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Britain and the US are poor societies with some very rich people

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Where would you rather live? A society in which the rich are extremely rich and the poor very poor, or a society in which the rich are only very well off, but also those with the lowest incomes enjoy a decent standard of living?

For all but the most ardent free-market libertarians, the answer would be the latter. Research has consistently shown that while most people express a desire for some distance between top and bottom, they would rather live in significantly more equal societies than they do today. Many would even choose the more egalitarian society if the total pie was smaller than in a less equal one.

Based on this, it follows that a good way to judge which countries are better places to live than others is to ask: is life good for everyone there, or is it only good for rich people?

To find the answer, we can look at how people at different points in the income distribution compare to their peers elsewhere. If you’re a proud British or American, you may want to look away now.

Starting at the top of the ladder, Britons enjoy a very high standard of living by virtually any yardstick. Last year, the top-earning 3 percent of UK households each took home around £84,000 after tax, equivalent to $125,000 after adjusting for price differences between countries. This puts Britain’s top earners just behind the wealthiest Germans and Norwegians and comfortably among the global elite.

So what happens when we go down the steps? For Norway, it is a consistently rosy picture. The top 10 percent ranks second for standard of living among the top deciles in all countries; the average Norwegian household ranks second among all national averages, and at the very bottom on the other hand, Norway’s poorest 5 percent is the most affluent bottom 5 percent in the world. Norway is a good place to live whether you are rich or poor.

Britain is a different story. While the top earners are in fifth place, the average household is in 12th and the poorest 5 percent in 15th. Far from simply losing touch with their Western European peers, last year the lowest income group of British households had a standard of living that was 20 percent lower than their counterparts in Slovenia.

It’s a similar story in the middle. In 2007, the average British household was 8 percent worse off than its peers in northwestern Europe, but the deficit has since risen to a record 20 percent. According to current trends, the average Slovenian household will be better off than its British counterpart by 2024, and the average Polish family will progress before the end of the decade. A country in dire need of migrant workers may soon have to ask newcomers for a pay cut.

Across the Atlantic, it’s the same story, just more. The rich in the US are exceptionally wealthy – the top 10 percent have the highest top-decil disposable incomes in the world, 50 percent above their UK counterparts. But the lower deciles struggle with a standard of living worse than the poorest in 14 European countries, including Slovenia.

To be clear, US data shows that both broad-based growth and the equal distribution of the proceeds is important for well-being. Five years of healthy pre-pandemic growth in US living standards in distribution has lifted all boats, a trend that has been conspicuously absent in the UK.

But redistributing profits more evenly would have a much more profound effect on the quality of life of millions of people. As a result of the growth spurt, incomes in the lower decile of American households rose by about an additional 10 percent. But move Norway’s inequality gradient to the US, and the poorest decile of Americans would be another 40 percent better off, while the top decile would remain richer than the top of nearly every other country on the planet.

Our leaders are of course right in pursuing economic growth, but to allay concerns about the distribution of a decent standard of living – which essentially measures income inequality – is not to be interested in the lives of millions. Until those gradients are made less steep, the UK and US will remain poor societies with many rich people.

john.burn-murdoch@ft.com
@jburnmurdoch