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Northern Ireland has taken greatest hit on living standards

Posted on April 11, 2015 by Tom Healy

Tom Healy, Director NERI
Tom Healy, Director NERI

A key issue in the run-up to the UK General Election has been changes in living standards. While economics is not everything in the universe, the level and change in living standards is a very important factor in shaping the climate of public opinion. Not just the level and change in living standards but the understandings about what happened and why and expectations about what should happen in the future. In short, at the risk of over-simplifying matters, ‘economics’ tends to view who gets what and why while ‘politics’ tends towards who should get what. Putting the two together is not easy but essential not only in interpreting the world but changing it.

Observers, in the Republic of Ireland, might find it instructive to examine how the issue of living standards came to such prominence in the UK policy debate. There are striking similarities (and a few dissimilarities) between both jurisdictions.

Last week, the UK Resolution Foundation published some remarkable data estimates based on official data for living standards in different UK regions including Northern Ireland (which for the benefit of observers in the Republic of Ireland still has not gone away). The findings indicate three significant trends or patterns:

1              Living standards have fallen in Northern Ireland between 2007 and 2014.

 

2              The fall in living standards, over this period, has been greatest in Northern Ireland.

The Foundation explains that:

…Northern Ireland has experienced the biggest squeeze on living standards since the downturn of all regions and nations in the UK. Typical incomes fell by 6.7 per cent between 2007-08 and 2011-12. They have recovered relatively well since but were still 4 per cent – or £860 a year – below their pre-downturn level last year.

 

3              The level of living standards is lowest in Northern Ireland (or to put it another way the lowest of any region on the two islands of Ireland Great Britain).

 

Significant elements of the explanation lie in bigger wage cuts and a lower rate of employment in the adult population. (My colleague, Paul MacFlynn, spoke about these matters in an interview with BBC last Thursday here).  The Foundation points out that:

Northern Ireland’s position is explained by its poor jobs performance – its employment rate is still 2 per cent below its pre-downturn level – and the fact that it has experienced by far the biggest pay squeeze in the UK, with typical wages falling by 13.4 per cent. This means that it has fallen behind the North East and has the lowest median household income in the UK, followed by Wales.

The Foundation goes on to make three other interesting points:

“the generational divide in living standards is even greater than regional differences. Typical incomes among pensioner households were 9.4 per cent above their pre-downturn level by the end of last year, while working age households were still 4.6 per cent down.”

“official data on household incomes is either flawed (by including measures that households wouldn’t regard as income, such as imputed rents) or accurate but out of date (the latest figures from the ONS Family Resources Survey only go up to 2012-13). Its own analysis uses trends in employment and pay across different groups to bring this authoritative survey data up to date.”

“the absence of timely and accurate official data on living standards leaves the door open for claims and counter-claims on a key election issue that are wide of the mark.”

More timely and detailed household data would assist public debate. Also, age, gender and regional disparities are important dimensions to look at. These observations also hold in the Republic of Ireland where the latest data refer to 2013 (see indicators 4.3A for the Republic of Ireland and 4.3B for Northern Ireland using nominal data in NERI Quarterly Economic Facts).

And so what?

The implications of declining living standards over a prolonged period coupled with relative regional decline spells significant trouble for any future political or economic settlement in Northern Ireland. Policy solutions along the lines of further fiscal austerity or measures to lower corporation tax more than other European regions and steal some foreign direct investment or measures to bleed the public sector in the faith that the private sector will blossom are probably doomed to compound problems.

It is also important that a new inter-generational pact of solidarity is needed to improve the living standards of all with priority for those who are young, in precarious or low-paid work, migrants and those for excluded from the labour market by reason of disability, training, age or other factors. Furthermore, incomes and access to public services by our senior citizens should be protected and any temptation to play off one generation against another be avoided.

A new departure is needed involving a plan to develop local industry and services drawing on the undoubted strengths of the local economy and workforce. Here, there is a role for public and private sectors with a focus on research, innovation and skills. This is the key, in the long-run, to higher levels of productivity and living standards. Greater equality of social opportunity also appears to be linked to higher levels of productivity a point recognised, increasingly by international research.

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