Income inequality in Ireland at lowest recorded level, study finds

The Republic appears to be one the few developed countries that has avoided an increase in income inequality over the past three decades, according to a new study by the Economic and Social Research Institute (ESRI).

However, the research found a “consistently high incidence” of income poverty and material deprivation among certain groups, most notably lone parents and those in households with no adult in paid work.

The ESRI's "Poverty, income inequality and living standards in Ireland" report brings together a range of data from the ESRI itself and the Central Statistics Office to provide the first comprehensive set of indicators on incomes, income inequality and poverty covering the period 1987 to 2019.

Income inequality has risen sharply in most advanced economies and this has led to increasingly fractious and polarised politics.

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The ESRI’s study suggests the State has largely avoided this trend. It found that inequality in disposable income – essentially the gap between the top 10 per cent and the bottom 10 per cent – was at its lowest recorded level just in 2019, just prior to the pandemic. Ar that point, the gap was 16 per cent lower than it was in 1987.

The decline in inequality was driven by strong employment growth over the period – the 2008 financial crisis being an exception – and the State’s progressive tax and benefit system.

The report found real disposable incomes grew strongly over the period, increasing from an annual average of €11,307 in 1987 to €29,464 in 2019.

This corresponds to growth of 161 per cent or an annualised growth rate of 3 per cent – in the UK the annualised rate for the same period was 1.6 per cent.

Stagnant wages

A section of the report, published earlier this week, however, found stagnant wages and higher housing costs have left many younger workers – those in their 20s and 30s – in financial difficulty and financially worse off than their parents.

"Ireland is one of the few European countries to have experienced broad-based growth over the past three decades," Barra Roantree, an economist at the ESRI and lead author of the report, said.

“Disposable incomes rose by more for lower-income than higher-income people, leading to big declines in income inequality between 1987 and 2019,” he said.

The ESRI’s research found that the incidence of income poverty – those at 60 per cent of the median household income – and material deprivation – where people can’t afford basic items – remains closely linked to the absence of anyone in paid work.

Despite making up only 11 per cent the population in 2019, those aged under 65 living in a household without anyone in paid work comprised more than half of those below the poverty line and a third of those living in material deprivation, it said.

This is different to countries like the UK, where poverty has increasingly become an in-work phenomenon.

“Despite this growth, high rates of poverty and deprivation exist among lone parent families and those in households where no one is in paid work,” the ESRI’s Bertrand Maître said.

“These rates have been an enduring feature of Irish society since at least the early 1990s. This should raise concerns about the impact of Covid-19 related job losses, particularly if those who have lost work are unable to return to their previous positions or find new ones for an extended period of time,” he said.