Centre for Economic Performance Special Reports
April 1, 2010
It is well known that the distribution of income in the United Kingdom has widened considerably in the last three decades. This rise has been a result of a widening at both the top and bottom of the wage distribution. More recently, most of the action appears to have occurred at the top of the distribution with lower wage workers keeping pace with the median. This paper explores this increased dispersion at the very top of the wage distribution. We show that the growth has occurred primarily within the top few percentiles and that the rise in inequality in recent years is much more pronounced when we focus on annual earnings as opposed to weekly wages (where most work has concentrated). This is because annual wages include bonuses. By the end of the decade to 2008, the top tenth of earners received £20bn more purely due to the increase in their share (it would have been only £173bn had their share of the pie remained the same as 1998), and £12bn of this went to workers in the financial sector (almost all of which was bonus payments). We consider various reasons why the bankers have managed to capture an increasing share of the wage bill over the last decade.