We live at a time when growth in living standards has been extremely weak, the gap the between rich and poor remains high by historical standards, and important dimensions of inequality – in particular between generations – have been widening further. IFS has a long history of advancing our understanding of the determinants of inequalities in income, consumption and wealth, and of the impacts of policies on these inequalities. This area continues to be a core part of our research agenda.
IFS’ contributions to this area of work have been manifold. IFS researchers were the first to put together consistent data on the distribution of household income since 1961 and, on that basis, to highlight the rapid rise in income inequality that had occurred during the 1980s - which is still to be unwound. These data remain the central source of historical data on income inequality in the UK and IFS, as well as others, continue to use them extensively, including in our annual reports on living standards, poverty and inequality.
Through a number of seminal academic contributions, we have led in the scientific understanding of the relationships between different measures of material resources, such as income and consumption. We have developed techniques to assess whether changes in the distribution of resources reflect permanent changes in the relative welfare of different people (e.g. a change in the return to certain skills caused by technical progress) or merely changes in the frequency of short-lived events (e.g. temporary spells of unemployment); and for assessing the degree of insurance that people have against both permanent and temporary shocks to their income, and hence the extent to which they are able to mitigate the effects on their standard of living. We have also been world leaders in understanding the impacts of key policies aimed at addressing inequality, such as tax credits, both in terms of their short term effects on working behaviour and their longer term dynamic effects on labour market attachment, wage progression and consumption and saving decisions. This has included work looking at how insurance varies according to one's circumstances and labour market history, and the role of specific mechanisms such as spousal labour supply in providing this insurance.
Our current research agenda is building on many of these techniques in order to answer the key questions of the day. This includes studying the long term impacts of universal credit – the UK’s biggest overhaul of the welfare system for decades – on employment and wages, the determinants of wage progression over the lifecycle for men and women and hence the causes of gender wage gaps, and the impacts on inequality of financial transfers between generations.