Which has a higher standard of living – Northern Ireland or the Republic?

NI economist stirs debate with claim about cross-Border living standards

Brexit, Scottish independence and a possible border poll has renewed the focus on North-South issues. Photograph: Phil Noble/Reuters

Brexit, Scottish independence and a possible border poll has renewed the focus on North-South issues. Photograph: Phil Noble/Reuters

 

Economic comparisons between Northern Ireland and the Republic are few and far between. For some reason, perhaps because of the zero-sum politics involved, we tend to shy away from benchmarking the North’s economy with the Republic’s or vice versa. The North is typically compared with the rest of the UK while the Republic is viewed in the context of EU norms and averages.

Brexit, Scottish independence and a possible border poll on Irish unity has, however, renewed the focus on North-South issues and the two economies that drive them.

Perhaps the most eye-catching contribution to the debate has been the suggestion that living standards are 20 per cent higher in Northern Ireland than in the Republic. The claim was made by Cambridge University academic Graham Gudgin in a paper published on the Queen’s Policy Engagement website – a debate forum hosted by Queen’s University – in February and picked up by several media outlets.

Gudgin, a former economic adviser to David Trimble, repeated the assertion in a letter published in the Financial Times last week. The gap in prosperity, he says, may explain why the majority of people in the North still wish to remain in the UK.

Gudgin also claims that commentators and economists in the Republic have a “jaundiced and self-serving” view of the North’s economy, noting that economists John FitzGerald (who is also a columnist with The Irish Times) and Edgar Morgenroth of Trinity College and the Economic and Social Research Institute (ESRI) have described it as “lacklustre” and “ lacking dynamism”.

Household spending

His 20 per cent claim is oddly enough, however, based on FitzGerald and Morgenroth’s work, the two economists he appears to criticise. In a recent study, they calculated that in 2012, per capita consumption – spending by households and government – was 20 per cent higher in the North.

The gap was primarily down to higher levels of government consumption in Northern Ireland reflecting superior public services such as health. The Republic just also happened to be in the middle of postcrash EU-IMF bailout programme.

A later version of the same study for 2016 revised the gap down to 4 per cent but Gudgin claims the updated figure didn’t control for lower prices in the North, especially house prices, so the the gap would still be in the region of 20 per cent. In fact, the updated study did allow for a price differential.

Consumption, however, is not a good measure of relative living standards as it doesn’t include savings. Just because someone consumes less doesn’t mean they earn less. There are also demographic factors at play, older populations tend to consume more public goods.

Back in 2012, consumers in the Republic were still in the heat haze of the financial crisis and were busy deleveraging, which may help to explain the lower consumption rate.

A more recent study on cross-Border living standards carried out by the ESRI’s Adele Bergin and Seamus McGuinness considers several alternatives to consumption in measuring the relative prosperity of both jurisdictions. It notes that using gross domestic product (GDP), the standard measure of national income, the Republic comes out 50 per cent better off than the North on a per capita basis.

However, this is dismissed because of the distortions to GDP from multinationals in the Republic. The most commonly used metric and the one the OECD uses to gauge living standards is household disposal income controlled for prices. Using this measure, the study finds that based on 2017 data, total disposable income was $4,600 (€3,840) higher in the Republic compared to Northern Ireland, equating to a 12 per cent advantage after accounting for prices.

Even though this metric favours the Republic, there is no agreed measure of living standards in the economic literature. Alongside income, there are multiple factors that drive a society’s relative prosperity – economic mobility, educational provision, employment opportunities, health services, poverty rates.

The Bergin-McGuinness study found that poverty rates were considerably higher in Northern Ireland. Based on a poverty line of below 60 per cent of average household income, 15.9 per cent of individuals in the Republic were found to be at risk of relative poverty compared to 23.8 per cent in Northern Ireland.

Life expectancy

Perhaps one of the most striking differences was in the area of life expectancy. From 2005 onwards, life expectancy in the Republic has exceeded that in the North to the extent that a child born in 2018 is expected to live 1.4 years longer than its Northern counterpart. Even a person aged 65 in the Republic can expect to live a half a year longer than 65-year-olds in the North.

The original FitzGerald-Morgenroth study, from which Gudgin derives his 20 per cent claim, was primarily focused on the North’s productivity, a key driver of wage growth.

It found that productivity per head in the North had deteriorated relative to the rest of the UK in recent decades and even since the 1998 Belfast Agreement. Many commentators attribute the North’s low productivity to the Troubles, but its productivity had been waning prior to that period. That’s why it has become reliant on subvention from London. That wasn’t always the case. In 1935, Northern Ireland was a net contributor to the British exchequer.

There is, however, no real basis for Gudgin’s claim that living standards are 20 per cent higher in the North. It appears to be driven, not by a consideration of the existing data points we have, but by his own pro-Brexit politics.

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