Democracy and capitalism are being threatened by growing economic inequalities in both the U.S. and the U.K., new research warned on Tuesday.
The report, from the Institute for Fiscal Studies (IFS), was published as the organization launched a wider review into inequality around Britain, which will be chaired by Nobel Prize-winning economist Angus Deaton.
It found that economic inequality in Britain was catching up to the levels seen in the United States.
By international standards, income inequality in the U.K. is high, the report found. Ranked against other major economies, only the U.S. had higher income inequality. This, the study’s authors warned, could be a threat to socioeconomic systems around the world.
“The deepening economic and social divides have led some to question whether inequality will lead to a crisis of capitalism,” the report said.
“With support for populist candidates rising on both sides of the Atlantic, and on both sides of the political spectrum, some question whether inequality may pose a threat not just to capitalism but also to our democratic system.”
Why is inequality rising?
Earnings potential was also being suppressed for those with lower levels of formal education, the researchers found.
“The vast inequalities by education in the U.S. — in health, deaths of despair, marriage and life satisfaction — may partly reflect a large gap in earnings between high and low-educated people, which has been rising since the 1980s,” the report noted.
Measured against 22 other countries, the U.S. had the biggest wage gap between college and high school educated workers. Portugal fell just behind the U.S., while the U.K. had the fifth biggest gap. Sweden and Denmark had the lowest level of inequality on the education versus earnings scale.
While women’s employment in the U.K. rose drastically from 57% in 1975 to 78% in 2017, the gender pay gap was a persisting issue, the study also found.
The gap in hourly wages paid to men and women was strongly associated with childbirth, data showed. It rose from less than 10% from the birth of a woman’s first child to 30% 12 years after the child was born. The IFS said this reflected an “extraordinary lack of earnings progression for mothers, particularly those who work part-time.”
There were also geographical inequalities across the U.K., with average weekly earnings in London 66% higher than those in England’s north east. According to the report, men living in Britain’s most affluent areas could expect to live almost a decade longer than those in the most deprived areas — and the gap is widening. The IFS said geographical discrepancies could be caused by several factors, such as declining trade union membership, globalization and increased market power for certain firms.
Deaton said in a press release on Tuesday that politics, economics and health were changing in “worrisome ways” across much of the rich world.
“If working people are losing out because corporate governance is set up to favor shareholders over workers … then we need to change the rules,” he said.
“People getting rich is a good thing, especially when it brings prosperity to others. But the other kind of getting rich, ‘taking’ rather than ‘making,’ enriching the few at the expense of the many, taking the free out of free markets, is making a mockery of democracy.”