Riches and Poverty

Posted on February 01, 2015 by Tom Healy

Tom Healy, Director NERI
Tom Healy, Director NERI

Two statistical releases from the Central Statistics Office in recent weeks did not attract as much public attention as deserved. One report concerns trends and distribution of income (EU Survey of Income and Living Conditions) while the other concerns the level and distribution of wealth in Ireland. The latter was released under the title of the ‘Household Finance and Consumption Survey’ and was part of a European wide survey sponsored by the European Central Bank. The EUSILC survey showed an alarming increase in poverty (‘material deprivation’ is the measure used) including deprivation among children, older people and single parents. The other survey showed – for the first time – a robust statistical survey of wealth in the Republic of Ireland and how it is distributed across different households.

There is a connection between what is covered in the two surveys. It concerns social and economic equality. Equality as a term and concept is not easy to pin down.  It concerns fairness, access, outcomes, opportunity and respect.  It may be narrowly measured and summarised by statistics of income inequality (using for example what is called the gini coefficient) or some other measure.  Equality – depending on your preferences and outlook – is a good thing while ‘inequality’ is bad. However, some degree of inequality is said to be unavoidable and – again depending on your point of view – even to be welcomed as a spur to creativity, innovation and competitiveness. If Governments offer generous tax reliefs to ‘high-worth’ individuals and ‘income earners’ it is because they believe that such incentives will attract entrepreneurs and release entrepreneurial effort (echoes of this can be heard in the claim that marginal income tax rates in the Republic of Ireland are too high and act as a disincentive to work, investment and business). Usually these claims are a matter of belief and conviction than hard empirical evidence.

Because data are available on income (but in the case of Ireland only for recent decades) the focus of empirical equality studies is on income. Wealth in the form of various assets is not typically measured, at least in Ireland. However, the distribution of wealth is more significant than that of income because it generates differences in gross income over long periods of time. 

The ECB survey only captures many forms of wealth owned by private households (thus excluding corporations, public bodies as well as charitable bodies):

Real Estate:

Household main residence, land, other real estate property, self-employment wealth, vehicles and other valuables.

Financial assets:

Savings, bonds, shares, ‘voluntary pensions’ (private pensions other than private defined benefit pensions). The value of state pensions is not included.

Household main residence accounts for just over 50% of total real estate wealth as captured in this survey.  Total gross wealth came to €500 million in 2013 with an average (median) figure of €165,000 per household in real estate and €6,300 per household in financial wealth. Very roughly one half of total gross wealth in private households is accounted for by household main residence (it is not possible from the published data to offer a precise estimate on this).

Total debt (mortgages, loans, overdrafts, credit card debt) came to €122 million with an average of €63,000 per household.

It is possible to compare the Republic of Ireland with other countries. However, differences in price levels, generosity of social benefit systems and patterns of home ownership lie behind marked differences in average wealth per household. For example, median gross wealth was €68,000 in Germany in 2010 compared to €176,000 in the Republic of Ireland (2013).

Although buried deep in the statistics (Table 12 on page 40) it is possible to estimate the share of ‘total net wealth’ according to household income. Just under 40% of total net wealth (real estate plus financial assets minus debt outstanding) went to the top 20% of households by income. Unfortunately, it is not possible, based on the publication, to go beyond these very aggregate numbers. Hopefully data to be released, tomorrow, by the Central Bank as well as further tabulations by the CSO will help to reveal in more detail the distribution of various types of wealth and set this in an international context.

It is a well established fact that wealth – however measured – is more concentrated than income.  Hence, distributions of income or wealth by income will show a less unequal distribution of good fortune than a distribution of wealth by wealth. This greedy data user will still await the full statistical monty as regards a distribution of wealth by wealth in deciles from 1 to 9.

What patterns have emerged in the Republic of Ireland in regards to income distribution over recent decades? The big picture is that incomes have become somewhat more unequal in the population before account is taken of social payments and taxes. Chart 1 shows a distribution of ‘direct income’ (earnings from labour or capital) before adjustment for tax/welfare. Clearly, the income distribution has become more unequal.

Chart 1  Distribution of income (before tax and welfare) in recent decades – Republic of Ireland


Source: Collins and Kavanagh ‘Social Policy in Ireland’.

Has the Republic of Ireland become more unequal in the case of household income since the 1970s? Yes, when you measure it before tax/welfare. After adjustment for tax/welfare it the distribution seems to be broadly the same (Chart 2). Put another way, the State has been doing more heavy lifting by means of welfare or taxation to get the same distributional outcome. This is because incomes have become more unequal. That, in turn, probably reflects two important trends in recent times:

Rising wage inequality over time

A falling share of wages in total income with a rising return to capital including real estate property.

Going back even further into time it seems that income inequality (before adjustment for taes and welfare) may have improved in the period 1938-1970 while it disimproved somewhat after the 1970s. See one of my previous Monday Blogs here.

However, we still await a more comprehensive account of the distribution of wealth in just one year – 2013.

Chart 2  Distribution of DISPOSABLE income (AFTER tax and welfare) in recent decades – Republic of Ireland


Source: Collins and Kavanagh ‘Social Policy in Ireland’.

A word of caution

While national statistical offices make their best efforts, in this case, to capture all relevant forms of wealth and ensure adequate response by all target respondents the results are not perfect. There may be some degree of under-reporting of wealth (and income) at very wealthiest end of the distribution and the overall response rate in the case of the Irish survey was only 51.5% (an acceptable and not unusual response rate at that).  As the CSO remark: ‘there may be reticence in sharing this information with others outside the household’. Indeed. Moreover, very wealthy persons (check out the Forbes list for the top five richest persons in Ireland here) are difficult to locate. There is a chance that in a random sample of over 10,000 households the more fortunate among the population, where net wealth is concerned, might have been away in Tahiti on the day the nice field survey worker called at the front gates.  You can only try your best.

Posted in: InequalityWages

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