The polarisation of the middle-class

Figures from the Annual Survey of Hours and Earnings (ASHE) published last week have shed a bit more light on the job polarisation question. Those clever people at the Resolution Foundation have added the ONS figures to this interactive gizmo so that you can see the effect of the fall in wages on different groups of workers.

Screen Shot 2014-11-20 at 17.34.01

Since the recession, pay has fallen in real terms among all groups but the median hourly wage for professional occupations is now lower, in real terms, than it was in 1998. It is still higher than that of any other occupational group but the differential has been eroded. Something similar has happened for the associate professional and technical group.

The fall in professional earnings is probably even sharper than the ASHE figures suggest. Much of the growth in self-employment since the recession has come from the managerial, professional and technical occupational groups. Given that self-employment incomes have crashed since 2008, it is reasonable to assume that if we could get an all worker earnings measure broken down by occupation it would show an even bigger drop in professional earnings.

This explains why, even though the growth in employment since the recession has mostly been in the higher skilled occupations, the median wage hasn’t gone up. The more people there are in these professional occupations, the less they seem to earn. A couple of years ago, Craig Holmes and Ken Mayhew noted a growing polarisation of wages in professional occupations and found that high status job titles don’t necessarily mean high status pay.

We find evidence that there has been a growth in lower paid jobs within a category of jobs generally considered to be well-paid.

A few people at the top are seeing their earnings pull away from everyone else, while those at the other end have seen their earnings slide. In other words, what is going on in the professional occupational group is a microcosm of what’s happening to pay as a whole.

A study for the FT by Brian Bell and Stephen Machin earlier this year found a gulf opening up in middle-class earnings both within and between professions. They identified a “pattern of gradual elimination from the top part of the earnings distribution” for some professions. For example “a teacher earned 24% more than the average in 1975, but only 6% more in 2013.”

Average (mean) wage in each occupation compared with average wage across all occupations

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The ASHE figures show professional pay starting to fall in real terms in 2005. Data from the Top Incomes Database shows the income share of those between the 90th and 95th percentiles falling after 2005, continuing a 1990s trend which was briefly reversed in the early 2000s.

chart

As the salaries of a few highly paid professionals surge ahead, the ‘just belows’ (HT Michael O’Connor) are finding themselves pushed out of the top income bracket and priced out of middle-class lifestyles.

There was a time when a degree would pretty much guarantee you a well-paying job. Not now though, say Bell and Machin.

These are all occupations that seem to be the type that policymakers have been encouraging workers to equip themselves to enter. And yet these professions increasingly deny access to the top earnings in the economy. Perhaps in the end what this tells us is that it is increasingly difficult to enter a profession and be sure that a comfortable and secure middle-class lifestyle will automatically follow.

There are many more graduates these days but most of them won’t earn the sort of money their parents made, even if they go into the same sort of job.

John Prescott is supposed to have said, “We are all middle-class now.” It’s true that a lot more of us are in the sort of jobs we once described as middle class. The trouble is, many of those jobs no longer pay that well. These days, having a posh job title is no guarantee of a posh pay packet.

Being middle-class just ain’t what it used to be.

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11 Responses to The polarisation of the middle-class

  1. John says:

    Very interesting analysis, Rick.
    It seems to bear out the fact that we are all – well, almost all – in it together.
    The statistics suggest that we are getting worse off at a similar rate, except for a few professions.
    It seems the only way to enjoy the former middle class life-style is to become a doctor or financier.
    Nothing else – seemingly – counts – or pays – as much.

  2. tom schuller says:

    I’m just wondering how many of the professional jobs/occupations which are losing ground are exactly those where the increasing numbers of women graduates are to be found….

  3. guthrie says:

    Wait, if the middle class is being eroded and destroyed, then who are the people spending the money in Harvey Nichols and on weekends at Spas? How does there seem to be so many expensive houses in very busy parts of the UK like London and Edinburgh, yet there are fewer middle class people able to afford houses in normal commuter suburbs.
    Certainly a couple with the same occupations as my parents wouldn’t be able to afford the kind of housing that I was brought up. Yet someone appears able to persuade banks to lend them enough to buy such houses.

    • John says:

      It is being suggested that the shape of our society today is similar to a martini glass.
      A massive base of low pay, low skill jobs; a very slim section of formerly midlle-class occupations; and a short, rapidly tapering, section up to a wide but very thin rim of very highly paid positions
      Who are the people buying up expensive properties in London and other major cities?
      Mainly foreign buyers: Russians, Chinese, some Americans, and wealthy Europeans.
      With the hollowing-out of the middle class comes the hollowing-out of all the major cities.
      The so-called “doughnut” effect started in the USA and looks to be catching on here too.

      • ChrisA says:

        Overseas buyers are largely a central London phenomenon – the inhabitants of the leafy suburbs in London and other parts of the UK remain largely British origin people. So the point is valid, there are more leafy suburbs filled with nice houses, and more posh public schools than ever before. So the “real” middle class is alive a well, probably a bit bigger than ever and doing fine. In addition, the lifestyle of the “just belows” would be considered pretty fantastic compared to say 20 years ago.

        I suspect this angst about decline middle class comes from 3 factors; firstly the vast increase in university access, so people comparing themselves with similar educational qualifications previously are missing the point. Simply having a degree is no longer a mark of the middle class now. This is especially true of teachers, which are sort of the bottom rung of the degreed classes. Secondly there is much more comparison possible with things like the internet to compare your situation to others. I was born into a very poor family, our immediate neighbors were also poor and we know very few rich people. So our situation did not strike us as anomalous or too bad. But nowadays lifestyle magazines, facebook, and the internet in general constantly provide reference points. Finally the relative earning powers of various professions have changed as the economy changed, especially in a reduction in what were essentially guilded professions such as solicitors or doctors. Paradoxically as medicine has become more scientific, it has become less of a lucrative profession, it has been more commoditised and less dependent on the skills (often illusory) of an individual. This is also true of such things like solicitors. When you are poorly educated and the conveyancing process for houses is opaque, its makes sense to pay good money for this service. Nowadays you can practically do it yourself. Other less traditional areas, such as hedge fund management, now have that same opacity and rent seeking opportunity instead (although that is changing). So if you went into the provincial solicitors business today expecting the same kind of rent seeking that you got in the 1950’s you are going to be disappointed.

        Personally, as someone who has worked most of his life in developing countries where absolute poverty is really an issue, and having also been brought up in dire poverty myself, I can’t really bring myself to worry about little Timmy not being sent to the right public school.

  4. Strategist says:

    The future is in marrying money and living off rents. It’s all there in Piketty, guthrie

  5. Pingback: Economists! Be more Marxist | Homines Economici

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