This rockonomics world in which we live is unfair and ultimately bad for growth

The top 5 per cent of artists take home almost 90 per cent of all concert revenues

Share

Last week the Department for Work and Pensions (DWP) published its annual statistics on the distribution of income in the UK covering the years up to and including 2011-12. It showed that average incomes fell for the second successive year, declining by 3 per cent at the median and 2 per cent at the mean, after accounting for inflation.

This comes on top of large falls in  2010-11, leaving median and mean income 6 per cent and 7 per cent below their 2009-10 peaks respectively. Mean and median income in 2011-12 is now no higher than it was in 2001-02, after adjusting  for inflation.

The falls in incomes during  2011-12 were of similar proportionate magnitude across the income distribution. Income inequality was therefore essentially the same as in the previous year. Rather surprisingly inequality was substantially lower in 2011–12 than it was before the recession. Between 2007-08 and  2010-11, the earnings of lower-income households held up better than those of higher-income households. This is largely because, over that period, real earnings fell whereas benefit entitlements grew roughly in line with prices. However, researchers  from the Institute for Fiscal Studies suggest that this reduction in inequality between 2007-08 and 2011-12 will be temporary, and “will have been almost unwound by 2015-16”. This is because if the Office for Budget Responsibility’s (OBR) forecasts turn out to be correct, most of the falls in real earnings had already occurred by 2011-12, whereas a number of cuts to the working-age welfare budget are being implemented over the current parliament. There are likely to be more welfare cuts coming if the Chancellor, George  Osborne, has his way, which will worsen inequality still further and falls in real earnings may be greater than the OBR predicts.

Changes in inequality were put in context by Alan Krueger, outgoing chairman of President Obama’s Council of Economic Advisers in a speech last week at the Rock and Roll Hall of Fame in Cleveland, Ohio. He colourfully used the example of the music industry, or “rockonomics”, as a microcosm of what is happening in the US economy at large. We are increasingly becoming a winner-take-all economy, and the music industry is an extreme example of a “superstar economy”, he argued.

A small number of artists take home the lion’s share of income.  Mr Krueger noted that the music industry has undergone a profound shift over the last 30 years. The price of the average concert ticket in the US increased by nearly 400 per cent from 1981 to 2012, much faster than the  150 per cent rise in overall consumer price inflation. And prices for the best seats for the best performers have increased even faster. At the same time, the share of concert revenue taken home by the top 1 per cent of performers has more than doubled, rising from 26 per cent in 1982 to 56 per cent in 2003. The top 5 per cent apparently take home almost 90 per cent of all concert revenues.

This is an extreme version of what has happened to income distribution as a whole in both the UK and the US. In the US, Mr Krueger points out the top 1 per cent of families doubled their share of income from 1979 to 2011. In 1979, the top 1 per cent took home  10 per cent of national income, and in 2011 they took home 20 per cent. An astonishing 84 per cent of total income growth from 1979 to 2011 in the US went to the top 1 per cent of families, and more than 100 per cent of it from 2000 to 2007 went to the top  1 per cent.

The chart above shows the share of total income going to the top  1 per cent of families starting in 1920 for four countries. During the Roaring 20s, inequality in the US was very high, with the top 1 per cent taking in nearly 20 per cent of total income. This remained the case until World War II. Price and wage controls and the patriotic spirit that “we’re all in it together” during  the war caused inequality to fall. Interestingly, the compression in income gaps brought about by World War II persisted through the 1950s, 1960s and 1970s. Beginning in the 1980s, inequality in the US rose significantly with the share of income accruing to the top 1 per cent rising to heights last seen in the 20s.

Inequality followed a broadly similar trend in the UK, France and Sweden, for example. But notice that the level of inequality varies considerably across these countries, and the rise in the share going to the top 1 per cent varies considerably as well. In Sweden, for example, the share of income brought home by the top  1 per cent rose just 3 percentage points, from 4 per cent in 1980 to  7 per cent in 2011, while in the US it doubled from 10 per cent to  20 per cent. In the UK it tripled.

Workers, like music fans, according to Mr Krueger, expect to be treated fairly, and if they perceive they are paid unfairly their morale and productivity suffer. He cites two studies which support this notion. The first study randomly varied the pay of members of pairs of workers who were hired to sell membership cards to discotheques in Germany.

The authors found that increasing the disparity in pay between pairs of workers decreased the productivity of the two workers combined. Their findings suggest that a more equal distribution of wages would be good for business because it would raise morale and productivity.

A second study found that when a business makes the list of the  “100 Best Companies to Work for in America” its stock market value subsequently rises by 2 to 4 per cent per year. Because employee morale and compensation are key factors in determining whether a company makes the list, this result suggests that treating workers fairly is in shareholders’ interests.

In another study it was found that in a society where income inequality is greater, political decisions are likely to result in policies that lead to less growth. A recent International Monetary Fund paper also found that more equality in the income distribution is associated with more stable economic growth.

We still aren’t all in this together, but it would be better if we were. We might even get some growth! The Rolling Stones are doing fine; it’s time the average worker did too.

Land of Hope and Dreams: Rock and Roll, Economics and Rebuilding the Middle Class, Alan B. Krueger, Cleveland, Ohio, 12 June 2013

React Now

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
iJobs Job Widget
iJobs General

East15 Acting School: Finance and Contracts Officer

£20,781 to £24,057 per annum: East15 Acting School: The post involves general ...

Recruitment Genius: Office Manager - Heli Ski Specialist

£26000 - £34000 per annum: Recruitment Genius: This is a unique opportunity fo...

Recruitment Genius: Domestic Gas Breakdown Engineer

£28000 - £32000 per annum: Recruitment Genius: ACS qualified Domestic Gas Brea...

Recruitment Genius: Product Packager / Stock Assistant

£16250 per annum: Recruitment Genius: A Product Packager / Stock Assistant is ...

Day In a Page

Read Next
Between the covers: Jennifer Ehle as Elizabeth Bennet, opposite Colin Firth's Mr Darcy, in the acclaimed 1995 BBC adaptation of 'Pride and Prejudice'  

To talk about 'liking' a character may be a literary faux pas, but I don't care

Memphis Barker
Hinkley Point A to the right of development land where the reactors of Hinkley C nuclear power station are due to be built  

Should the UK really be putting its money into nuclear power in 2015?

Chris Green Chris Green
Turkey-Kurdish conflict: Obama's deal with Ankara is a betrayal of Syrian Kurds and may not even weaken Isis

US betrayal of old ally brings limited reward

Since the accord, the Turks have only waged war on Kurds while no US bomber has used Incirlik airbase, says Patrick Cockburn
VIPs gather for opening of second Suez Canal - but doubts linger over security

'A gift from Egypt to the rest of the world'

VIPs gather for opening of second Suez Canal - but is it really needed?
Jeremy Corbyn dresses abysmally. That's a great thing because it's genuine

Jeremy Corbyn dresses abysmally. That's a great thing because it's genuine

Fashion editor, Alexander Fury, applauds a man who clearly has more important things on his mind
The male menopause and intimations of mortality

Aches, pains and an inkling of mortality

So the male menopause is real, they say, but what would the Victorians, 'old' at 30, think of that, asks DJ Taylor
Man Booker Prize 2015: Anna Smaill - How can I possibly be on the list with these writers I have idolised?

'How can I possibly be on the list with these writers I have idolised?'

Man Booker Prize nominee Anna Smaill on the rise of Kiwi lit
Bettany Hughes interview: The historian on how Socrates would have solved Greece's problems

Bettany Hughes interview

The historian on how Socrates would have solved Greece's problems
Art of the state: Pyongyang propaganda posters to be exhibited in China

Art of the state

Pyongyang propaganda posters to be exhibited in China
Mildreds and Vanilla Black have given vegetarian food a makeover in new cookbooks

Vegetarian food gets a makeover

Long-time vegetarian Holly Williams tries to recreate some of the inventive recipes in Mildreds and Vanilla Black's new cookbooks
The haunting of Shirley Jackson: Was the gothic author's life really as bleak as her fiction?

The haunting of Shirley Jackson

Was the gothic author's life really as bleak as her fiction?
Bill Granger recipes: Heading off on holiday? Try out our chef's seaside-inspired dishes...

Bill Granger's seaside-inspired recipes

These dishes are so easy to make, our chef is almost embarrassed to call them recipes
Ashes 2015: Tourists are limp, leaderless and distinctly UnAustralian

Tourists are limp, leaderless and distinctly UnAustralian

A woefully out-of-form Michael Clarke embodies his team's fragile Ashes campaign, says Michael Calvin
Blairites be warned, this could be the moment Labour turns into Syriza

Andrew Grice: Inside Westminster

Blairites be warned, this could be the moment Labour turns into Syriza
HMS Victory: The mystery of Britain's worst naval disaster is finally solved - 271 years later

The mystery of Britain's worst naval disaster is finally solved - 271 years later

Exclusive: David Keys reveals the research that finally explains why HMS Victory went down with the loss of 1,100 lives
Survivors of the Nagasaki atomic bomb attack: Japan must not abandon its post-war pacifism

'I saw people so injured you couldn't tell if they were dead or alive'

Nagasaki survivors on why Japan must not abandon its post-war pacifism
Jon Stewart: The voice of Democrats who felt Obama had failed to deliver on his 'Yes We Can' slogan, and the voter he tried hardest to keep onside

The voter Obama tried hardest to keep onside

Outgoing The Daily Show host, Jon Stewart, became the voice of Democrats who felt the President had failed to deliver on his ‘Yes We Can’ slogan. Tim Walker charts the ups and downs of their 10-year relationship on screen