More than half a billion people earn the same, or less amount of income than their peers a decade ago.
The Wall Street Journal reported Monday that “between 540 million and 580 million people in 2014 had lower or stagnant incomes than similarly situated people in 2005.” This finding diverges from the long-standing belief that in advanced post-World War II economies, the living standards of the next generation are better-off than their predecessors’ financial standings.
Richard Dobbs, a senior partner at the McKinsey Global Institute, said that prior to the 2007 financial crisis, “all but 2% of people in the Western world ended up better off than people like them 10 years ago.”
McKinsey conducted a study of households in the U.K., France, and the U.S. and found that “30% to 40% of people said their incomes hadn’t advanced.” A finding that illustrates the economic fallout of the financial crisis and the global impact it left behind.
Typically, research tends to focus on the income discrepancy between the top 1 percent of earners and the other 99 percent. Other studies focused on the share of the population in poverty, or the rise of the lowest fifth of wage earners to higher positions.
McKinsey chose a different approach. It focused on juxtaposing households today with similar households ten years prior.
McKinsey found that while household dynamics have changed, the “income percentiles are lower today than a decade ago.” If this trend does not change, the report foreshadows that “today’s younger generation is at risk of ending up poorer than their parents.”
The report is not all doom and gloom.
Roughly “one-third of households bucked the trend” of wage stagnation. For instance, in the U.S. “households from the 80th to 95th percentile gained, underscoring the extent to which America’s upper middle class has thrived.”
Governments across most advanced economies have tried to hinder these wage losses through inflation rates and subsidies. When looking at disposable incomes — the amount of money individuals have to spend freely after tax and other obligations — the report found them lower for “only 20% to 25% of households.”
McKinsey concluded that “these trends could continue in the decade ahead, and that most households in advanced economies could experience another a decade of stagnation.”
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