Evaluating and Explaining the Evolution of Ordinary Living Standards Across 30 OECD Countries Between 1980-2013
This paper draws on recent research in the Employment, Equity and Growth programme being carried out at the Institute for New Economic Thinking (INET) at the University of Oxford. Employing data from multiple household surveys complemented with macro information, we analyse the evolution of living standards of ordinary households across 30 OECD countries between 1980-2013, measured as real equivalised disposable household income growth for the median. In three parts, we monitor and aim to explain progress in achieving inclusive growth. Taken together, our analysis provides information when economic growth transmits to income growth for ordinary households. Moreover, it reveals what income sources are responsible for this income growth, which can contribute to the design of inclusive growth policies.
The first part brings out the extent of variation across OECD countries in the scale of growth in real incomes at and below the middle as a core indicator of living standards seen over the same period, assessed on the basis of LIS and OECD comparative data. We show that the growth performance in real median incomes has varied very widely indeed across OECD countries. Moreover, we argue that different ‘varieties of capitalism’ or welfare state regimes have not been more effective in delivering improved living standards for ordinary families. Second, we try to explain the different trends in income growth for ordinary households by looking at trends in economic growth and inequality using data from LIS, OECD, and the World Top Income Database. We show that even though economic growth is a main predictor, there is a significant discrepancy between median household income and per capita economic growth. We decompose this discrepancy into parts due to inequality, demographic trends, price adjustments, and differences between household surveys and national accounts. In the third and main part we take a closer look at the composition of incomes across the distribution. Here our main question is: what income sources are responsible for providing income growth for ordinary households? We distinguish between wages of the household head, wages of the spouse, self-employment, capital income, taxes, and transfers.