Thursday, 1 December 2011

The impoverishment of Ireland

Michael Taft: The CSO has produced the preliminary results from the annual EU Survey on Income and Living Conditions. And the results show an inexorable decline into poverty, deprivation and hardship (see also Sinéad Pentony's post here).

The headline figures show that those ‘at risk’ of poverty have increased from 14 percent in 2009 to nearly 16 percent last year. However, we should treat this cautiously for it is not an absolute measurement. This ‘at risk’ figure is based on 60 percent of the median income (that is, the figure at which 50 percent of the population is below and 50 percent above). When the median figure falls, as it will during the recession, so does the at-risk poverty threshold of 60 percent.

Since equivalised median income fell between 2009 and 2010, so did the threshold – by `10.2 percent each. This sets up the anomalous situation whereby someone on an equivalised income of €12,000 in 2009 would be below the at-risk threshold. If their income fell by 5 percent last year you’d assume they would be worse off (and they would be). However, since median income fell (and, so, the threshold) by a larger amount, that person is now not considered at-risk of poverty.

This doesn’t undermine the validity of the relative at-risk threshold – but we should always be careful about what relative measurements tells us and what they don’t. For instance, even with the threshold falling by 10 percent, there are still more people in the at-risk category.

There is, though, another measurement we can turn to that assesses in absolute terms another definition of poverty: the deprivation indicators. This measures how many people experience certain types of enforced deprivation. This tells a rather alarming story.

The most widespread deprivation indicator shows that one-in-five of our fellow Irish residents can’t afford to replace worn out furniture (this rises to 30 percent among those living in poverty risk but even those not living in poverty risk suffer nearly the national average).

Further, we are creating a nation whereby a number of people cannot afford simple social activities – an evening out, having friends over. These are top deprivation categories. That one-in-ten can’t afford heating at some stage (rising to nearly one-in-five for those living in poverty risk) tells a real story of unhealthy living standards.

The growth in just the past few years in people suffering these deprivation experiences tells the real story behind the growing impoverishment of Irish society.

More than one-in-five of all people suffer two or more of the above deprivation experiences. Almost as many who are not at risk of poverty also suffer these experiences. This is a serious indictment of the failed austerity policies. These proportions have risen dramatically since 2007.

It is likely that deprivation will increase. These numbers take us up to 2010. However, the last budget cut social protection rates, Child Benefit and Rent Supplement, while imposing extra taxation (though the USC and cutting personal tax credits) on the low-paid. This will drive more people into more deprivation experiences.

The idea that we can promote economic growth and repair public finances with policies that drive more people into deprivation is an economic nonsense and a social obscenity. In the run-up to the Budget all Government Ministers and backbenchers should memorise and internalise these figures.

And act accordingly.


Anonymous said...

The publication of the 2010 SILC data also raises a key question about analysis of the distributional impact of the recession to date and in the years ahead

The SILC data is our best source on movements in the distribution of household incomes. These results are based on data collected from January to December 2010 i.e already a year or so ago and there will be a lot more factors impacting on household incomes before the next SILC results are published a year or so from now.

In principle it should be possible to provide a more up to date picture using microsimulation and this has been done using the ESRI's SWITCH model - and the SWITCH results have been taken up widely in public debate - including op eds in the Irish Times, posts on irisheconomy and so on.

However the latest SILC data suggest that there is something seriously awry with the microsimulation analyses of distributional change in the recession that we have seen to date.

Specifically the 2010 SILC records a significant increase in income inequality - with for instance the gini co-efficient - which fell from 32.4 in 2006 to 29.3 in 2009 - jumping up to 33.9 in 2010.

Contrast this survey finding with the most recent simulation analysis (Brian Nolan , Tim Callan and Bertrand Maitre 'Chapter 4: Case Study Ireland' In Stephen Jenkins, Andrea Bradolini, John Micklewright and Brian Nolan (July 2011). ‘The Great Recession and the Distribution of Household Income’)

which states:

“As we will show in this chapter, the evidence suggests that while GDP per head (in constant price terms) has fallen to levels previously seen a decade earlier, and many households have seen significant real income losses, the overall pattern of market income changes taken together with the tax and social security policy response has hit the better-off proportionately more than those on low incomes, so that commonly-used summary indicators of income inequality have declined.”

and :

“Taking 2008 as the base year, the model has been used to simulate household incomes and produce key distributional indicators for 2011. The results show the share of the top decile group falling substantially by almost 2 percentage points and the next decile group from the top seeing a marginal fall, with the corresponding gains in income share being spread throughout most of the rest of the distribution; the Gini coefficient thus declines. .... These simulation results suggest that the broad distributional pattern of impacts from the recession observed to 2009 – i.e. declining overall income inequality and relative income poverty - may well have been sustained through 2010 and 2011, despite the reductions in social transfers for working-age recipients implemented in those years."

The question of how the burden of adjustment is shared is of crucial importance - whatever ones views about the macro debate on austerity and growth. It follows that the quality of the distributional analysis informing public and policy debate is also of crucial importance. It appears then that some explanation of this discrepancy between the simulated and the actual outturn is urgently needed.

Laurence Bond

Michael Taft said...

Laurence - this is an extremely important point. Such models tend to average out the macro-impact of falling wages/incomes. However, in the real world we know that higher income groups are better able to protect their wages/incomes (they may be organised, have skills in higher demand, be in positions to control wage levels such as management, etc.). Models find it difficult to account for this - at least, apparently, the ESRI ones.

However, the EU-SILC actually surveys the impact at household level. While we will have to await the full publication, even the preliminary results bear out your point. Not only in regards to Gini co-efficient (which is a significant one-year increase) but in the quintile ratio which sees it rising from 4.3 to 5.5. No doubt when the full distributional analysis is produced we will see the higher decile groups maintaining their living standards with the rest experiencing substantial declines.