Business

Headline Numbers: Is UK inequality as bad as in the US?

Pitchfork Image copyright Thinkstock

A statistic in March provoked outrage in the US media about inequality.

Research from the Institute for Policy Studies found that in 2014, bonuses paid to Wall Street employees had been double the annual pay earned by all Americans who worked full-time at the federal minimum wage.

So, 167,800 Wall Street employees were paid $28.5bn (£18.2bn) in bonuses, while 1,007,000 full-time minimum wage earners made about $14bn.

One particularly eye-catching blog on the subject carried the headline: "If You Own a Pitchfork, You Will Grab It When You See This Chart".

I wondered if this statistic was also true in the UK.

The best proxy we have for the Wall Street bonus pool is the ONS figure for bonuses paid in the finance and insurance sector, the most recent figure for which was £14.4bn in the financial year 2013-14.

The Low Pay Commission says that excluding apprenticeships there were 1.3 million jobs in 2014 that paid the National Minimum Wage (NMW) of which 40% were full-time, so that's about 520,000 jobs.

Assuming everyone earned the highest level of minimum wage, the average level of the NMW for 2013-14 was £6.25.

If we assume that they worked 37.5 hours a week (that's the average number of full-time hours given in the Annual Survey of Hours and Earnings for 2014) and that they work 48 weeks a year, their total earnings come to £5.9bn, which is less than half the amount paid in bonuses by the finance and insurance sector - it's about 40%.

Before you go and buy a pitchfork, remember that there are differences between this figure and the US one. For example, the bonuses in the UK finance and insurance sector were shared between more than a million employees - considerably more than on Wall Street. There were people paid very high bonuses but also people paid much more modest ones. The average overall was £13,300, but I would expect that to mask quite a range.

But the other question is, what is this an indicator for and what would make it rise or fall?

So, for example, imagine that 100,000 people earning minimum wage suddenly received a pay rise of £1 an hour. They would no longer be earning minimum wage, so the total amount paid to workers on the minimum wage would fall considerably and as a result the amount paid out in bonuses would be a higher multiple of it. But it would be hard to argue that their pay rise had increased inequality.

Nonetheless, if you were outraged by the figure from the US then you will be just as outraged that the same appears to be true in the UK.

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