Monday, 16 February 2015

Response to Dan O'Brien's 'Bunkum' Article

Nat O'Connor: Dan O'Brien writes that "claims about great inequality in Ireland are just bunkum". Having had a look at the arguments in support of this position, there is much data Dan O'Brien is ignoring.

DOB: "it has always been clear from the available data that the gap in Irish incomes between the richest and the poorest at any given time has been in line with averages in peer countries."

We have data on the Gini coefficient of overall income inequality, which shows us that it is slightly lower than the EU average. But this statistic doesn't give us fine detail about the mix of high, low and and middle incomes across society. Different countries can share the same overall level of income inequality, but have different combinations of high and low income.

Even when we look at Gini statistics (and there is more than one), we know that before taxes and welfare, Ireland has the highest (most unequal) spread of income in the OECD. That means that wages, salaries and other incomes go to fewer people, and more people have low or zero incomes. (In this respect, Ireland is very different from peer countries).

Dan O'Brien argues that "those figures show no trend toward higher income inequality in Ireland over the decades, as has been the case in many other developed countries."

If O'Brien means Gini after welfare, than it is fairly constant. But Gini before welfare has been rising, according to OECD data here.

And, using another common measurement, the top 20% has 4.1 times the income of the bottom 20%. That's up from 3.4 times in the period 2004-2006, which is a large increase (Eurostat). But O'Brien doesn't name the statistics or sources he is relying on when he claims "available data" shows no rise in inequality.

John FitzGerald (TCD, formerly ESRI) addressed wage inequalities at an Oireachtas committee on 21 January: "A really important research question, to which I do not have an answer, is why market incomes in Ireland are the most unequal in the OECD area. That is the puzzle. The welfare and taxation systems have to do considerable running to make a really big difference. I do not know whether the members have an answer to the question. It is an important question that deserves a response but I am afraid I cannot answer it." (Oireachtas Joint Committee on Education and Social Protection)

TASC's report makes the point that we cannot make the assumption that tax and welfare will continue to doing the necessary running to keep this growing 'market inequality' in check. Especially with political pressure to cut taxes.

DOB: "Ireland's distribution of wealth is very similar to its peers - in this case, other members of the eurozone."

This is true. And Ireland's home ownership does play an important role in distributing wealth. But many of the old routes to home ownership - like purchasing local authority housing - were unsustainable. The current social housing stock is more likely to be flats, or in more peripheral locations. The access to housing for one generation has meant inequality for the next generation, unless policies are introduced to increase the supply of affordable housing.

However, the new wealth statistics released by the CSO/Central Bank also show that the top 20% have 70% of all net wealth assets (page 86 here). Despite home ownership spreading the wealth, it seems likely that both more expensive housing is concentrated at the top of society, and that non-housing assets are also more unequally distributed.

Meanwhile, long-term residential leasing is weakly protected in Irish law and does not offer a secure option for families and older people. If more people rented, than Ireland would have higher wealth inequality (like the Nordic countries or Germany) but they would have their material needs met more adequately, which is the more important end-goal focused on in TASC's report.

DOB: "we now know that claims of Ireland being very unequal are utter bunkum - as measured either by incomes or wealth. The only other aspect of comparative equality that could trouble those who claim this country is very unequal is its limited social mobility - that is, the frequency with which those who are poorest at one point can become richer over time. Alas, nobody yet has the answer to that one - because we don't have any hard data on the extent to which the already rich remain rich and the already poor remain poor. ... my hunch is that Ireland is better than average on mobility. One reason to believe this is education - among the most important, if not the most important, means of facilitating social mobility. [...] But my hunch may be wrong. For instance, the professions are still stitched up by the well-to-do and their offspring."

This is where the TASC report comes to a very different conclusion. Firstly, rather than social mobility being the "only other aspect of comparative inequality" worth looking at, the TASC report looks at seven factors related to economic inequality: Income; Wealth; Public Services; Taxation; Family Composition; Capacities; and the Cost of Goods and Services.

Take the last point, the cost of living in Ireland for actual individual consumption is 20% higher than the EU average, allowing for purchasing power differences (Eurostat). That means housing, energy costs, food costs, etc. It means that someone in Ireland could have the equivalent income to someone in Germany or France (countries with the same Gini coefficient) but would meet less of his/her material needs for the same income. It is in this context that Ireland's Gini coefficient needs to be understood in terms of day-to-day economic reality. Individual consumption in France costs 10.9% more than the EU average but only 2% more in Germany, whereas the latest figures for Ireland shows actual individual consumption costs 22.9% more than the EU average. The higher cost of living in Ireland makes low incomes effectively 'lower' than their cash value, because people on low incomes in Ireland can purchase fewer goods and services than their German or French counterparts.

Another aspect of economic inequality is how public services can meet people's needs directly, reducing the number of things that have to be purchased out of people's incomes. For example, public transport in France is highly subsidised, and Germany has much more extensive subsidised public housing for people to rent (and recently reintroduced rent control to limit housing costs). People on modest incomes in other countries pay more social insurance and more tax than in Ireland, so they may have lower disposable cash incomes. But they can often meet their material needs more successfully because public services and subsidies are provided.

As for social mobility, Dan O'Brien is right to note that people may move between 'low' and 'high' incomes across their working lives, but 27% of the working age population only have lower secondary education. While half of younger age cohorts will go on to third level, that doesn't suit everyone. Are we building an economy that excludes older people (who never had educational opportunities) or younger people (who don't fit the mold)? A very different argument to 'social mobility' is to ensure that every person can meet their basic material needs to a decent minimum standard. This is where Ireland's inequality is most stark: so many people - including people working full-time - are experiencing material deprivation, and cannot meet their basic needs. And the social mobility argument often implicitly blames those who don't have the right mix of capacities and opportunities to do well in the economy.

The TASC report purposefully goes beyond top line income or wealth inequality statistics in order to show that the economic and social policy issues to be addressed are much deeper, nuanced and require a comprehensive strategy. There is much evidence that many people's lives in Ireland are affected by real economic inequalities, whether it is the root causes of low wages and joblessness, or the higher cost of living - including the costs associated with accessing public services.

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