INCOME DISPARITIES

Intro: Most people agree that income inequality is too extreme and that it needs to be reduced. But by how much?

INEQUALITY remains a major political issue in the world today. Most people agree that inequality is too extreme and needs to be reduced.

In the UK, the income ratio between the richest 0.01 per cent and minimum-wage workers has reached around 150 to one. Within the FTSE 100 firms, pay ratios between CEOs and lower paid workers hover at about 100 to one. Similar inequalities prevail in many other countries, while in the United States the figures are much worse, with pay ratios and disparities sometimes reaching into the thousands.

There is nothing natural or inevitable about extreme inequality. It is the predictable result of an economic system that distributes income based on who owns the means of production and who has the most market power, rather than according to any common-sense principle of labour contribution, human needs or justice.

Inequality corrodes society and poisons democracy, but it is also ecologically dangerous. The wealthiest in society consume an extraordinary amount of energy, resulting in high emissions and making decarbonisation more difficult to achieve. Recent research by Joel Millward-Hopkins published in Nature Communications shows that if we want to ensure decent lives for everyone on the planet, and by decarbonising quickly enough to feasibly achieve the Paris Agreement goals on the climate, we will need to dramatically reduce the purchasing power of the rich, while distributing resources more equitably.

But how much should inequality be reduced? What is an appropriate level of inequality? Millward-Hopkins’ research shows that if we are to ensure that everyone has access to resources necessary for a decent living, then a distribution where the richest consume at most around six times that level would be compatible with achieving climate stability. This may sound radical, but this distribution is very close to what people around the world say is a “fair” level of inequality. In some countries – such as Argentina, Norway and Turkey – people say they want inequality to be even lower, with ratios less than four to one.

People want to live in a society that is fair. This is apparent when we look at public sector pay scales, the closest thing we have to a democratically determined distribution. In major British institutions like the National Health Service (NHS) and within the universities, where unions representing members have a say over pay scales, the gaps between the highest and lowest salary bands rarely exceed five to one. If we correct for career-stage, the gaps are much smaller: the starting salary for a doctor or a lecturer is only about twice as high as that of a cleaner.  

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