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To tackle income poverty and inequality, we need to fully understand the complexities of the data

The 2019 Survey of Income and Living Conditions offers an important insight into life in Ireland today.

Seamus Coffey UCC

EARLIER THIS WEEK, the Central Statistics Office published their findings from the 2019 Survey of Income and Living Conditions (SILC). The SILC is a hugely valuable source of household data with insights into the changes in living standards in Ireland. 

Following the crash of 2008 and during the painful years of austerity, the SILC tells us that the median income fell 14%, the deprivation rate more than doubled to reach 30%, and the consistent poverty rate went from 4% to to 9%.

In 2008, the at-risk-of-poverty rate was 14%. Applying the same threshold in real terms in 2013, the at-risk-of-poverty rate had increased to 24%. In 2008, the average weekly income for those in the bottom 10% of the income distribution was €160 per equivalised person. In 2013, it was just €130 per week. 

With changes like this it is not surprising that inequality rose with Ireland’s gini co-efficient – a useful, but by no means perfect, summary measure of inequality - increasing from 0.306 in 2008 to 0.318 in 2013. 

The crash and its austerity aftermath had a devastating effect on living standards in Ireland and this is reflected in the changes in the SILC from 2008 to 2013. But what the crash took from living standards, income and equality, the recovery has given back, and more. 

From 2014 to 2019, the median equivalised income rose by around 30%, regaining all the ground lost in the crash by 2017 and moving significantly above over the past few years. While this is very strong growth, the truly remarkable thing is how this growth has varied across the income distribution. 

The chart below shows the income growth that took place from 2014 to 2019 across the deciles of Ireland’s income distribution. Deciles involves breaking the ranked distribution into tenths, so the chart shows the bottom 10%, the next 10% all the way up to the top 10%.

By far the fastest growth, and more than double the national average, was seen for the income of the bottom 10%.  

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From 2014 to 2019, the average income for the bottom decile of the income distribution increased by 70%.

In contrast, the income growth for the top decile was just over 20%. In relative terms, more of the income gains from the recovery went to the bottom than went to the top. In 2019, the average weekly income in the bottom decile was €213 per equivalised person.

This is certainly not high but is much improved on the €130 it was in 2013. And this was during a period when overall inflation was close to zero, though obviously the price levels faced by individual households could differ, most notably for private tenants.

Why did the income of the bottom decile grow so much? The massive increase in employment, and some earnings growth, that occurred over the period will have played a major role. It is possible that a share of those who were in the bottom decile in 2013 and 2014 saw a return to employment and a significant rise in their income.  

And because of this it is likely that they will have moved out of the bottom decile and up to higher positions in the income distribution. This means that those whose incomes might have put them in the second or third decile in 2013, such as some pensioners or maybe those in receipt of disability support, are now in the bottom decile. They did not end up there because their income has fallen – it has probably risen – but because the income of others has risen by more.   

This progressive increase in income has been translated into improvements in all measures of poverty and inequality.  The at-risk-of-poverty rate using the 2008 threshold, which was 24% in 2013 had fallen to 8% in 2019.   

Over the same period, the deprivation rate fell from 30% to 18%, though there was an increase in 2019, while the consistent poverty rate fell from 9% in 2013 to 5.5% in 2019.  There is no overall indicator in the SILC that shows a deterioration over the period.  

The at-risk-of-poverty rate using the annually adjusted threshold of 60% of median income fell to 12.8% in 2019, an all-time low for the series. For a household of two adults and two children the at-risk-of-poverty threshold in 2019 was a net income of €33,400.  In 2013, the equivalent threshold was just €25,000 and has increased in line with the general increase in incomes. 

It should also be noted that a focus on outcomes for particularly sub-groups, while important, can miss significant compositional changes if people move from one group to the other. For example, the at-risk-of-poverty rate for the unemployed was around 35% in both 2013 and 2019. 

However, unemployed people who were at-risk-of-poverty went from being 3% of the population in 2013 to just 1% in 2019. This is because the unemployment rate fell from 15% to 5%.  Only the overall figures can pick up improvements such as this. 

With higher income growth at the bottom of the distribution, inequality was also reduced. The gini coefficient of 0.32 in 2013 had become one of 0.29 in 2019.  This is the continuation of a long-term since the 1980s in the reduction income inequality in Ireland.

This has seen Ireland move from having above average income inequality relative to our peer countries three decades ago to a position now where we will likely have a level of income inequality that is significantly below the EU average when Eurostat collate the final figures for 2019 later in the year.   

An alternative way of assessing inequality is to look at income shares – the percentage of income that goes to a particular group.  This could, for example, be to look at how much income accrues to the top 10%, or to the middle 40% or to the bottom 10%. 

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This week’s publication from the CSO shows that the bottom 10% in Ireland had 4% of the available disposable income in 2019. This is an unequal share. In contrast, the top 10% had almost 24% of the available income. 

However, the bottom 10% in Ireland do better than they would if the income distribution of almost all other EU countries was in place here. 

If the income distribution of The Netherlands was statically applied to Ireland, the incomes of the poorest here would be 10% lower. With Denmark’s income distribution the incomes of those at the bottom in Ireland would be nearly 20% lower, with Sweden’s almost 30% lower and, almost incredibly, if the income share for the bottom 10% in Germany (2.3%) existed here the incomes in our bottom decile would be over 40% lower. 

In 2019, the deprivation rate increased, with 18% households suffering from two or more items of deprivation from a list of 11. Deprivation is judged against the living standards that a household on the median income should typically be able to enjoy with limited burden.  Notwithstanding the income increases described above, the percentage of households who could not do this increased in 2019. 

The main drivers of the increase were because, compared to 2018, a further 1-2% of the population said they were unable to afford to buy presents for family or friends at least once a year, or to afford to have family or friends for a drink or meal once a month or to afford a morning, afternoon or evening out in the last fortnight or had to go without heating at some stage in the last year.   

There were increases for all items of deprivation in the survey with the smallest being the increase from 1.6% to 1.7% of households who said they were unable to afford a meal with meat, chicken, fish, or vegetarian equivalent every second day. 

Does all of this improvement mean that income poverty and inequality have been eliminated? Absolutely not. And while the direction of travel should be recognised there is still a way to go. There is a national target of reducing the consistent poverty rate to 2% by 2020.  Even without the Covid-19 crisis this target was almost certain to the missed.   

Seamus Coffey is a lecturer in economics at University College Cork.

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