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Brendan Keenan: 'Closing gap in abilities is key to reducing inequality and addressing salary gap'


Disparity: A new report finds that the difference between higher paid and lower in specific sectors tends to be bigger in Ireland that in other countries

Disparity: A new report finds that the difference between higher paid and lower in specific sectors tends to be bigger in Ireland that in other countries

Disparity: A new report finds that the difference between higher paid and lower in specific sectors tends to be bigger in Ireland that in other countries

The 1916 Proclamation of the Republic is an impressive document, written and endorsed by brave men and women, but it is not an oracle. Even so, it is trotted out with extraordinary frequency for today's issues, with the clear implication that its sacred text points the way.

By far the most popular bit is the one which promises to "cherish all the children of the nation equally". There is some debate about what the phrase was meant to convey but here it is again, at the start of the new Tasc analysis of inequality in Ireland.

Tasc describes itself as an independent think tank "whose core focus is addressing inequality", which it does impressively in this document. It hardly needs an endorsement from a century ago.

If there is a lesson from history it is that, if James Connolly were given a day in 2019 Ireland, he would marvel at the progress made by the working classes.

Give him a week, of course, and he would be onto our issues - but they are very different from the ones he faced.

Ireland is an intriguing example of modern inequality. The situation in places like West Virginia or north-east England get most attention and too often their experience is squeezed uneasily into analysis of Irish conditions.

There are other regions which resemble Ireland, but we do not hear much about them. Even when we do, few, if any are close parallels.

Unlike many reports, the Tasc one, by Robert Sweeney and Paula Clancy, starts from a description of Irish peculiarities.

Not least of these is stability: the share of disposable income - what we have to spend - has changed little between different groups in 30 years. Given what we have been through in those years, that is remarkable.

Equally remarkable is how it was done. It has taken quite a bit of effort to persuade social campaigners to acknowledge that, while gross incomes are unusually unequal in Ireland, disposable incomes, after tax and welfare, are not.

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As a result, Ireland ranks in the middle for income inequality among advanced economies. It is a matter of political choice whether one would like Ireland to be in the middle, or near the bottom, or close to the top, when it comes to income inequality. But there would be wide-ranging support for trying to find the answer to the key question in the report - why are gross incomes so unequal in the first place? - and trying to do something about it.

Right away, difficulties appear. Tasc sees the problem as one of low pay for too many workers. The report blames lack of trade union membership, the rise of precarious employment and the switch from industry to services where female employment tends to be higher and wages lower.

But low pay is defined as relative to pay in general - at 66pc of the median (most common) level of earnings. And far from being a low-pay country in general, Ireland has the second-highest median earnings in the EU - just pipped by Denmark - even when adjustments are made for the high cost of living.

So Irish low pay, defined as anything below €12.50 per hour in real terms, is pretty high in absolute terms compared with most places.

Median earnings are 40pc higher than in Britain - a country very close to us in terms of economic output per person, properly measured.

That measurement difficulty is the well known one. The multinationals, which employ about 10pc of the workforce, have pay costs 50pc higher than indigenous companies which are clients of agencies like Enterprise Ireland - companies which would not be among the low payers either. Less well-known, because not many want to go there, is the demonstration effect of public sector pay, where the gap over private earnings also appears to be among the highest in the EU. The real question may equally be, not why is low pay so low, but why is high pay so high?

Some other clues to the answer may be in Tasc's figures for employment and qualifications. We have one of the lowest unemployment rates and fastest job-creation rates, but the proportion of people at work in not particularly high; ninth in the EU-15 and 15th in the EU-28.

Equally significant are the high returns to education in Ireland and the high cost of not having those skills. For people with only lower secondary qualifications, the employment rate is less than a third.

They were also the big losers in the Great Recession. But even at the height of the boom, their employment rate was 50pc, which compares with 80pc for the better-qualified. On average, the bubble and burst made little difference to these ratios in the rest of the EU, where 40pc of those with lower secondary qualifications have jobs.

That was not the case here. Employment for those with third-level qualifications had regained the 2007 levels by 2017 but, at 65pc, the rate for upper secondary was still below the bubble 80pc, although better than 2012's 60pc participation. For the lower secondary educated, the 30pc employment rate was still a third less than 10 years before.

Policy choices on how to make the Irish labour market more typical depend on what one makes of these tricky figures. The scale of the Irish crash, the youth of the population and the high proportions in third-level education all make comparisons with the EU difficult to interpret.

Tasc highlights the low level of employer social security contributions in Ireland. This is a kind of subsidy for employers, but it can be argued that it is one for workers as well. It allows workers whose skills are in demand to extract higher wages because employers' total labour costs, including contributions, are still competitive compared with others.

This would apply to less-skilled workers as well, but they do have less bargaining power and cost competition may be greater. The report acknowledges that it is not that the poorest in Ireland are unusually poor, but that the middle to upper income groups appear to get a smaller share compared with the EU-15 in general.

There is a jump when it comes to the top 10pc, but that covers everyone earning from €80,000 a year to squillions. Just 3pc of workers earn more than €100,000 a year. More to the point perhaps, the report finds that the difference between higher paid and lower in specific sectors tends to be bigger in Ireland that in other countries.

It thinks this is mainly due to lack of collective bargaining and flexible labour markets. It pays less attention to a fairly obvious characteristic of the Irish economy as compared with, say, the Nordics. Ireland combines layer of sophisticated, productive operations, not all of them foreign, with what are, quite frankly, fairly primitive companies by the standards of northern Europe in the same sectors.

The big question is what would happen to such operations if they narrowed the gap with top payers in their sectors significantly. The report recognises that actual cuts to top pay is not realistic. Instead, state intervention and union bargaining would give larger gains to the lower paid in good times, and try to protect those earnings in bad.

This was more or less trade union policy during the period of national wage agreements. It was honoured as much in the breach as the observance, although it does seem to have had some effect. But as the report shows, the lower wage earners bore the brunt of the downturn. When jobs and firms are at risk, the potential for income redistribution before tax and welfare becomes very limited.

If a lot of low-paid Irish workers are receiving less than their output deserves, more intervention will help: if they are just less productive, it won't. Tasc's fellow campaigner, Social Justice Ireland, has been highlighting the failures of the Irish education system among the lower income groups. Cause and effect are inextricably linked in this area.

For decades, it has been Irish policy to further develop education, training, lifelong access to both, and improve management skills among the many firms which badly need it. Progress has been made but the main change seems to be the dubious expansion of third-level numbers.

Closing that strange Irish salary differential needs a much more determined national effort to close the gap between people's abilities rather than what they earn.

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