And it shows that 93% of the population are net contributors to the tax system. People receive an income from the state when in retirement but they contribute during their working years.
They are net recipients of welfare when they have young children in the form of child benefit but they are net contributors when the kids leave home.
"The idea the unemployed are a fixed class of shirkers is a figment of the Right-wing imagination."
<p>Ben Chu</p>
Most redistribution is not between a class of givers and a large class of takers but between the same set of people at different stages of their lives.
Politicians talk about how much they want to help “working families”, implying that “non-working families” are undeserving of assistance.
But here again statistical snapshots are misleading. Every month, the Office for National Statistics reports the number of people out of work. There’s a tendency to assume they are the same bunch from one month to the next.
But that’s a big mistake. Less-publicised ONS figures show there are vast flows of people into and out of employment each month.
In the three months to June, 472,000 people found jobs while 346,000 people became unemployed.
Up to a quarter of the 1.85 million jobless population turns over every three months.
The idea the unemployed are a fixed class of shirkers is a figment of the Right-wing imagination.
George Osborne’s decision to cut the dole in real terms over the next five years on the grounds that this will “ensure that it pays to work” suggests he shares this delusion.
For the vast majority of the unemployed, the dole is a temporary safety net, not some kind of “lifestyle choice”.
Yet it’s not only the Right that is misled by snapshots. Labour MPs often complain VAT is a regressive tax because it appears to take a bigger share of the income of the poor than of the rich.
On a snapshot view, that’s true. But the IFS’s work suggests that on a lifetime view, the tax is hardly regressive at all because people who are temporarily hard up carry on spending, incurring the levy, and go on to earn more in later life.
The IFS also shows inequality looks lower over a lifetime.
The Gini co-efficient, a snapshot of inequality, for gross income is 0.49 in a single year (where 1 equates to absolute inequality and 0 absolute equality). But for gross income over a lifetime, it’s just 0.28.
It turns out a lot of the inequality in any given year is temporary. There are lesson for inequality campaigners here.
The life-cycle view matters. It’s also important to look closely at who gains from welfare policies on a lifetime basis.
The Coalition’s tax and benefit reforms look a lot less regressive on a lifetime basis than on a snapshot basis.
Under the previous government’s reforms all deciles lose 1% of their income, rather than the losses being concentrated among the poorest deciles of population.
It’s surprising that the Treasury has not made more of this finding to argue that we’re “all in it together”.
Yet a health warning needs to be attached to some of these calculations. The IFS’s estimates are based on the lifetime income patterns of the baby boomers, born between 1945 and 1954).
Future generations may have different, less fortunate, patterns. The generation that graduated in the wake of the financial crisis has certainly had it very hard in recent years relative to previous cohorts.
If that bad luck continues, we certainly won’t be all in it together.
None of this means snapshot views of the income distribution don’t matter.
Do we want the income gap between temporarily unfortunate and most prosperous to be so large? Do we want to see the incomes of those who are only temporarily poor fall through the floor?
It’s likely that the safety net of benefits for people who are unemployed or on low incomes helped them increase earnings later by giving them resources with which to get their lives back on track.
And it’s well-established by empirical studies that a prolonged spell of unemployment for young people starting out in their working lives can create long-term economic “scarring”, meaning they are held back economically ever after.
Tomorrow matters. But one can take a fixation on the long view too far. As John Maynard Keynes remarked, in the long run, we’re all dead.
