This is a book that all of those seeking to understand trends in economic inequalities across industrialised countries should read and consult. Its rigorous analysis offers an essential corrective to simple narratives – often driven by the US experience – that inequalities have been increasing across the world and continuously over the last thirty years or more.
It is an edited collection but is unusually coherent and consistent in structure and content, reflecting both the coherence of the underlying research programme and the editor’s direct involvement in ten of its fourteen chapters.
The collection draws heavily on detailed cross-sectional survey data from the Luxembourg Income Survey and the Organisation for Economic Co-operation and Development (OECD) for 31 countries since the early 1980s in many cases (but more recently for some of the Eastern European countries in particular). The authors use these data to trace and explain what has happened to living standards in each country over the period, as well as inequalities in them. They pay particular attention to what has happened at the middle of the range of living standards, not just at the top or bottom or overall inequality measures.
The analysis produces a number of insights, a flavour of which might be gleaned from the following three examples. First, the experience of the countries is in fact hugely varied, rather than uniform. In terms of median living standards they range from a more than doubling in Norway between 1979 and 2013 down to a fall of a seventh in Greece between 1986 and 2013. It is striking that the average annual growth in real median incomes adjusted for household size was only 1.2 per cent, over periods of which the post-crisis ‘Great Recession’ is only part. But for the most part living standards in the middle did grow. This is important given the dominance of the US experience in so much discussion – only a few countries did as poorly as the US, with its median increase of only 0.3 per cent per year. As Nolan concludes, “A grand narrative framed entirely around the US case in these terms is likely to mislead if applied to the OECD more generally” (p.362).
Second, simple summaries of what has happened to inequality obscure the actual picture. Again, the US case with stagnating middle incomes and rising inequality is not representative of the general experience of rich countries. Nor does the evidence show that the middle being ‘squeezed’ happened when the poor were doing better. And neither the old narrative that high inequality is associated with faster economic growth nor the alternative, more recently popular, narrative of inequality damaging growth are consistently shown in the variety of country experiences.
A third important observation comes from the analysis by Nolan with Max Roser and Stefan Thewissen of the discrepancy between generally higher rates of growth of national income, GDP, and slower ones of median household incomes, ‘equivalised’ to allow for the different sizes and composition of households. Many factors have been suggested as explanations of this uncoupling. But one important one, accounting for nearly half of the divergence, has been that household size fell in all the countries apart from Sweden. That matters because the process of ‘equivalisation’ is designed to reflect (albeit imperfectly) the ways in which there are economies of scale in living together. If fewer of us are living together, there are fewer of those economies, meaning that living standards will grow more slowly than overall incomes. For some this will have meant taking advantage of affluence to break away from households they find restricting; for others, demographic change has led to less welcome increases in the effective cost of living.
There is much more to be found in the collection. That so much data analysis is so clearly presented and written about is impressive. For those for whom nearly 400 pages of analysis is daunting, the editor’s concluding chapter lucidly summarises the whole book and will by itself provide a key reference.
