with less schooling
  • No one rule for income inequality
    • Some evidence of bottom catching up with middle
  • Falls in relative poverty, driven by fall in pensioner poverty
  • No change in indicators of absolute poverty
    • BUT, up amongst children, down amongst pensioners
what about this time round
What about this time round?
  • Biggest rises in unemployment amongst low skilled, less educated and young workers
    • Same as before
  • Relatively ungenerous out of work benefits for working-age adults without dependent children
  • Potentially large impact on top incomes
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