In this blog, we look at patterns in household income, wages and wealth by social class in London in the wake of the 2007/8 financial crisis and economic downturn. The blog is one of a series looking at different aspects of inequality and disadvantage in London.
The findings are drawn from our comprehensive report published last year, The Changing Anatomy of Economic Inequality in London (2007-2013), which provided a detailed picture of what happened to different population groups in London between 2007/8 and 2012/13.
The blog is being written following two major political changes that will affect the future of London: First, the election of Sadiq Khan as the new London Mayor on a platform of fairness, with commitments to a more equal London, the creation of a new economic fairness unit within the GLA and tackling low pay. Second, the referendum vote to leave the European Union, whilst London voted to remain.
As the country tries to process the results of the EU Referendum and its consequences, discussions about the uneven nature of the recovery from the 2007/8 crisis and downturn, and the ways in which austerity has impacted on different social groups, have moved up the political and media agenda. Here, we focus on patterns of inequality and disadvantage in the capital by social class. According to the most recent Social Attitudes Survey, 8 in 10 people think that the divide between social classes is wide or very wide, whilst public perceptions of how easy it is to move between social classes have worsened since the start of austerity measures.
Our operational measure distinguishes between eight occupational classes, based on ONS NS-Sec classifications. Although not identical to the concept of social class, NS-Sec is widely used official statistics and in research that focusses on patterns of stratification and differences in outcomes by socio-economic position. (There is more information about the classifications at the end of this blog.)
Figure 1 shows trends in average (median) weekly household income in the capital by occupational group. The figure shows the extent of the squeeze on household income for “typical” Londoners in the wake of the crisis and downturn within each occupational groups both before housing costs (BHC) and after housing costs (AHC). It highlights that the AHC falls – a common indicator of living standards – did not impact across the social spectrum equally, but were larger amongst households headed by someone from the small employers, semi-routine and routine occupational groups (with falls of between 20% and 23%) than for households headed by someone from class 1 – the higher managerial, administrative and professional, and large employers, occupational group (with a fall of 7%).
Additional breakdowns allow us to examine what happened to the least well-off households (at the 10th percentile) withineach occupational group. Looking at AHC income in 2011/13, the data shows that the shockingly low levels of disposable income highlighted in our living standards blog were not limited to the least well-off households headed by someone who has never worked or is long-term unemployed (with AHC household weekly income of £47 for a couple). AHC weekly income was also notably low amongst the least well-off households headed by small employers and own account workers (£66), semi-routine occupations (£103), routine occupations (£109), intermediate occupations (£158) and lower supervisory and technical occupations (£129).
AHC income at the 10th percentile also fell substantially amongst households headed by someone from the more advantaged occupational classes. Amongst the least well-off households headed by someone in the large employer and higher managerial/professional occupational group (class 1), there was a 15% fall. However, in absolute terms, AHC weekly income for this group remained substantially higher than for others (with a decline from £331 to £283).
Earnings, wages and patterns of employment
Downward pressure on earnings and wages and patterns of low pay, particularly amongst low to average skilled workers have been put forward as key factors underlying the Brexit vote. Our earlier blog showed that the capital was far from immune from such pressures. Amongst the poorest 10% of part-time male semi-routine workers in London, there was a 12% decline in gross weekly earnings between 2007/08 and 2012/13. There were also increases in the proportion earning less than the London Living Wage. Employees from routine occupational groups experienced the largest increase (14 percentage points) followed by those from lower supervisory and technical and intermediate occupations (10 and 12 percentage points respectively).
On changing patterns of employment, our main report found that increases in part-time work and self-employment were particularly pronounced in London over the period 2007/8 to 2012/13. Looking at participation in part-time work and self-employment in the capital by gender, the increase in part-time work was statistically significant for men in the capital, whilst the increase in self-employment was statistically significant amongst women. The expansion of part-time employment in London was particularly notable in semi and lower skilled jobs. Amongst the semi-routine and routine occupational groups, there were falls in full-time working of 5 and 9 percentage points respectively, whilst part-time working increased by 6 percentage points for both occupational groups.
Perhaps the greatest social class divides in London are observed in the context of wealth. Figure 2 shows that average (median) physical, property and financial wealth stood at around £300,000 amongst households headed by someone from the larger employers and higher managerial/professional occupational groups (Class 1) in 2010/12. This figure contrasts sharply with average total wealth of £144,800 amongst households headed by someone from the small employers and own account workers occupational group (Class 4), £109,100 amongst households headed by someone from the intermediate occupations (Class 3), and £25,000 and £15,100 amongst households headed by someone from the routine occupational group (Classes 6 and 7). Amongst households headed by someone from the “Never worked/long term unemployed” occupational group, average total household wealth was as low as £8,100. This is very low considering that this figure covers physical wealth (the value of physical assets such as computers, TVs and cars), property wealth (the value of property minus mortgages) and financial wealth (that is financial assets and liabilities such as savings, stocks and shares, borrowing, overdrafts and arrears) for everyone in the household.
Following the EU Referendum, part of the media discussion has focused on the disconnection and divides between London and the rest of the country. With the widespread characterization of London as the home of a privileged metropolitan elite, it is timely to remember the extent of poverty and inequality within the capital itself. The recent London Poverty Profile showed that after housing costs poverty is higher in the capital than the rest of England, whilst our main report showed that inequality in the capital is higher than elsewhere in England against a range of indicators.
Downward pressure on living standards, wages and earnings, changing patterns of employment, housing shortages and housing costs, as well as divergent fortunes by social class, geographical divides and the question of who has gained from globalization, and who has been left behind, are central to ongoing discussions about the current state of affairs.
What is critical is to ensure that any political or economic consequences of the decision to leave the European Union do not translate into greater poverty and inequality, or derail the much awaited plans to create a more equal London.
This is the last in the series of the Social Policy in a Cold Climate: focus on London blogs. Other blogs in the series have focused on low pay and the severe squeeze on the living standards of the poorest Londoners in the wake of the impact of the crisis and downturn. We have also examined social divides and the contrasting fortunes of different population groups by characteristics such as disability, ethnicity and religion or belief.
Summary of the NS-Sec classification:
The ONS NS-Sec scheme distinguishes between the following eight analytical classes:
- Higher managerial, administrative and professional occupations
1.1 Large employers and higher managerial and administrative occupations
1.2 Higher professional occupations
- Lower managerial, administrative and professional occupation
- Intermediate occupations
- Small employers and own account workers
- Lower supervisory and technical occupations
- Semi-routine occupations
- Routine occupations
- Never worked and long-term unemployed
Conceptually, the scheme makes a basic distinction between employers (who buy the labour of others and assume some degree of authority and control over them), the self-employed (who neither buy labour nor sell their labour to others) and employees (who sell their labour to employers). Further distinctions are made between large and small employers, so for example a self-employed builder would be in a different class to a builder with 25 employees, whilst employees are further differentiated according to the employment relations and conditions of different occupations taking account of different labour market and work situations such as sources of income, economic security, prospects for economic advancement, managerial and supervisory status and the degree of authority and control at work.