News Brendan Keenan

Saturday 23 August 2014

Uncovering different types of inequality in jobless figures

Published 26/06/2014 | 02:30

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Ireland comes out badly in the data compiled by the UN

Monsieur Thomas Piketty made quite a media splash last week. The new superstar of economics – or, as he would prefer, social science – did a number of interviews during his trip to Dublin for the Tasc conference, including one with this correspondent.

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No doubt the personable Frenchman is enjoying his overnight success, after 15 years of beavering away at mountains of historical data. No doubt, too, he will learn that one cannot say yes to every request, but he has a message to deliver. The intriguing question is why there is so much interest in his message.

Some of it reflects the remarkable piece of work that is his book, 'Capital in the 21st Century'. But he also touched a chord that almost everyone recognises (certainly everyone in the media) – fascination with the rich.

Scott Fitzgerald's immortal phrase goes along the lines of: 'The rich are different. They have more money.' Piketty's book shows why they have and claims they are going to continue getting more and more different from the rest of us.

But this fascination with the rich carries dangers.

The Piketty phenomenon overshadowed another report on another kind of inequality. This came from the National Economic and Social Council (NESC), the government think tank which represents the social partners, and the rich barely get a mention.

The fact that the rich are different from us means that, if we concentrate on them, the rest of us do not have to take responsibility for the state of affairs on show in the NESC report. There is much clamour for Piketty taxes on the wealthy, very little for more taxes on middle income groups, and none at all for extra taxation, or fewer benefits, for the bottom third.

The NESC report does not do much of that either. But it does show a far more complex situation than most of us know about. Even those who do know about it have very little idea how to fix it.

The shocking headline figure is that almost a quarter of households in Ireland can be described as jobless, compared with a European average of 11pc. Other economic studies have looked into this extraordinary discrepancy but it has never become a major point of discussion.

Some of the symptoms get a lot of attention. One is the question of inequality. Ireland comes out badly in the data compiled by the UN. Everyone then throws a Piketty and starts complaining about bankers' salaries.

That picture of a wildly unequal Irish society never fitted with everyday observation of European countries, particularly the poorer ones. In a recent address, Cork university economist Seamus Coffey gave an explanation why not.

The huge percentage of jobless households not surprisingly creates a bigger gap in earnings than one finds in most European countries. The explanation as to why Ireland does not seem that unequal is a bit surprising. The Irish social welfare system is the most effective in Europe at reducing the gap between those who are in work and those who are not. Count actual income and Ireland rates rather well on equality.

It hardly needs saying, though, that this is nothing to be proud of. Quite the reverse. But it is not easy to figure out the reasons for this dismal picture. One puzzle is that the high proportion of jobless households is not particularly related to levels of unemployment – here or elsewhere.

The comparison with Spain leaps out of the NESC report. We all know that Spanish unemployment is around 25pc, but the proportion of jobless households is less than half that of Ireland's.

We are talking about social structures. Bodies like the OECD would say that one of Spain's problems is that so many jobs are protected by law.

One of the reasons that is difficult to change is that, in many Spanish households, a person with such a protected job may be the only one in employment.

Ireland's labour market and social structures are quite different. The most extreme statistic is that well over half the jobless households contained children, compared with less than 30pc in other EU countries. There is a high proportion of single parents among the jobless households.

This is another kind of inequality. If one looks at the percentage of adults who live in these jobless households, Ireland is around the EU average. At 11pc, it is less than the UK figure of 13pc, but Britain has a smaller proportion of households where no one works.

In the days before jargon and political correctness took their toll, this would have been called a problem of an "underclass".

It is concentrated among certain types of people and in certain types of place – especially small towns, which fare even worse than rural areas.

There is little mystery about its characteristics. Those who live in jobless households are more likely to have no educational qualifications, to have never worked and to have a disability or live with someone with a disability, NESC says.

The mystery is the difference in the Irish situation compared with others. There are clearly questions to be asked of the education system, especially where adult education is concerned. But the figures also appear to show that there are fewer jobs in Ireland, especially for the less skilled.

These are the equality issues which make everyone uncomfortable. ESRI analysis finds that most people on welfare would find it financially worthwhile to take a job. But such jobs are scarce, and have become more so since the crash.

That begs the unpleasant question as to whether the relatively high level of Irish wages inhibits the creation of lesser-skilled jobs in the domestic economy. There is no point in employers offering jobs which pay less than welfare. There will be some takers, but not many. Other ways than employing people will have to be found to get the business done.

All this is speculative, and more research is being done; some of it by the Department of Social Protection.

In the meantime, that basic fact is deeply troubling: a country where the gap between earnings is one of the highest but the gap between incomes one of the lowest, thanks to transfers from one lot to the other.

That is not how things ought to be.

Brendan Keenan

Indo Business

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