Notes on the Front

The always readable Richard Delevan has a bit of fun in his recent Sunday Tribune column, tweaking the noses of liberals and would-be radicals (or, at least, Fintan O’Toole and Vincent Browne), suggesting their critique of Irish poverty is a bit stale, a bit passé and, in any event, not borne out by new statistics emerging from the OECD. Mr. Delevan concludes we can finally put to rest the idea that the ‘rich get richer and the poor get poorer’. In fact, if anyone doesn’t bury that ‘trope’ they are in danger of becoming flat-earthers. We are making considerable inroads in reducing inequality in society. In fact, we are almost unique in the OECD in this regard.

However, before conceding all this, we should take careful measurement of the flatness or curvature of these ‘facts’.

The OECD recently published its 2007 Employment Outlook Survey to some fanfare in Ireland for it showed that, unlike the rest of the industrialised world, inequality here had fallen between 1995-2005. Here is what the OECD said and, more importantly, what it didn’t say.

Within that 10 years, Ireland managed to reduce the inequality between the 9th decile group (i.e. the second highest 10%) and the lowest group. Indeed, there was a significant drop. In 1995, the 9th group earned four times as much as the lowest group. By 2005, this gap was reduced to approximately 3.6 times – a fall of 11%. This is a positive trend – in the rest of the OECD inequality increased on average by about 9%. The only other country to experience a reduction was Spain.

It would appear on a surface reading that Mr. Delevan is vindicated and all that Leftist stuff about growing inequality, etc. should be confined to the dustbin. Maybe, but the operative words here are ‘appear’ and ‘surface’. For the closer one examines these figures the less they back up Mr. Delevan’s contention.

First, the OECD figures do not purport to examine income or wealth. This is, after all, an ‘Employment Survey’. They are strictly confined to wages. Even more, they are confined to ‘full-time gross wages’. They don’t reference after-tax income or social transfers (whereby countries with more progressive taxation and redistribution regimes would come out better). They don’t include self-employment or capital income (e.g. capital gains, inheritances, gifts, trusts, etc.). They don’t include households outside of the labour force. And they certainly don’t include wealth such as assets (but few of these income or earnings surveys do).

These are significant omissions. In 2005, nearly 30% of the income received by the top 10% came from self-employment and capital earnings. So high was this that it exceeded the total income of nearly 60% of the population. The Revenue Commissioners statistics puts it even more starkly. While average PAYE income grew by 56% in the period 1994-2003 (the last year for which we have figures) ‘earned’ self-employed income grew by more than two and a half times while ‘unearned’ income also grew by more than twice. Were these figures to be included in the OECD table we might have a substantially different picture – one that we will look at below.

Let’s take the OECD figures in the manner they were intended to be read. What accounts for this erosion of wage inequality? There are a number of factors including general economic growth; changing occupational composition combined with the decline of manual, in particular unskilled, labour; higher educational and skill levels, etc. One could write tomes. But there are two crucial factors which must be included, factors which are not reliant on the ‘free-play of market forces’:

• The introduction and upgrading of the national minimum wage. This contributed considerably to reducing the level of exploitation in the labour market, increasing wages to, if not an adequate income, certainly to a higher income than if there was no statutory minimum.
• National wage agreements. Whatever the flaws in the nature of wage agreements they do provide an across-the-board wage increase for sectors which have little bargaining power (e.g. hotel, restaurant, retail sectors, etc.). In the absence of these economy-wide increases it is questionable to what degree some of these sectors would have benefited to the same degree.

What these two factors have in common is that they are public instruments. In other words, a large part of the erosion of wage inequality is due to public sector or partnership interventions. To what extent is open to debate, but that debate must include their important roles.

Now let’s return to the larger picture. Clearly, we cannot infer from the OECD tables that inequality is on the decline for the simple reason that it doesn’t attempt to measure it. Fortunately, there is another authoritative source we can turn to. EUROSTAT – the EU statistical agency – measures inequality through the Gini-coefficient. This attempts to examine all sources of income. So does their ten-year survey vindicate the assertion that inequality is declining in Ireland? Hardly.

Between 1995 and 2005, inequality fell by a mere one point – from 33 to 32. This still puts us above the average for other EU states (about 10% higher) and in the lower (that is, the more unequal) half of the table. In fact, we’re about the fifth worst when it comes to inequality. More disturbing is that while inequality fell between 1995 and 2001, it has grown since then – jumping from 29 to 32. To what extent this reflects the changing dynamic of growth – from export-led to property/consumer spending-led – is something to be explored further.

So where does this leave Mr. Delevan’s contention that the ‘income gap between rich and poor got smaller?’ Not in a very good place. Inequality is growing in Irish society, and the only counter-balances to this dismal and verifiable fact are public (i.e. non-market) interventions.

So, to all you ‘liberals’ and ‘would-be radicals’ and fellow traveling flat-earthers, know this: when you keep on about inequality, you’re not talking trope but fact. The real trick will be to create a progressive politics that will make that fact history. And if a little bit of public sector intervention helps, what could a lot do?