David Hume Institute – Measuring inequality in Scotland: a widening gap between the young and the old

“The main purpose of the housing market should be to provide accommodation, but it now also seems to be a mechanism that sustains and magnifies intergenerational inequality. This might be an issue that a new Scottish Parliament with enhanced tax powers might wish to address.” Professor David Bell

The difficulties of young people on low incomes getting onto the housing ladder is increasing inequality between generations and within generations. The gap is most starkly illustrated by the increasing number of younger people able to buy their homes outright, while at the other end of the scale more young people are living in high cost private rented accommodation or staying on in the familial home.

These are some of the findings of the most comprehensive study so far of the causes and effects of inequality in Scotland.

The research study, conducted by a team at the University of Stirling led by Professor David Bell, will be presented to a seminar at the David Hume Institute on Monday (October 20). The study was commissioned by the Institute and funded by Alan McFarlane.

The study finds that – once London is excluded – inequality in Scotland is in line with the rest of the UK and similar to that in other developed countries. Nor is there strong evidence to show that it is increasing, except among those at the very highest levels of income. However in the housing and labour markets there appears to be polarisation between younger and older households.

The study finds that in Scotland: “Between 1994/5 and 2011/12 the number of owner-occupier households increased by 344,000. But over half of this increase was accounted for by households where the head of the household was aged 65 or over, and the remainder was accounted for by households aged over 45. Amongst those aged under 45 there was a net decline in home ownership. Despite this however, there was an increase in the number of younger households who owned their home outright (as opposed to with a mortgage) which may signal an increase in inequality of property wealth within the younger generation.”

“Younger people have been relatively unsuccessful in capturing a share of the growth in higher skilled jobs in recent years.”

The study adds: “House price rises are creating a situation whereby younger people are likely to be increasingly reliant on inheritances to purchase a property. Those who cannot purchase a property face a choice between living in increasingly expensive private rented accommodation, which limits their ability to save, or to remain living with parents. The house price bubble therefore seems to be increasing inter-generational inequality and as a result is likely to lead to increases in intra-generational inequality among subsequent generations.”

On incomes, the research also finds marked differences between the generations. “The young as a group appear to have been doing relatively badly in the labour market. Rates of unemployment among the young have risen relatively faster than those of prime age or older since well before the recession. And even among those in work, the wages of younger workers have fallen relative to those of older workers.

“The average hourly wages of young workers aged 18-29 has fallen over time relative to that of prime aged workers 30-49, but wages for older workers 50+ have grown relative to the prime aged group. One explanation for these relative wage changes is that younger people have been relatively unsuccessful in capturing a share of the growth in higher skilled jobs in recent years.”

Professor Bell commented: “The main purpose of the housing market should be to provide accommodation, but it now also seems to be a mechanism that sustains and magnifies intergenerational inequality. This might be an issue that a new Scottish Parliament with enhanced tax powers might wish to address. ”

Ray Perman, Director of the David Hume Institute, said: “If we want to create a fairer country we have to know how serious inequality is in Scotland and how it is affecting people. This research breaks new ground in quantifying the problem and gives us the evidence from which politicians can devise effective policies to tackle the issue.The David Hume Institute will be returning to the theme with its Presidential lecture in November, when Professor Anton Muscatelli, will give national and international context to the debate.”

The study: Inequality in Scotland: New Perspectives by David Bell†*, David Eiser and Mike McGoldrick will be published on www.davidhumeinstitute.com on Monday 20 October. To register for the seminar see https://www.eventspro.net/inconf/getdemo.ei?id=1080161&s=_3DK0O2Z87

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