Will we catch the American bug?

Published on Incomes and Inequality

The American middle-class has been complaining since the 1970s about their stagnating incomes. The economic growth that the country has seen since then has gone mainly to the better off. Households at or below the middle of the income distribution have seen no significant rise in their living standards for a generation.

That certainly can’t be said of the UK – yet. Here, living standards have improved considerably for most groups in recent years. However, in the past decade, we have started to look a little more like the US.

The two graphs below show that in the late 1990s there was substantial growth in low-to-middle incomes in the UK (incomes grew by about 25-30% in real terms), and much more modest growth in the US (where incomes grew by less than 10%). Since the early 2000s, incomes for these groups have declined in the US, and are now at the same level as they were in the late 1980s. In the UK, meanwhile, income growth has flattened off.

So although incomes have not declined in the UK, British people on modest means have seen no significant improvement in their incomes in nearly a decade, despite significant economic growth in this period. It’s not surprising that many are getting fed up. The lesson from the US is that this kind of experience can last for decades.