Those on lowest incomes 'suffered most' in the recession

The poorest section of Irish society suffered the largest contraction in income as a result of the recession, according to one of the most comprehensive studies of income distribution in Ireland during the crash.

The finding contained in a report by the Economic and Social Research Institute (ESRI) runs counter to the so-called “squeezed middle” narrative which suggests those on middle incomes bore the brunt of the downturn.

It found the poorest 10 per cent of the population suffered an income contraction of 22 per cent between 2008 and 2013 when the impact of the crisis was at its strongest.

This compared with an average fall in income of 13 per cent across the economy as a whole, and a decline of 14.4 per cent for those on middle incomes.

The gap was even greater when measuring incomes after housing costs with the poorest group suffering an income contraction of 27 per cent compared to a 15 per cent national average.

The ESRI's Crisis, Austerity, Recovery: Income Distribution through the Great Recession in Ireland report is based on data from the Central Statistics Office's survey on income and living conditions.

Its central findings come with a number of caveats, however.

The fall in incomes among those in the bottom 10 per cent did not arise from falling incomes of those already in this cohort, but from declines in the income of those entering the lowest group, the composition of which changed from year to year.

The study suggests most of those entering the bottom group came from the bottom one-third of the income distribution scale, rather than from the middle or upper echelons.

The rapid acceleration in unemployment from 2009 onwards was chief explanation given for this phenomenon.

Significantly, the study also pinpointed 2009 as the year when income inequality in Ireland was at its lowest level on record. This was put down to the Government’s decision to bring forward December’s budget by two months and to increase welfare payments.

The latter decision would almost certainly not have been taken if the jump in unemployment, the collapse in tax revenue and the fall-off in inflation – all of which occurred in the final quarter of 2009 – had been predicted.

Apart from 2009, the report said that the level of inequality in Ireland – as measured by the Gini coefficient, a standard economic measure – remained stable during the recession and the subsequent adoption of austerity policies by the then government.

However, the institute noted that discretionary changes in budgetary policy gave rise to complex effects, with the greatest reduction in income being that for the top cohort, and the next greatest for those on the very bottom.

“In assessing the impact of recession and austerity on income inequality, Ireland provides a case study of particular interest, in light of the extent and nature of the crisis faced – not only deep recession but the inter-related banking crisis of unprecedented proportions and bursting of a housing bubble – and the scale of the fiscal adjustment then undertaken,” the report’s authors, Michael Savage, Tim Callan, Brian Nolan and Brian Colgan, said.