Living standards during previous recessions
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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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Living Standards During Previous Recessions

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Living standards during previous recessions

Living Standards During Previous Recessions

Luke Sibieta, IFS


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


Identifying recessions since 1961

Identifying recessions since 1961

Sources: 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


Rises in absolute child poverty

Rises in absolute child poverty

Sources: ONS/FRS/FES


Rise amongst working age adults without children

Rise amongst working-age adults without children

Sources: ONS/FRS/FES


Falls in absolute pensioner poverty

Falls in absolute pensioner poverty


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


Increases in unemployment by occupation

Increases in unemployment by occupation

Source: ONS


Increases in unemployment by education group

Increases in unemployment by education group

Source: LFS


Increases in unemployment by age group

Increases in unemployment by age-group

Source: ONS


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


Out of work benefit rates over time for selected family types

Out of work benefit rates over time for selected family types

Source: FRS, benefit tables


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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