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Inequality, poverty and living standards

Growth in household incomes in the UK since 2008/09 has been historically low, the income-gap the between rich and poor remains high by historical standards, and important dimensions of inequality – in particular between generations – have been widening further. The IFS has a long history of advancing our understanding of the determinants of inequalities in income, consumption and wealth, and of the impacts of policies on these inequalities. This area continues to be a core part of our research agenda.

Early in 2019, we launched the IFS Deaton Review. This is the most ambitious study of its kind, studying how different inequalities are related, which ones matter most, what forces create them and what is the right policy mix to address concern about inequalities? It engages world leading experts in sociology, demography, economics, epidemiology, political science and philosophy to build a comprehensive understanding of inequalities in the twenty first century.

Our current research is built on a long history of studying inequalities at the IFS. Through a number of seminal academic contributions, we have led in the scientific understanding of the relationships between different measures of material resources, such as income and consumption. We have developed techniques to assess whether changes in the distribution of resources reflect permanent changes in the relative welfare of different people (e.g. a change in the return to certain skills caused by technical progress) or merely changes in the frequency of short-lived events (e.g. temporary spells of unemployment); and for assessing the degree of insurance that people have against both permanent and temporary shocks to their income, and hence the extent to which they are able to mitigate the effects on their standard of living.

We have also been world leaders in understanding the impacts of key policies aimed at addressing inequality, such as tax credits, both in terms of their short term effects on working behaviour and their longer term dynamic effects on labour market attachment, wage progression and consumption and saving decisions. This has included work looking at how insurance varies according to one's circumstances and labour market history, and the role of specific mechanisms such as spousal labour supply in providing this insurance. 

Our current research agenda is building on many of these techniques in order to answer the key questions of the day. This includes studying the long term impacts of universal credit – the UK’s biggest overhaul of the welfare system for decades – on employment and wages, the determinants of wage progression over the lifecycle for men and women and hence the causes of gender wage gaps, and the impacts on inequality of financial transfers between generations.

Finally, our research continues to investigate the causes of poverty, in particular seeking to understand how the government welfare system, changes to the labour market and housing costs have affected the living standards of poor poverty, including for particular groups, such as those in working households

Selected highlights

Journal article | Quarterly Journal of Economics
This paper places the debate over using consumption or income in studies of inequality growth in a formal intertemporal setting. It highlights the importance of permanent and transitory income uncertainty in the evaluation of growth in consumption inequality.
Journal article | Oxford Review of Economic Policy
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Presentation
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Contacts

Contact IFS on 020 7291 4800 or mailbox@ifs.org.uk

Robert Joyce
Deputy Director
Jonathan Cribb
Senior Research Economist