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We never had it so good?

Posted on March 21, 2015 by Tom Healy

Tom Healy, Director NERI
Tom Healy, Director NERI

Some years ago, during the Roaring Celtic Tiger period, I had occasion to attend a conference which treated the idea and measurement of Human Well-Being. Speaking to a former Taoiseach who had just joined the proceedings, I informed him that the participants were not entirely sure if life was getting better or worse. He responded by declaring: ‘It’s both’. Hint: he was an economist. 

Over recent months observers might be forgiven for thinking that all of us ‘never had it so good’ to quote a former UK Prime Minister in the 1957 (Harold Macmillan). The curious aspect of public discourse on both side of the Irish sea and on both sides of the Irish border is that it is remarkably similar. The incumbent administration, in every case, claims that it saved the country when it was going down the tubes and that things are getting better for everyone now.  Promises are made to cut taxation and continually tame the State.  Public debate (if it ever was) is no longer about what vision of society and economy we have for the next five years, or fifteen years or longer. It is about how to undertake the fairest package of tax cuts and how far to restrict (or cut) public spending increases from here on – all within some externally imposed constraint whether by the markets or Brussels or Westminster. It would appear that the only remaining difference between some contestants in this debate is whether the structural deficit is 2.2 or 2.1% of GDP. Yet, it should not be forgotten that the end of austerity – in the Republic of Ireland – has been exaggerated. Cuts to welfare for lone parents (to take one example) and the drip-drip of a gradual withdrawal of local public services are impacting on people.  In many cases, austerity decisions made years ago take many years to work their way through the system.

Last week’s publication, by the NERI, of indicators in the Quarterly Economic Facts contains a large amount of statistical information covering a range of macro-economic, fiscal and labour market trends. Its sister publication the Quarterly Economic Observer – which focussed this time on low pay in the Republic of Ireland – receives much more public attention compared to the Quarterly Economic Facts. However, the latter publication should not be overlooked. Whether it concerns an international comparison of the national minimum wage, a comparison of the ‘net replacement rate’ for jobless households or size of government debt, ‘QEF’ contains not only the latest statistical information in a selection of areas but points readers to the official sources from which they are drawn so that users can extract and build their own statistical tables, if they wish.

Take living standards as an area of public debate and interest. Are people better off? What are future prospects? Answers to these questions influence wage-bargaining as well as voter mood.

Possibly the most succinct measure of ‘living standards’ is what the Central Statistics Office refer to as “Median Equivalised Real Disposable Income”. Technically, this measures the average income after social welfare and tax deductions and corrected for changes in the cost of living. It is ‘equivalised’ to reflect individual income by adjusting for the composition of households. The latest data indicate a fall of 16% between 2008 and 2013 – the last year for which data are available. The relevant indicator in QEF is 4.3A here.

Chart 1 shows that ‘living standards’ in the Republic of Ireland peaked in 2008 and fell continuously at least up to 2013 as a result of falling real wages, restrictions or cuts to welfare payments and increases in taxes.  Data for 2014 are not available at this time. However, it is reasonable to assume no major change in living standards last year as incomes stabilised and the impact of austerity began to diminish.  With prospects of 3% growth in GDP this year it is likely that living standards (as measured in this way) are beginning to recover a little but are still nowhere near their 2008 levels. Current levels are likely to be below what they were a decade ago. The fact that incomes are rising, and spending too, is significant as positive but modest trends in retail sales, employment and investment tend to create a momentum and confidence leading to more growth.

However, we should not lose sight of all a still wider measure of living standards which accounts for those collective goods and services such as education, health and other public services which add to the economic well-being of households. European countries vary a lot in regards to the ‘social wage’.  Countries like Ireland have relatively higher cash income available to households and relatively lower income or consumption in the form of public services. A future Blog will explore these differences in so far as a measure of ‘actual individual consumption’ (a misleading title perhaps) is a relevant Eurostat statistical indicator which includes the monetary value of such goods and services.

Finally, we should be mindful of the limited nature of monetary income as a measure of human well-being. There is much human activity including unpaid work, caring, volunteering and other behaviour which make a vital contribution to human well-being. Also, the distribution of economic opportunities, the quality of education, health and democratic participation all impact on well-being. Economists should be more humble – there is much that cannot be easily measured if at all. Politicians might also reflect on this.

 

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