Regional earnings inequality in Great Britain: a decomposition analysis

Abstract

This paper investigates the degree of earnings inequality in Great Britain over the period 1975-96 using individual-based data. It finds that the contribution of within-group inequality to both earnings inequality cross-sectionally and to its trend over time is substantially more important than the contribution of between-group inequality. Thus, the primary source of increasing inequality in the overall earnings distribution is increasing inequality within regions and not differences in average earnings between regions. A decomposition of the Gini coeYcient is also adopted to illustrate how regional convergence in average earnings has been accompanied by increasing overall earnings inequality in the UK.