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Warning: the minimum can go up or down

July 9, 2012

Or are we stuck in a living standards ratchet?

As the average person becomes better off, what happens to the minimum that people need, in order to participate in society at an acceptable level?

In 2006, my colleagues and I set out to answer this long-standing social question, in an era of ever-growing prosperity.

Common sense tells us that the minimum rises: we do not expect people to live on a Dickensian minimum today. But how much does it increase? There is no empirical evidence to support the assumption (used when calculating relative income poverty) that minimum needs rise in exact proportion to average incomes. Indeed, one might expect them to rise more slowly, since in a very poor society the average person may have only just enough to meet basic physical needs, while in a rich one people have many more things than those considered essential. But the fact is, we don’t know.

Amongst its many other ambitions, the Minimum Income Standard (MIS) project offers a unique opportunity to monitor over time how much households need for a minimum acceptable standard of living. Since the minimum is based on what members of the public say is needed to participate in society, this is a socially defined minimum that changes to reflect contemporary norms. 

Sadly, our ambition of monitoring the effect of rising prosperity on the minimum has had to be put on hold. We brought out the first MIS figures in 2008. A year later, the longest continuous period of personal income growth on record went into reverse. Since then, median household incomes have fallen, by perhaps 8 per cent, to a level similar to that of a decade ago.

This however raises an equally important question for our times. Where general prosperity falls, does the minimum acceptable fall too? Our2012 MIS research suggested the answer has so far been broadly “no”. Once we have grown to expect a certain minimum living standard we do not rapidly scale down these expectations as things get tougher. The effect of falling incomes is rather that more people are unable to reach this socially defined minimum.

All this points to a certain ‘ratcheting’ effect of rising incomes that is understandable. Long-term changes in the ways we live are not easily reversed. In the past few decades, for example, services have become less localised, changing the nature of travel costs. Childhood has transformed, and parents expect to pay for more activities than they once did, or risk their children being excluded. Such norms do not change quickly, whatever the economic context.

This does not mean everything is fixed. Already there have been a few ways our groups have identified thriftier, but still acceptable, ways of living – such as giving a lower-cost birthday present to your partner, or going out to eat less often. But these changes are limited by the very modest existing level of the minimum, compared to how many of us live. A foreign holiday, for example, was never included: a week’s self-catering in the UK is considered the minimum required each year, and this has not changed.

Maybe in future, a sustained period of enforced austerity could cause people to say you don’t need a holiday at all. This would be a signal that the realities of tougher economic times are changing fundamentally how we think about meeting our needs. But for now, our research suggests that, despite straitened times, the British public is not yet rethinking what is acceptable as a minimum.


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