Wednesday, 2 December 2015

Troubling levels of inequality within economic recovery

Rory Hearne: There has been much debate in recent months about economic inequality. Last week’s Survey on Income and Living Conditions by the CSO reveals some very worrying trends that show Ireland is a deeply unequal country and that that level of inequality is worsening despite the economic recovery. The share of income going to the top 20 percent in Ireland has increased each year since 2011 and is now back at pre-crisis levels.

In contrast, the share of income going to the bottom 40% of the population has fallen. The CSO figures highlight, once more, the reality that rising economic growth does not automatically ‘lift all boats’. Indeed in Ireland’s ‘recovery’ the benefits from a growing economy are ‘trickling up’ rather than being spread more evenly across society.

Ireland’s Gini co-efficient, the most commonly used measure of income inequality worsened between 2013 and 2014 as it increased from 31.3% to 31.8% (see Figure 1). As the CSO (see link to the data here) notes, “ this indicates an increase in income inequality across the total income distribution”. This is the highest the level of inequality in Ireland since 2006 when the Gini was 32.4. Inequality has in fact increased each year since 2011.

Figure 1:
Gini Coefficient and Quintile Share Ratio 2005-2014

Source: CSO 2015

Another useful measure of inequality is the share of income held by quintile of the population. The CSO figures show that the top 20% in Ireland have almost 40% of the income while the bottom 20% have just 8% and the bottom 40% just 20% (Figure 2). This is indeed a deeply unequal country.

Figure 2
Share of Income by Quintile
Source: CSO 2015

The figures highlight that Ireland’s ‘success’ story of austerity and recovery has in fact left significant social ‘scarring’. This has taken the form of a major increase in the proportion of the population who are suffering from deprivation and are at risk of poverty. In 2004, for example, twelve percent of the population experienced two or more types of deprivation. In 2014, the figure had almost trebled to 29%, which is an additional 765,000 people suffering from deprivation.

This is not a ‘success’ by any measure. It highlights the danger in solely using GDP economic growth rates as the measure of ‘recovery’ and the necessity to include social and human impact indicators also. There were many worrying aspects in these figures but the persistence of the historically high deprivation rate must be of major concern.  The deprivation rate dropped by just 1.5% between 2013 and 2014. Neither economic growth nor government policies have addressed these unacceptably high deprivation rates.

The crisis years have had a profoundly unequal restructuring effect on Irish society with an additional ten per cent of the population now reliant on social transfers (welfare, FIS, grants, child benefit, housing support etc) to keep out of poverty than what was the case before the crisis and austerity. Half the Irish population would be at risk of poverty without social transfers. This raises huge questions about the long term impact of policies pursued in the last decade in Ireland and the sustainability of the type of economy, welfare system and public services that we have developed.

Ireland now has the second highest pre-tax and welfare income inequality in the OECD.   Essentially we have a deeply unequal economy with a large proportion of the population receiving either low wages or no wages and a minority on very, very, high incomes.  If we look at disposable income we can really see the gap between the top and the bottom. The average weekly household income (net disposable income after tax) is €161.78 for the bottom 10% and €298 for the second lowest 10%. The top 10% have €2129.88 per week which is thirteen times what the bottom ten per cent has in disposable weekly income or seven times the second lowest 10% of the population.

This means that the current reliance on a ‘jobs’ strategy as the principal solution to reducing inequality, poverty and deprivation is unlikely to work. Clearly the availability, type and quality of job matters hugely. And the CSO statistics reveal that poverty and deprivation rates for those at work actually increased significantly in the last year. The deprivation rate for households with one person at work rose from 33.8% in 2013 to 35% in 2014. The ‘at-risk of poverty rate’ for these households rose from 13.4% to 15.9%.

Having a job is not enough. A living wage and affordable housing, child care, and health care are required  to ensure low paid workers can get out of poverty and deprivation. There is also a need for an employment strategy that addresses the broad range of skills of the labour force and goes beyond the narrow ‘high-tech’ low corporate tax approach.  

The growing gap between the rising wealth and incomes at the top of society and the rest (or the 99%) has become a major problem globally. Even the IMF is concerned that rising inequality is affecting economic growth and social cohesion.

Richard Wilkinson, author of the ground breaking book The Spirit Level (on why more equal societies do better), said this week that the high level of market income inequality in Ireland should be of major concern due to the detrimental impacts on society well-being. It is not just concern for material poverty but the negative impacts on people’s sense of self-esteem and the knock on detrimental effects on their physical and mental health. For example, think of the negative impacts for the 20% of the population who are unable to afford to have family or friends for a drink or a meal or to go out and socialise.

Inequality and poverty are profoundly socially isolating and stigmatising.

That the recovery in the economy is leading to worsening inequality in Ireland should be of major concern for everyone. It shows that the free market, neoliberal approach of ‘trickle-down economics’ does not work. The latest CSO figures show the need for an honest and evidence-based debate on the type of recovery Ireland is undergoing and what needs to be done to ensure it is equitable and sustainable.

Dr Rory Hearne is a Senior Policy Analyst at TASC. You can follow him on twitter @RoryHearne

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