<p>It is difficult to talk about causality between policies of one particular government and inequality, since research on this is not very mature yet due to lack of good long datasets that you need to figure out causal links at that level (e.g. did privatization happen as a causal consequence of Thatcher government or was privatization economic necessity due to other factors causing a party comming to power that would privatize industry?). Inequality in UK was by many metrics already increasing from early 50s (Atkinson 2015, Inequality pp 19). However, various inequality metrics are not always well correlated.</p>
<p>This being said according to Atkinson, who was world leading expert on inequality in general and by coincidence also in UK in particular before his recent passing, in the UK increase in income inequality can be attributed to (ibid):</p>
<ol>
<li>fast increase in returns to human capital (that is education). This widens income inequality.</li>
<li>Skill biased technological change (especially advances in communication, e.g. telephone).</li>
<li>change to global patterns. Prior to last century inequality in rich countries was narrowing, but inequality between countries widening. After WWII we observe reverse patter, inequality between countries is falling (India and China catching up to the West), but inequality within countries is increasing.</li>
<li>During the WWI and WII inequality rapidly declined, for a reason that is not yet well understood. Some of the increase in inequality can be viewed as return to the 'normal' although we do not even have good picture what normal is due to lack of historical data, but we know inequality prior WWI &amp; WWII was much larger than after.  Its hypothesized that this was because war destruction was in a sense great equalizer, but others claim that this can be attributed to the fact that the war government started to invest more in healthcare and strengthened unions.</li>
<li>Increased female participation in the labor force. In the past most of the household income would come from male member of the household. Prior 50s data show high income men being paired with low income women, which reduces GINI that is measured typically at household level. However, as women entered the labor force and became more educated (around 70s-80s in the UK) selective mating began and high income women started to get parried with high income men and low income women with low income men. This lead to increase in inequality because whereas previously the low income of woman and high income of men would balance each other out on household level, now high income of women and men reinforce each other on household level and vice versa for low income couples.</li>
<li>(only applicable to GINI using disposable income) If the GINI you refer to was measured by disposable income then decrease in high marginal tax rate and welfare spending played role as well.</li>
<li>Persistently high unemployment (Europe wide problem).  Europe has very high unemployment post WWII, what is considered normal unemployment in Europe would be considered recessionary level of unemployment in the US. It is argued its due to a hysteresis.</li>
<li>Greater international competition (i.e. globalization).</li>
<li>Decline in bargaining power of unions.</li>
<li>Low economic growth in UK, there is substantial inverse relationship between inequality and economic growth.</li>
<li>Greater capital concentration.</li>
</ol>
<blockquote>
<p>Are there specific aspect of Conservative Policy in the 1980s which led to this rise...?</p>
</blockquote>
<p>As mentioned in first paragraph its difficult to say what causes what with just aggregate data on such particular level as a decision of group of politicians but you could make a reasonable argument that Thatcher's government caused  6, 9 and more tentatively also 11 (in addition you can make an argument for 5 as well. I recall reading some work saying declining power of unions (which were dominated by men) made entry of females into workforce and also education easier but I can't recall where I read it).</p>
<blockquote>
<p>Can it be said how this wealth was either transferred or else created?</p>
</blockquote>
<p>We are not discussing <em>wealth</em>, wealth is a stock, income is a flow. Reasons for wealth and income inequality are quite different. According to clarifications in your comments you are talking about income inequality not wealth inequality. The two are not necessarily strongly connected to each other. For example, the Netherlands where I live is in the bottom when it comes to  income inequality (measured by <a href="https://en.wikipedia.org/wiki/List_of_countries_by_income_equality" rel="nofollow noreferrer">income GINI</a> the Netherlands has one of the lowest income inequality in the world), but wealth inequality of the Netherlands is one of the largest in the world as measured by <a href="https://en.wikipedia.org/wiki/List_of_sovereign_states_by_wealth_inequality" rel="nofollow noreferrer">wealth GINI</a>.</p>
<p>It is great misconception of laypeople that income, wealth and consumption inequality are somehow equivalent. They are not even always positively correlated.</p>
<blockquote>
<p>Is it considered a real effect or an artefact of the metric?</p>
</blockquote>
<p>Raise of the inequality in 80s, not just in UK but across many western countries, is well documented.  GINI has for sure measurement errors, so you should not immediately assume that any change by 1-2% year to year has any meaning. However, in 70-80-90s when it increased from very low post WWII levels it grew over 10% when looking at GINI, and even metrics that do not show such rapid swing show some increase. So income inequality almost definitely increased.</p>

CC BY-SA 4.0
2022-12-05T16:09:34.170Z
Thank you for this excellent answer. I will almost certainly accept it, but will give it a couple of days!
Dannie
CC BY-SA 4.0
2022-12-05T15:55:08.280Z
2022-12-05T16:08:04.563Z
2022-12-05T16:08:04.563Z
1muflon1
<p>The Gini Index for the UK showed a considerable rise in the 1980s. Before and after this it has largely plateaued (within the bounds of noise).</p>
<p>I am assuming that this was due to policies of Thatcher's government. Are there specific aspect of Conservative Policy in the 1980s which led to this rise, such as selling council housing stock or industry privatisation, or perhaps immigration of wealthy individuals or businesses? Can it be said <em>how</em> this wealth was either transferred or else created? Is it considered a real effect or an artefact of the metric?</p>

CC BY-SA 4.0
2022-12-05T12:04:24.503Z
Are you talking about income, wealth or consumption GINI?
1muflon1
CC BY-SA 4.0
2022-12-05T14:04:28.860Z
Income. pad pad pad
Dannie
<united-kingdom><gini>
Gini Index Rise: UK 1980s
Dannie
# Gini Index Rise: UK 1980s

(Asked by: username_0 on 2022-12-05)

The Gini Index for the UK showed a considerable rise in the 1980s. Before and after this it has largely plateaued (within the bounds of noise).

I am assuming that this was due to policies of Thatcher's government. Are there specific aspect of Conservative Policy in the 1980s which led to this rise, such as selling council housing stock or industry privatisation, or perhaps immigration of wealthy individuals or businesses? Can it be said *how* this wealth was either transferred or else created? Is it considered a real effect or an artefact of the metric?

**Tags:** united-kingdom, gini

> **Comments:**
> **username_1**: Are you talking about income, wealth or consumption GINI?  
> **username_0**: Income. pad pad pad  

---

## 1 answers

### Answer by username_1 on 2022-12-05. Score: 1

It is difficult to talk about causality between policies of one particular government and inequality, since research on this is not very mature yet due to lack of good long datasets that you need to figure out causal links at that level (e.g. did privatization happen as a causal consequence of Thatcher government or was privatization economic necessity due to other factors causing a party comming to power that would privatize industry?). Inequality in UK was by many metrics already increasing from early 50s (Atkinson 2015, Inequality pp 19). However, various inequality metrics are not always well correlated.

This being said according to Atkinson, who was world leading expert on inequality in general and by coincidence also in UK in particular before his recent passing, in the UK increase in income inequality can be attributed to (ibid):

1. fast increase in returns to human capital (that is education). This widens income inequality.
2. Skill biased technological change (especially advances in communication, e.g. telephone).
3. change to global patterns. Prior to last century inequality in rich countries was narrowing, but inequality between countries widening. After WWII we observe reverse patter, inequality between countries is falling (India and China catching up to the West), but inequality within countries is increasing.
4. During the WWI and WII inequality rapidly declined, for a reason that is not yet well understood. Some of the increase in inequality can be viewed as return to the 'normal' although we do not even have good picture what normal is due to lack of historical data, but we know inequality prior WWI & WWII was much larger than after. Its hypothesized that this was because war destruction was in a sense great equalizer, but others claim that this can be attributed to the fact that the war government started to invest more in healthcare and strengthened unions.
5. Increased female participation in the labor force. In the past most of the household income would come from male member of the household. Prior 50s data show high income men being paired with low income women, which reduces GINI that is measured typically at household level. However, as women entered the labor force and became more educated (around 70s-80s in the UK) selective mating began and high income women started to get parried with high income men and low income women with low income men. This lead to increase in inequality because whereas previously the low income of woman and high income of men would balance each other out on household level, now high income of women and men reinforce each other on household level and vice versa for low income couples.
6. (only applicable to GINI using disposable income) If the GINI you refer to was measured by disposable income then decrease in high marginal tax rate and welfare spending played role as well.
7. Persistently high unemployment (Europe wide problem). Europe has very high unemployment post WWII, what is considered normal unemployment in Europe would be considered recessionary level of unemployment in the US. It is argued its due to a hysteresis.
8. Greater international competition (i.e. globalization).
9. Decline in bargaining power of unions.
10. Low economic growth in UK, there is substantial inverse relationship between inequality and economic growth.
11. Greater capital concentration.

> Are there specific aspect of Conservative Policy in the 1980s which led to this rise...?

As mentioned in first paragraph its difficult to say what causes what with just aggregate data on such particular level as a decision of group of politicians but you could make a reasonable argument that Thatcher's government caused 6, 9 and more tentatively also 11 (in addition you can make an argument for 5 as well. I recall reading some work saying declining power of unions (which were dominated by men) made entry of females into workforce and also education easier but I can't recall where I read it).

> Can it be said how this wealth was either transferred or else created?

We are not discussing *wealth*, wealth is a stock, income is a flow. Reasons for wealth and income inequality are quite different. According to clarifications in your comments you are talking about income inequality not wealth inequality. The two are not necessarily strongly connected to each other. For example, the Netherlands where I live is in the bottom when it comes to income inequality (measured by [income GINI](https://en.wikipedia.org/wiki/List_of_countries_by_income_equality) the Netherlands has one of the lowest income inequality in the world), but wealth inequality of the Netherlands is one of the largest in the world as measured by [wealth GINI](https://en.wikipedia.org/wiki/List_of_sovereign_states_by_wealth_inequality).

It is great misconception of laypeople that income, wealth and consumption inequality are somehow equivalent. They are not even always positively correlated.

> Is it considered a real effect or an artefact of the metric?

Raise of the inequality in 80s, not just in UK but across many western countries, is well documented. GINI has for sure measurement errors, so you should not immediately assume that any change by 1-2% year to year has any meaning. However, in 70-80-90s when it increased from very low post WWII levels it grew over 10% when looking at GINI, and even metrics that do not show such rapid swing show some increase. So income inequality almost definitely increased.

> **Comments:**
> **username_0**: Thank you for this excellent answer. I will almost certainly accept it, but will give it a couple of days!  

---

