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Getting more unequal

Ireland is one of the worst in Europe, and getting worseSinéad Pentony 

 

There has been ongoing debate about how the economic and fiscal crisis have affected different income groups. However, the latest information provided by the Survey of Income and Living Conditions (SILC) is unequivocal. There has been a stark rise in income inequality and poverty.  The survey is also carried out in other EU member states which allows useful comparisons to be made.

There are two key measures of income inequality – the Gini coefficient and the income quintile share ratio. SILC show us that income inequality between 2009 and 2010 increased on both measures.

The Gini coefficient assesses the distribution of income across the population. The closer the Gini coefficient is to 100, the higher the level of inequality. The Gini coefficient increased from 29.3 to 33.9 during this period. It now stands at the highest level since this measure was introduced in 2004. When compared to other EU countries (see chart one) Ireland is among the countries with the highest levels of income inequality.

The income quintile share ratio involves taking the share of income of the top 20% of the population and dividing it by the share of income received by the bottom 20%.  The higher this number, the higher the level of inequality.  The average income of those in the highest 20% of earners was almost 5.5 times that of those in the lowest 20% of earners in 2010. This ratio was 4.3 between 2008 and 2009. This represents the biggest single-year increase in income inequality experienced in any country since the EU started recording this data. When Ireland is compared with other European countries (see chart two), we are once again grouped with the countries that have the highest levels of inequality.

Another key indicator measured by SILC is the ‘at risk of poverty’ threshold. This looks at the percentage of individuals living on 60% or less of the median income.  Between 2009 and 2010 this median income threshold fell from €12,064 to €10,831, reflecting declining incomes and cuts in social welfare payments over the previous number of budgets. Despite this lower threshold, there was a sharp rise (12%) in the number of people who are now classed as being ‘at risk of poverty’. This rose from 14.1% in 2009 to 15.8% in 2010. The proportion of the population ‘at risk of poverty’ is now back to 2006-2007 levels.

One of the most striking figures in SILC is the 30% increase in the deprivation rate. This is defined as going without two or more items that are deemed essential for meeting basic living requirements – for example, being unable to afford heating or new (not second-hand) clothing. The deprivation rate increased from 17.1 per cent to 22.5 per cent between 2009 and 2010.

Children are the demographic group most ‘at risk of poverty’, with one out of every five children falling into this category.   Single-adult households with children are at greatest risk, with just over one in five such households deemed to be ‘at risk of poverty’.

The SILC data provide useful detail on income levels. The poorest 10% of households had a disposable weekly income of €174.24 and the average size of these households was 1.5 persons. The richest 10% of households had a weekly disposable income of €2,369.53 a week and the average size of these households was 3.6 persons. Between 2009 and 2010 the income of the poorest 10% of households fell by 18.6%, while the income of the richest 10 per cent rose by 4.1%.

 

M

ichael Taft, of Unite union, analysed income distribution in Ireland in comparison to other European countries using 2010 SILC data (http://notesonthefront.typepad.com). Equivalised income is a measurement of income that factors in the number of people in a household. He shows that high-income groups in Ireland take a larger share of equivalised income than in other EU countries. The top 1% of earners takes over 6% of total income in Ireland. Throughout Europe the top 1% takes 4.6% and in Sweden the top 1% takes only 3.7%.

The current SILC data are for 2010. These figures do not take account of the last two  budgets, which included the introduction of the Universal Social Charge; cuts in social welfare and child benefit; reductions in personal tax credits; and an increase in VAT.  These budgetary measures were regressive and will have a disproportionate impact on low income groups.  Therefore, we can expect to see income inequality deepen.

EU evidence shows that a strong social safety-net is crucial to maintaining the incomes and living standards of those who have been most affected by the recession and are least able to absorb reductions in income. However, a comprehensive system of social protection is primarily funded through social insurance (PRSI) and Ireland has one of the lowest levels of social-insurance contributions in the EU.

Progressive taxation measures that are equality-proofed to ensure that they target higher earners are also required to reduce income inequality and poverty levels.  Efficiency savings in public expenditure should also be ploughed back into the provision of frontline public services on which low-income families depend.

The two most damaging crises of the last century – the Great Depression of the 1930s and the Great Recession of 2008 – were both preceded by sharp rises in income inequality.  During the past 30 years, a growing share of the global economic pie has been taken by the world’s wealthiest people.  The wealth gap has grown but without wider economic progress. In particular wages have not kept pace with productivity.

The significance of a growing “wage-productivity gap” is that it upsets the mechanisms necessary to achieve economic balance. Purchasing-power shrinks and consumer societies suddenly lack the capacity to consume.  This gap had been filled with private debt, which effectively delayed the recession but was ultimately unsustainable.

It is notable that the PIIGS bailout countries comprise (with the UK) the six least equal countries, measured by the Gini coefficient, in 2010 (see Chart One). Policies that increase income equality can play an important role in addressing the structural problems that contributed to the cause of the crisis and in creating the conditions for a sustainable recovery. However, it would appear that these lessons have yet to be learned.