Inequality reigns, but does it matter?

This is taken from our Sun on Sunday column

This week I had the pleasure of attending a fascinating talk hosted by the think-tank, the topic was on income inequality in Ireland from 2006-2010 and the researchers were from University College Cork.

The research is the first of it’s kind in Ireland and is using a new dataset which was made available by the Revenue Commissioners, it splits a sample of 1,400,000 workers into five categories or ‘quintiles’ based on their earned income. The findings then look at how much inequality there is in earnings by analysing this information.

The saying ‘the poor get poorer and the rich get richer’ may not hold, the evidence points towards income as being dynamic, people are constantly moving between the five income quintiles over half (53%) moved quintile during the time from 2006-2010, many of the rich got poorer and many of the poor got richer.

Something I found very encouraging was that income inequality seems to be affecting young workers less and older workers more – which seems kind of counter intuitive as normally young workers are the most financially discriminated against – in large part due to a lack of experience or education.

The propensity to move up a quintile (or ‘get ahead’ to you and me) is high in the 16-30 year old category, in fact, it dwarfs the likelihood of moving down or earning less. Once you get to age 31 or more it tends to even out or even have a stronger trend towards moving down.
What does this mean for the negative equity generation? What does it mean for the ‘engine of an economy’ which is often seen as the 25-55 year olds? Is it a bad sign?

We don’t really know, because there are some serious holes in the data to date, for a start, it doesn’t tell us anything about absolute standards of living. For instance, in the bottom earners there are far more women than men. This is normally trumpeted as evidence of sexual discrimination but do we know that with evidence or gut feeling?

Here is what we do know, median pay at the bottom in 2010 was €7,227 a year, nobody can live on that be they man or woman, but 14% of those in the bottom in 06′ who were women were still there in 2010 whereas with men the figure was only 6.65% (meaning more men moved up the line).

The data doesn’t tell us about how a person lives though, for instance, are the people working full time or part time? This makes a massive difference! If it were shown that a person chose to work part time while being homemakers with the rest of their time then it could make them look poor, but it doesn’t say what they can and can’t afford.

For instance, they could be married to a rich man or woman meaning their standard of living is incredibly high even though they earn very little! You could have technically ‘less well off’ people driving BMW’s and taking three foreign vacations a year.

This was shown before in the USA when research discovered that 72% of the ‘poor’ owned a car or truck, and yet they are seen as the ‘have nots’!

By being unable to look at standards in living and not knowing the total income of a household or an individual it gives a false read. Another set of data missing was of the self employed people because this research was based on P35’s which are only filed for PAYE workers.

It also doesn’t take into account any non-PAYE earnings of PAYE workers (for instance if you did nixers or had rental property and worked as well), it doesn’t take into account state transfers which form part of income but are not ‘earned’.

That last one is important, if a person earned very little but has their rent paid for them and is receiving family income supplement then they are not as unequal as the figures might suggest, because the implication is that being at the bottom makes you ‘poor’, but that isn’t true, your actual access to disposable income or wealth is much higher.

Here’s a thought, a wealthy pensioner lives on deposit interest, stock dividends and has a €150,000 a year pension, he also does some consultancy work earning €4,000 a year, guess what, he’s piss poor and in the bottom quintile because only the €4,000 is counted as his or hear income – and if that €4,000 is earned on a self employed basis then it isn’t counted at all.

I couldn’t help but be impressed because this is starting to map out uncharted economic data, but in so far as being something we should shape our world view on it’s simply not there yet, and when asked whether we should look to create equality in opportunity or outcomes the answer is clearly that people should have equal opportunity to succeed.

The job at hand isn’t to confiscate one group to benefit another without looking at the whole picture which is a popular overtone in all Irish politics of late.

While the research is thought provoking, and likely to be the first in a series of important steps towards understanding earnings in Ireland it does remind me of the quote from Alan Reynolds that ‘the growth and inequality of incomes are topics that seem to inspire very strong opinions about very weak statistics’.

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