There is a persistent belief that the high pay of the few has suppressed the wages of the many. The data says differently, writes Paul Ormerod

Inequality has become a persistent theme in politics. And it is currently on conspicuous display in the World Cup.

The players in top teams will each be earning millions of pounds a year. Those in the bottom ranked teams would count themselves lucky to be paid that amount over their entire lifetime, as indeed would most of the viewers on television.

These vast payments are a very modern phenomenon. 

When England won the World Cup in 1966, stars such as Bobby Charlton had begun their careers when the maximum wage was fixed at £20 a week. No one was allowed to earn more. A decent sum, maybe around £100,000 a year in today’s money. But many of the current squad will make this in a week or even less.

Advances in technology have enabled this boom in top pay. Because of a truly dramatic increase in the level of connectivity in society, highly talented individuals have been able to leverage their talents across global markets and capture rewards that would have been unimaginable in earlier times.

This is certainly the case with stars of popular culture and sport. A hundred years ago, for example, the only people who could have any direct experience of Manchester United – Bobby Charlton’s club  – playing soccer live were those present in the stadium during the game. Now, the team can be watched by literally billions around the world, using a variety of delivery channels. 

Wage growth since the financial crisis

These fortunate and gifted few apart, there is a widespread perception that wages for everyone else have been held down.  

But both here and in America, the data tells a completely different story. Since the financial crisis, real wage growth has indeed been historically low. But this is not because of a shift in the overall share of national income from wages to profits. It is because economic growth itself has been historically low.

The Office for National Statistics (ONS) produces estimates of the share of national income which goes to labour. In other words, to wages and salaries, including factors such as employer contributions to pension schemes.

The modern ONS data on this starts in 1997. In the late 1990s, wages and salaries counted for around 58 per cent of national income. In the 2020s, the figure is actually slightly higher, at around 60 per cent. The share has essentially been stable at 58-60 per cent for the past 30 years.

Economic historians have compiled longer series of data, and the present level of the share of wages in GDP is very similar to what it was in the 1950s.

The American data reinforces the story. In the early 1950s, for example, the wage share was just over 60 per cent, exactly where it has been in the 2020s.

True, there was an increase in the 1970s and for some decades the share was around 65 per cent. The financial crisis led to a squeeze on this figure, but there is certainly no evidence of a sustained decline since then. If anything, the wage share is now slightly higher than it was in the immediate aftermath of the crisis in the late 2000s.

A key part of many political narratives at the moment is that money is flowing out of the pockets of the workers into the bank accounts of companies. Profits are far too high, and we live in a rip-off society.

It is a particular appeal of Zack Polanski’s Green Party to the young graduates who flock to its support. Many of them are hardly earning enough to start paying off their student loans. It is all so unfair.

But the narrative is at odds with reality. Living standards are stagnant because the economy is stagnant, not because income is flowing from workers to profits.

Paul Ormerod is an honorary professor at the Alliance Business School at the University of Manchester. You can follow him on Instagram @profpaulormerod