Wednesday, 22 July 2009

Sarah Carey looks at economic inequality

Sarah Carey has been mentioned in dispatches on PE before but, leaving aside her slightly problematical historical analysis, today she’s on the right track when she notes that:

“[...] this relative equality was undone during the Tiger years. [....] Inequality made a comeback not because the poor got poorer, but because the rich got richer and the number of rich people increased enormously.”

This thesis is borne out by much of the data in TASC’s recent briefing document The Solidarity Factor, issued to coincide with the release of survey results showing that 85 per cent of respondents believe wealth is distributed unfairly in Ireland, while the same proportion – 85 per cent – believe that the Government should take active steps to reduce the gap between high and low earners.

However, one can certainly quibble with Ms. Carey’s conclusion that:

“Statistics will probably show that in the next three or four years Ireland will be a more equal society than it has been for the last 10. Not because the poor are catching up, but because the wealthy are falling back.”

Given the current attacks on the incomes of those at the bottom of Ireland’s money pyramid (ranging from the proposal in the An Bord Snip Nua Report that Social Welfare rates be cut, to Finance Minister Brian Lenihan’s statement at the McGill Summer School last night that “if the minimum wage becomes an obstacle to job creation the Government will have to look at it”), it seems unlikely that the gap between high and low earners (never mind the gap in terms of asset wealth)is going away any time soon.

Incidentally, with regard to the minimum wage it’s worth having a read again of Paul Sweeney’s very first post on this blog, back in February, when he looked at the whole issue of wages and competitiveness, as well as Terry McDonough’s post illustrating why wage cuts are not a good thing.


Sarah Carey said...
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progressive-economy@tasc said...
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Sarah Carey said...

Time to stop lurking I guess...
Brian Nolan from UCD made an interesting presentation at the Irish Economy conference.This comment is based on memory - I don't have my notes in front of me. As I recall he tracked "equality" data in the EU. Regardless of the top and bottom levels in each country the pattern remained the same. When the economy improves the top layers race ahead thus increasing inequality. There tends to be a time lag (I think 3-5 years?) before the bottom layer makes up the difference - the time it takes for an improvement in the economy to trickle down. The same thing happens when an economy falters. The top 10% take the first hit and fall back. At a slower pace the dip hits the underclass. What I'm wondering today in that column is: in 3-5 years, what will the gap look like? I'm guessing narrower than it is today so technically we'll be "more equal" ie, we'll all have come down a notch, but the top will have dropped further than the bottom. And remember this is what I think will happen, not what I think should happen. It's similar to the 1930's where the Economic War followed/coincided with the Great Depression. We were more equal but only because we were all poorer.

progressive-economy@tasc said...

@Sarah Carey: Brian Nolan’s presentation is available on video here:

His general thesis was (I’m paraphrasing here) that, during times of economic growth, social protection payments lag behind take home pay, and are vulnerable to the inflation associated with a boom, while – during a recession – the trend is more or less reversed.

The point is that, at present, we are witnessing attacks on both wage levels and social protection payments.

Regarding the latter part of your comment (re. the 1932-1938 ‘Economic War’ and the thesis that ‘we were more equal but only because we were all poorer’), Brian Nolan – in the chapter on ‘Long-term Trends in Top Income Shares in Ireland’, in ‘Top Incomes over the 20th Century: a Contrast Between Continental European and English-Speaking Countries’ (ed. Atkinson & Picketty, OUP, 2007) points out that:

“[...] the Irish government pursued a more broadly based protectionist strategy from the early 1930s, via a range of tariffs and quotas. The result was a squeeze on farm incomes, but a rapid increase in domestic industrial production during the period from 1932 to 1938. This may have contributed to the sharp increase in the share of income going to the 0.1%, but that is highly speculative.”

It seems that, just as rising tides do not lift all boats, the reverse may also be true: all boats are not equally vulnerable to ebbing tides...

Sarah Carey said...

Oh ok, so during the boom the gap widens because of the slower trickle down but during the recession the trickle down effect is accelerated.
You have to love the measured language to describe the shocks of the 1930's "broadly based protectionist" "squeeze on farm incomes". All day I've been contacted by people with their memories/stories told to them by their parents of the Economic War. In Cavan they were throwing calves into Lough Sheelin because there was no point rearing them. Economic ideology and the resulting human experience, then and now.

Slí Eile said...

The story of the 'economic war' in the 1930s is complex. Tied in with the international market crash from 1929 was the issue of land annuities, the position of the new Fianna Fail Government in 1932 and the perpetuation of bitter struggles arising from the Civil War and before. Middle to large farmers took a hammering especially. Along with this fascism reared its ugly head here. I don't know how overall economic inequality fared at that time. An economic historian might comment.

Surely, incomes dropped, unemployment rose and poverty was acute. Some industrial expansion occured behind tarrif walls. The strategy as a whole was a failure and was officially abandonned by the late 1950s.

Returning to the key issue about inequality -
when the economy was booming in the 1993-2007 period incomes rose for almost everyone. There is some evidence that relative poverty increased initially but levelled off from 2001 onwards. Certainly, rising employment did more to bring income into households previously affected by unemployment and poverty. Yet, for many the Celtic tiger barely happened - the invisible and not so invisible poor - homeless, fishing communities, lone parents, illegal and undocumented migrants and others.

The obscene rescue plan for the banks and some of their friends at the cost of taxpayers - and all of us who use public services will have devastating effects on those already vulnerable. The unfairness of it will be experienced 100 times more by those on basic social welfare and close to the minimum wage.

That's the point we need to attend to.

Sarah Carey said...

Well I agree with some of that but I think you're trying to avoid acknowledging the original point I'm making.
Isn't the distinguishing feature of this recession that its a "middle class recession". In the 80's large scale manufacturing jobs were lost. This time there is carnage amongst professionals. Take someone who has been long term dependent on social welfare, in a council house, with a medical card etc and the rates are cut by let's say 10%, even 20% if a range of cuts are combined. But thousands of architects/engineers/teachers/solicitors/builders are being made redundant. Surely their income is dropping at a significantly multiplied rate than whatever someone on social welfare will suffer? And when those people become long term unemployed they'll suffer even more because when the dole runs out (as it does after a year) they'll be means tested and will fail because they may have savings in some form or other e.g.a pension. (and I think figures out today show that we've been pretty good savers). SO they'll go from say, a 80-100k p/a income to €800 a month to nothing. In % terms - that's going to be a pretty big drop.
I agree that the Tiger sailed over the heads of many ( and I see that particularly in the country where rural off-farm incomes are considerably lower than in the urban areas) but that means the counter-effect will be smaller too. Middle class people on private pensions or relying on bank dividends are experiencing income drops far greater than an OAP totally dependent on the state pension. Ok, so maybe there is little sympathy for them (the dividend dependent OAP),and obviously someone who is operating at a subsistence level already will suffer disproportionately by any cut BUT purely on the maths - on a % basis the person who went from a professional income/lifestyle to a social welfare dependent one is experiencing a drop that is "100 times" more. That's the point I'm trying to make. We will be more equal but that "Equality" is going to arise because of a severe drop from the top. This is not a justification for social welfare cuts, but simply an observation of what is happening.

conor mccabe said...

@ Sarah Carey.

"Isn't the distinguishing feature of this recession that it's a middle class recession? In the 80s large scale manufacturing jobs were lost. This time there is carnage among professionals"

Well the answer to that is no. The two sectors to experience the largest drop in employment in the past 18 months are construction and retail sales.

"Take someone who has been long term dependent on social welfare, in a council house, with a medical caer etc, and the rates are cut by 10%, even 20%..."

Is that supposed to be typical of Ireland's unemployed? you might as well give us a picture of a farmer with a pig under his arm.

"But thousands of architects/engineers/teachers/solicitors/builders are being made reduntant. surely their income is dropping at a significantly multiplied rate than whatever someone on social welfare will suffer?"

It's a pity, then, that Ireland doesn't still have the European model of social welfare benefit - it was scrapped in the 1980s - where unemployment benefit is a % of your wage for the first 7 to 22 months So, instead of getting 204 euro flat rate, in France for example, you start off with 50% of what you were earnng, and then this decreases over time to the base rate. In Germany it's 60% of your previous salary. Ireland's "most generous" system is to give everyone the flat allowance rate - so even though people pay PRSI as a % of their income, what they receive is the flat rate regardless of their previous income. But you know this already, Sarah, haven written on Ireland's most generous social welfare system.

so, whereas in Ireland a middle class professional will see their income drop from 800 euro a week to 204 a week overnight, in France, the same professional will get 400 euro a week, while in Germany they'd get 480 a week. and of course, in France and Germany they have comprehensive public health care systems, which act to lower the cost of living, as well as rent control and strong rules against housing speculation - Germany having avoided a mortgage bubble.

progressive-economy@tasc said...

Sean O Riain's post on Class and Employment Decline is helpful in this context:

Proposition Joe said...


I'd agree that the "maintenance of status" welfare model has certain advantages, not least as a carrot to entice the middle class towards acceptance of higher social insurance contributions.

However, can you imagine the hue and cry in the liberal media that would ensue? The outrage-heavy Fintan O'Toole opinion piece practically writes itself: "Seanie Fitz gets twenty grand a week on the dole while Paula the redundant office cleaner has to survive on a mere 204 euros, for shame!"

Also Irish cute-hoorism being what it is, no doubt such a system would be abused on a grand scale. To be feasible at all, it would require absolutely rigorous enforcement of the actively-seeking-work requirement. And enforcement is not something at which the Dept of S&FA has excelled.

conor mccabe said...

@ Proposition joe,

I'm not the one saying that Ireland has the most generous social welfare rates in Europe, nor is it me who continues to make those a point about our "most generous" rates as if they actually exist. Ireland has PRSI-indexed rates of social welfare, but they're capped at 204 Euro. They start, by the way, at 91 euro - and that's for benefit. The criteria for allowance is another thing altogether.

you only have to look at Ireland's actual wage bands, and the numbers of Irish people in each band, to realise that over two-thirds of the working population is on less than 35,000 a year - approx. 674 euro a week.

I know the 20,000 euro a week was only an extreme example, a talking point, not a actual case point on your part, but at the same time I want to highlight that close to 2/3 of the working population on 2007 were on less than 35,000 a year, and 50% were on less than 29,000 a year. That's the reality of Ireland's median wage aggregates, but again, in the current climate and so-called "debate", a silly thing like empirical data is deemed "ideological", which is not only daft, it's unscientific.

with regard to the class and employment in Ireland, and the actual job losses in Ireland over the past 6-9 months, Professor Sean O'Rian,head of NUI Maynooth sociology Dept. has a great post on that very topic, the link to which is above as cited by the site mediator.

The fact that Professor O'Rian's post is actually based on empicial data - rather than based on a bunch of stuff that people pick up at dinner parties or read about in a thread on - puts it out of the terms of reference of the "debate" on wages, class, and the Irish economy, as practiced by the vast majority of Irish journalists and commentators.