Thursday 22 March 2018

These claims about great inequality in Ireland are just bunkum

Workers' share of national income fell from 65pc in 1990 to 56pc in 2009
Workers' share of national income fell from 65pc in 1990 to 56pc in 2009
Dan O'Brien

Dan O'Brien

Would you prefer to have an annual income of €20,000 and €500,000 sitting in a bank account, or a yearly salary of €75,000 with no savings at all?

Different people will answer the question differently depending on many factors, including, for instance, age - an ambitious twentysomething may be more likely to prefer the later, while a sixtysomething in wind-down mode would probably be more likely to plump for the former.

But the point here is not about preferences, it is about the distinction between income (a flow) and wealth (a stock) - and how equally both are distributed across Irish society.

While we have long known quite a bit about Irish incomes and how they are distributed, prior to the recent publication of reams of data, we knew much less about Irish people's wealth - and next to nothing about how equally, or unequally, it is spread.

This new information is very welcome, not least because it helps inform the debate on inequality - an issue that rightly receives a lot of attention.

For those interested in the facts, 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.

Also well known is 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.

Both these facts may come as a surprise to some people, owing to much ill-informed comment, often portrayed as fact - to the effect that Ireland is a terribly unequal place and is becoming more so by the day.

The most important finding from the new figures is that Ireland's distribution of wealth is very similar to its peers - in this case, other members of the eurozone.

New figures compiled by the eurosystem of central banks and national statistics agencies across the single currency zone aim to get a better understanding into the composition of wealth - something that has historically been given much less serious statistical attention than one might have imagined given its importance to individual (and national) well-being.

The chart below illustrates how eurozone countries differ in both wealth and income equality. The Gini co-efficient is a well-established way of measuring equality. If a country scores 0 it is because everyone has precisely the same. If it scores 100 it is because one person owns everything.

As one might intuitively know, no country is anywhere near either of those two extremes.

But the chart makes it clear that the distribution of wealth in Ireland is more equal than the euro area average, but not by much - broadly reflecting Ireland's mid-ranking position among developed countries on income distribution.

Interestingly, there is no hard and fast relationship between income and wealth. First off, and as is very plain to see from the chart, wealth inequality is much greater than income inequality. That is because those with higher incomes can put more of it aside in savings, thus building up their stock of wealth. By contrast, many of those on the lowest incomes struggle to get from one income payment to the next, making saving, and thus accumulation of wealth, very difficult.

Another very important factor that weakens the correlation between income and wealth inequality is home ownership. As you will note from the chart, the eurozone's two German-speaking countries have the least equal wealth distribution, though they are closer to the more equal end of the spectrum when it comes to the spread of incomes.

The reason is very low comparative rates of home ownership in those countries. Because homes tend to be most people's biggest asset, countries with high levels of home ownership tend to have significantly higher overall stocks of wealth. (In recent times this finding generated some controversy in Germany when it emerged that average household wealth was much higher in bailed-out countries than in Germany, generating additional resentment about aiding the periphery.)

Although Ireland's rate of home ownership has been falling for a quarter of century, as this column recently discussed, it remains higher than the average, contributing in large part to Ireland's overall position among peers in wealth distribution.

So 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.

That is because the available income and wealth figures tell us nothing about mobility over time. They are snapshots of a single moment.

The richest at any particular moment may not be among the richest ten years later - think of builders who were buzzing around in choppers a decade ago. Ditto for the poorest. There are people who were down on their luck and out of work a few years ago who have since found new jobs or sources of income.

But 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.

Among the most fascinating figures to jump out of the new wealth survey is that only one in eight Irish households have a primary education or no education. This compares to an average of one in three across the eurozone. In other words, there are on average three times more households in the eurozone in which people have low levels of education compared to Ireland.

One reason for this good performance is likely to be cultural.

There has long been a strong desire to educate children in this country dating back to the time of hedge schools. Another reason, and one that almost certainly nurtured the culture of education, was the traditional lack of industry into which those with little or no education would go.

Yet another reason is that access to education is hindered less than in some countries by cost (in the extreme case of the USA, only children of the rich can afford to go to the best universities). The fact that third-level graduation rates for younger Irish people are among the highest in the world illustrates this.

But my hunch may be wrong. For instance, the professions are still stitched up by the well-to-do and their offspring. We really need to know more. Now that the statisticians have given us the hard facts on the spread of income and wealth, they should turn their attention to measuring social mobility.

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