Real household income fell for the poorest 10% between 2020 and 2021 and income inequality rose despite strong labour market recovery
Household income adjusted for inflation fell between 2020 and 2021 for the poorest tenth of individuals and stalled for most others in the bottom half of the distribution. This pattern of growth meant that measures of income inequality – which declined to their lowest recorded level in 2020 – increased in the latest year of data available, the first such increase since 2017. The material deprivation rate – the share of individuals unable to afford 2 or more items from a list of 10 essentials – also rose, from 13.3 in 2021 to 16.6 per cent in 2022.
These are among the key findings of new Community Foundation Ireland funded research published later this week on Thursday 7th September by the Economic and Social Research Institute using data from the Survey of Income and Living Conditions collected by the Central Statistics Office.
The fall in household income at the bottom of the distribution is the result of a decline in employment earnings despite a strong labour market recovery which saw 200,000 more people employed in 2021 than in 2020 following the easing of COVID restrictions. This decline in employment earnings for lower-income households is driven by a reduction in hours worked per week and months of full-time work per year, suggesting the recovery in the labour market was not experienced equally by households.
The sluggish patterns of growth we document occurred before the sharp rise in prices that followed the invasion of Ukraine in early 2022. This ongoing inflationary episode will further erode incomes, with nominal increases of at least 7 per cent per year needed in 2022 and 2023 – levels of growth last experienced in 2006 and 2007 – to avoid incomes stagnating.
Barra Roantree, Assistant Professor of Economics at Trinity College Dublin and lead author of the report said:
“While growth has been strong and inclusive over recent decades leaving income inequality at a record low, the latest data – which suggests incomes fell for the poorest tenth of individuals and stalled for most others in the bottom half of the distribution – should be of concern to policymakers. Ongoing high rates of inflation are likely to further erode incomes, raising the prospect of three years without real income growth for most households.
“Policymakers will face difficult decisions in Budget 2024 about which groups to prioritise given our reliance on potentially transitory receipts from corporation tax, with untargeted tax cuts or increases in spending risking stoking further inflation.”
Denise Charlton, Chief Executive of Community Foundation Ireland, added:
“Community Foundation entered into this partnership as a philanthropic hub on a mission of equality for all in thriving communities. The ESRI has shown the obstacles which must be overcome in order to achieve that mission. It is our hope policymakers will give the findings serious consideration when forming Budget 2024.”