Strong earnings growth experienced by households affected by disability made up for real cuts to welfare over a twelve-year period
Households affected by disability experienced stronger income growth between 2007 and 2019 than households not affected by disability according to new research by the ESRI. Households in which one or more people was affected by disability experienced growth in their disposable – after tax and social welfare – income of 21 per cent, on average, between 2007 and 2019. Households in which no one was affected by disability saw income gains of 5 per cent on average. The income growth experienced by both types of household over this period was made up of two opposing forces: (i) strong earnings growth which increased disposable income and (ii) tax and welfare policy changes which decreased disposable income.
The larger income growth experienced by households affected by disability is explained by their labour market earnings. The average wage of workers with a disability grew by 51 per cent between 2007 and 2019 while wage growth for those without a disability was 37 per cent. Despite this rapid wage growth, in 2019, the average wage of workers with a disability (€21.60 per hour) was still 16 per cent lower than the average wage of workers without a disability (€25.70 per hour). Households affected by disability also increased their work intensity. While the employment rates and usual hours worked per week of individuals with a disability has been stable since 2007, the employment rate and hours worked by their family members has increased. These developments resulted in faster earnings growth of households affected by disability between 2007 and 2019 compared to households not affected by disability.
While social welfare payment rates have increased in nominal terms between 2007 and 2019, they have not kept pace with earnings growth, partly due to nominal cuts and freezes during the austerity period. When welfare payments do not keep pace with earnings, the income gap between households with earnings and those reliant on social welfare – such as Disability Allowance - increases. Compared to an earnings-indexed set of welfare policies – which would have maintained the level of income of those out of work compared to those in work - welfare policy changes between 2007 and 2019 reduced the income of households affected by disability by 7.5 per cent. The income loss was smaller, at 3.6 per cent, for households not affected by disability. Tax policy changes between 2007 and 2019 resulted in real income losses that were similar for households affected by disability (-8.6 per cent) and households not affected by disability (-7.4 per cent).
Earnings growth outweighed real cuts to welfare and real increases to tax over the twelve-year period so that all household types experienced average growth in disposable income between 2007 and 2019. Despite welfare payment stagnation disproportionately affecting households affected by disability, these households experienced higher average disposable income growth due to the increased wages of workers with disabilities and the increased labour supply (employment and hours worked per week) of their family members. However, the disability employment gap has been persistent since 2007 and only half as many working age people with a disability are in work compared to people without a disability. In light of this, future attempts to equality-proof budgetary policy should consider that changes to welfare disproportionally affect households with disabilities.
Karina Doorley, an author of the report and Senior Research Officer at the ESRI said “This research builds on previous equality budgeting work by the ESRI which showed that real benefit cuts during the austerity period affected women more than men. Assessing the impact of future policy changes along equality dimensions such as gender and disability is an important step to reducing income inequality in Ireland.”
Mark Regan, an author of the report and Research Analyst at the ESRI said “In 2019, Disability Allowance was the third largest social welfare scheme by expenditure. Individuals affected by disability are sensitive to changes or freezes to social welfare rates. From 2007 to 2019, welfare rates did not keep up with earnings growth. This meant that households affected by disability faced income losses of 7.5 per cent relative to a counterfactual where these rates grew in line with earnings.”