Thursday, 8 May 2014

Piketty and Inequality in Ireland

Cormac Staunton: Considerable attention is being given to Thomas Piketty’s influential work on economic inequality – “Capital in the 21st Century”. As Piketty’s book is discussed more and more, it is important to understand what his analysis means for Ireland, and not dismiss Ireland as a ‘special case’ to which his findings do not apply.

One of the great advantages of his work is that it is rooted in an enormous volume of data, which he has helpfully made available through the “World Top Incomes Database”. It can be accessed here.

The analysis includes data from Ireland (courtesy of Brian Nolan) which give us an insight into the changing nature of inequality over time, and can be used to compare Ireland with other countries. I've used the data to make four observations about inequality in Ireland – see below.

The IMF, the World Economic Forum, the White House and many others are paying more and more attention to the growing risks associated with economic inequality. Looking at the data for Ireland shows us that it is something policy makers in Ireland need to take seriously too.

1. Piketty’s findings about growing inequality, and its implications, are as applicable to Ireland as anywhere else.

While the levels might not be as dramatic as in other countries, we are witnessing the same phenomenon in Ireland of a steady rise in economic inequality, after a decline in the middle of the last century.

2. Inequality in Ireland grew as the country became more prosperous.

As the economy grew in Ireland from the early 1990’s, the share of all income earned by the top 1% in Ireland rose very quickly.

Over the same period, the proportion earned by 90% of the population fell.

 3. The gap between the average income of the top 1% and average incomes of everyone else has also risen significantly.

The actual income (in euro terms) of the top 1% in Ireland has risen dramatically since the late 1980’s, while average earnings have risen much more slowly.

4. Despite the downturn, levels of inequality in Ireland have remained high.

The "World Top Incomes" data on Ireland only goes to 2009, and appear to show a reversing of the inequality trend after the crash. However data from the CSO Survey on Income and Living Conditions (SILC) show that 2009 was an unusual year. Since then, overall levels of inequality, as measured by the Gini coefficient, are once again on the rise. They are now back to almost the same levels as before the crisis, and are above the OECD and EU averages.

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