David Kingman reports on the launch of IF’s Intergenerational Fairness Index, which assesses how intergenerational unfairness has worsened in the UK during the last 20 years
On 26 June 2012, the Intergenerational Foundation marked the formal launch of the Intergenerational Fairness Index, representing the first attempt which has ever been made to systematically measure intergenerational unfairness across time by tracking a range of indicators.
Growing unfairness
The index works by examining data from nine areas which involve some form of contract between the generations – including housing, government debt, the burden of paying for pensions, and the environment – and then combining the numbers from each area to produce an overall measure of intergenerational fairness.
One or more metrics (things which could actually be measured) was found for each of these areas; for example, intergenerational fairness in unemployment was measured by comparing the proportion of young people who were out of work with the UK average for all age groups.
Data for each metric was assembled going back to 1990, and then a statistical formula was applied to the entire data-set which produced an overall value for the index.
The index was designed in such a way that for the year 2000 it had a level of 100, and then the data for each subsequent year was applied to the formula so we could observe how the picture changed as time progressed.
The results showed that overall intergenerational unfairness has worsened in each successive year since 2000, with the index having reached a level of 128 by 2010 (the last year for which all the data was available). The deterioration has been exacerbated by the global financial crisis of 2008; whereas in the years before 2008 the index was rising by an average of 2 points per year, since the crisis hit it has gone up by 6-7 points per year.
The two most significant drivers of this growth have been the worsening government debt position, which was adversely affected by the large sums that needed to be borrowed to bail-out financial institutions, and also the growing pension liabilities of the UK government, which have increased in recent years following actuarial re-evaluations.
Several safeguards were deployed to ensure the conclusions we reached were reasonable. To avoid any of the data being skewered by inflation, we used a GDP deflator, while we also made sure that all our data sources were measured on a per capita basis in order to discount the impacts of population growth.
What does this result mean?
The growth of intergenerational unfairness in the UK should be a serious concern for policy-makers, not least because it threatens to undermine the social contract underpinning the welfare state. If young people feel they are being forced to help support a system which offers them little in return, their frustration and disillusionment is only likely to grow, which could have serious implications for the health of our society at large.
There is also a strong moral argument that the older generation who are in power currently have a responsibility to leave British society in stronger shape than they themselves inherited – a responsibility which our frayed generational relations indicate they have not addressed seriously enough.
Professor Laurence J. Kotlikoff, the man who first proposed intergenerational economics in the United States, wrote the foreword to this report in which he used the strong phrase “intergenerational child-abuse” to describe how those in power have acted towards the generations who will come after them. The outlook doesn’t have to be this bleak, if the present generation will start taking its responsibilities towards the future more seriously, but so far the measures used in the index suggests this is unlikely to reach fruition.
This is only the first version of the Intergenerational Fairness Index; our plan is to update it yearly, using the most recently available data, in order to track how the picture changes. We will keep all our followers up to date with future developments.
To access the first report of the Intergenerational Fairness Index, please follow this link:
http://www.if.org.uk/wp-content/uploads/2012/06/IFIndex_defin.pdf