Tuesday, 28 June, 2016

In the debate surrounding the recent referendum, one of the explanations for the outcome is that communities who have seen their wages decline due to increased trade and immigration voted to leave. What is clear is that over the past 30 years, widening inequality has left many communities behind. Moreover, as numerous commentators have pointed out, in many former industrial and manufacturing areas, a sense of decline, of lose, and of promises not kept has rightly has led to anguish in these communities.

Whilst trade and globalisation may have played a small part in increases in inequality in the 1980s, there is a problem with globalisation as the main explanation of rising inequality. Much like the broader argument on immigration causing inequality, the timelines just don’t match up.

One of the biggest contributions in recent months to the global conversation on inequality has come from Branko Milanovic, whose recent book has sought to link the trends of reducing global inequality with increased national inequality. He argues that increased globalisation has increased the income of many in the poorest countries but hurt the incomes of many in richer countries. This can be seen most clearly in what is fast becoming known as the elephant graph (because it kind of looks like an elephant).

The back of the elephant shows the rising incomes of those in India and China, the bottom of the trunk the fall of workers in developed countries and the top of the trunk is the richest seeing their incomes increase.

Whilst this seems like a persuasive story and may be a good explanation of what is happening in some parts of the world, it’s not a good explanation of the UK.

The graph covers between 1988 and 2008 when China and India became economic powerhouses and trade dramatically increased. But in the UK that didn’t cause great increases in inequality. By 1988 the UK had already become a deeply divided country with extremely high levels of inequality and this did not dramatically increase up to 2008. 

As globalisation took off, it doesn’t appear to have caused further large increases of inequality in the UK. For much of the period incomes were rising across the board and, aside from large increases for the top 1%, weren’t widening the already existing large gaps between us.

This is especially true for the period of increased migration seen in the early part of this decade. As we’ve discussed before there isn’t much evidence of increased migration making the poorest poorer, or the richest richer in the UK overall. Though of course, there will be some individuals who have seen wages fall as a result of immigration, others will have seen their incomes rise from having more immigrant consumers.

This is mirrored by how people voted in the recent referendum. Number crunching by the Resolution Foundation found no relationship between whether an area has become poorer since 2002 and how the majority voted. 

They did however find that there is a strong link between how people voted and the prexisiting divisions in our society. People from areas with lower wages were more likely to vote to leave, whilst those with higher wages were more likely to vote remain.

The cracks that the vote have revealed are much deeper than recent trade and immigration changes and instead much more closely reflect our deeply divided economy. Whilst there are some richer areas that voted to leave and poorer areas that voted to remain, across the board there seems to be a strong link between wages and what the area voted for. This vote is yet another warning sign of the divisions that exist in our society and the broken economy that lies beneath.

Tim Stacey, Senior Policy and Research Advisor