ESRI Policy Seminar: "Crisis, Austerity, Recovery: Income Distribution through the Great Recession in Ireland"

Venue: ESRI, Whitaker Square, Sir John Rogerson's Quay, Dublin 2

Speakers:
Michael Savage (ESRI), Tim Callan (ESRI), Brian Nolan (Institute for New Economic Thinking at the Oxford Martin School) and Brian Colgan (ESRI).

Abstract:
The advent of the Great Recession and the widespread adoption of fiscal austerity policies have heightened concern about inequality and its effects. We examine how the distribution of income in Ireland has evolved over the years 2008 to 2013. The Gini coefficient – the best known summary measure of inequality - has been broadly stable throughout these years. Closer investigation shows that there has been a fall in the share of the poorest 10 per cent of the population. This falling share of a shrinking cake means that real incomes for the poorest decile fell by over 20 per cent, compared with an average fall in real income of around 13 per cent. The gap is greater when measuring real incomes after housing costs – a fall of 27 per cent for the poorest decile as against 15 per cent on average.

These results are based on “snapshots” of the income distribution in each year, so there are changes from year to year in terms of who is in particular income groups or deciles. Using the CSO’s Survey on Income and Living Conditions we are also able to follow given individuals to see how their incomes have changed one year after first observing them. Analysis of these data show that the fall in incomes in the bottom decile does not arise from falling incomes of those already in the bottom decile, but from declines in the income of those entering the bottom decile. Most of those entering the bottom decile come from the bottom one-third of the income distribution, rather than the middle or upper reaches.

How has tax and welfare policy affected the distribution of income? Faced with greater unemployment and lower incomes, Ireland’s progressive tax-transfer system worked harder than before to offset the increased inequality. This could be termed the “automatic stabilisation” component of policy. About three-quarters of the inequality reduction can be attributed to the welfare system. Discretionary changes in policy (i.e., changes compared with a neutral budget) gave rise to complex effects, with the greatest reduction in income being that for the top decile, and the next greatest for the bottom decile.