Who gets what (and how)? The question of economic equality

Nat O’Connor

Social Policy Network

8th April 2014

Messages

1. The concept of ‘benefit’ from the economy 2. Working age population Labour force 3. Who gets what income? 4. Fallacy of ‘inactivity’ (unwaged work) 5. Why economic equality? 6. Benefit from the economy, revisited 7. Wealth 8. Public services 9. Policy options

1. Benefit from the Economy

Other Benefits

Cash-Equivalent Benefits

Income

• Less easy to quantify, e.g.:

• Access to networks

• Insider knowledge

• Reduced risk

• Quantifiable, e.g.:

• Pension

• Company car

• Cheap loans

• Different sources:

• Employment

• Self-employment

• Pension

• Deposit Interest

• Capital gains

Different people get different ‘benefits’ depending on their position in the economy

2. Working Age = Labour Force + ‘Inactive’ TOTAL Employed %

Emp. Unemployed %

Une. ‘Inactive’ % Ina.

Children (0-14)

979,590

Zero (assumed)

- Zero (assumed)

- 979,590 100

Working age (15-24)

580,250 130,286 22.5 82,153 14.2 367,811

63.4

Working age (25-64)

2,493,019 1,631,756 65.5 340,119 13.6 521,144 20.9

Older age (65+)

535,393 18,739 3.5 28,911 5.4 487,743 91.1

TOTAL

4,588,252 1,780,781 38.8 451,183 9.8 2,356,288 51.4

CSO Census 2011 data. Note, many of those who are ‘employed’ are in part-time or seasonal work, and also appear on the Live Register. Data is subjective self-identification based on Census questions.

‘Inactive’ Detail Assisting Relatives

Student or pupil

Looking after home/ family

Retired Unable to work due to permanent illness or disability

Other economic status

C. (0-14) 979,590

- 979,590 (assumed

c.100%)

- - - -

W. (15-24) 580,250

745 351,209 (61%)

9,104 380 5,099 2,019

W. (25-64) 2,493,019

4,421 57,276 (2.3%)

251,217 (10%)

74,067 (3.0%)

129,483 (5.2%)

9,101

O. (65+) 535,393

706 353 79,597 (15%)

382,947 (72%)

22,411 (4.2%)

2,196

TOTAL 4,588,252

5,872

1,388,428 (30%)

339,918 (7.4%)

457,394 (10%)

156,993 (3.4%)

13,316

CSO Census 2011 data

3. Who gets what income?

Annual household disposable income Equivalised (x/person)

• At work €54,053 €26,907 • Unemployed €29,910 €15,383 • Student €28,233 €16,273 • Home duties €30,821 €17,061 • Retired €35,102 €22,481 • Illness/disability €22,089 €15,351 Source: SILC 2011 Equivalised income splits household income among individuals

Risk of Poverty (RP), Deprivation (D) and Consistent Poverty (CP)

RP D CP

• At work 6.5% 15.0% 2.1%

• Unemployed 30.6% 42.4% 16.5%

• Student 31.4% 24.7% 10.6%

• Home duties 21.6% 27.7% 8.7%

• Retired 8.9% 9.8% 1.6%

• Illness/disability 22.8% 35.9% 11.1%

Source: SILC 2011

€188 x 52 = €9,776; (€188 + €124.80) x 52 = €16,265.60 €230.30 x 52 = €11,975.60; (€230.30 + €153.50) x 52 = €19,957.60

Type of Payment Recipients Qualified Adults Rates (up to…)

Jobseeker's Allowance 303,223 71,485 €188 / €124.80

Jobseeker's Benefit 76,457 7,798 €188 / €124.80

One Parent Family Payment 87,586 0 €188

Supplementary Welfare Allowance 27,639 6,030 €186 / €124.80

Other Working Age Income Supports (e.g. Farm Assist, Maternity)

44,951 5,746 €188 / €124.80 (Farm Assist)

Recipients of Working Age on Employment Supports

57,982 12,566 €208 (CE scheme)

Invalidity Pension 51,532 7,568 €230.30 (if >65)

Disability Allowance 102,631 9,922 €188 / €124.80

Illness Benefit 61,042 6,389 €188 / €124.80

Carer’s Allowance 55,530 0 €204 (caring for 1)

Other disability payments (disablement benefit, blind pension)

18,352 419 €219 (100% disablement)

Subtotal 886,925 127,923

TOTAL 1,014,848

C. Pension €230.30 / €153.50 NC. Pension €219 / €144.70

Working Age Recipients (and adult dependents) DSP, May 2013, Pathways to Work 2013, page 10

Biggest Calls on Incomes

• Housing • Food • Energy (electricity, gas, solid fuel) • Transport • Insurance • Social inclusion

– Source: Vincentian Minimum Essential Budgets data (budgeting.ie)

• Taxation and social insurance are relatively low (in EU context) but a strain on gross

low to middle incomes because of the lack of public services and the amount of costs people pay out of their net income – income tax, PRSI, USC, VAT, motor tax, LPT, excise, TV licence, carbon tax, credit/bank card

levy, DIRT

• ‘Shocks’ are a major risk for many people – e.g. unexpected health treatment costs, car or house repairs, loss of pay/work, dependents’ needs, etc. – and public services are weak at providing ‘shock absorbers’ for many people, who must rely on private insurance, savings or family – or who simply lack resilience

4. Fallacy of ‘Inactivity’

Much human capital, social capital and cultural capital, along with childcare, personal care, etc. is provided by the ‘inactive’ population, but treated as ‘externalities’ in many economic models

• Unwaged work in the home • Carers • People in education and training (our biggest economic

investment) • People retired, many of whom were working, some of

whom are helping with childcare, volunteering for NGOs, etc.

• People with disabilities or long-term illness • People who do not believe they can find work • Artists, musicians and other irregular workers

Everyone is linked to the economy Role Relationship to Labour Force Number (circa) Per cent

In education Preparing for employment c. 1.4 million 30%

Employed In employment c. 1.8 million 39%

Unemployed Seeking employment c. 450,000 10%

Carer/At home/Family Unwaged work (benefitting the economy)

c. 350,000 8%

Not working disability/illness

Unable to work, although may wish to

c. 160,000 3%

Retired Exited from employment in most cases

c. 460,000 10%

Rounding up of numbers and percentages

5. Why economic equality?

• Social justice arguments

• Collective benefit arguments about reduced ill health, crime, etc.

– Empirical evidence (e.g. ‘The Spirit Level’)

• Economic arguments that inequality causes dysfunction across the global economy and within national economies

– Empirical evidence (e.g. Piketty, IMF, OECD)

6. Benefit from the Economy #2

• If Ireland was just one person, she would receive (average net income) €21,366/year

• Employee income €299.13

• Employers’ PRSI €33.18

• Self-employment €40.01

• Other direct income €8.90

• Social transfers (various) €141.65

• €522.87 (gross income)

• Less €111.99/week in tax and social insurance

• €410.88 (net income) = €21,365.76/year

Source: SILC 2011

But… We know that some people have multiples of €21,366/year in direct income.

Therefore many people must be below average to counter-balance those who are above average.

From: www.nerinstitute.net Quarterly Economic Facts

Conversely…

• Wealth can provide income, cash-equivalent benefits and other economic benefits.

• Public Services can both provide cash-equivalent benefits and other benefits.

– Social Transfers, mentioned earlier, obviously provide income

– NGOs may also provide ‘public’ services

7. Wealth

• Income Wealth

• Flow versus Stock

High Income Low Income

High Wealth

CEO with big car, houses, financial assets, etc.

Pensioner with own home and savings

Low Wealth

Professional with dependants and debt

Low paid worker renting, in debt, no savings

Illustrative Examples

Assets

• Housing

• Land

• Other property (e.g. rental units)

• Companies

• Financial assets (stocks, bonds)

• Minerals (gold)

• Fine art (jewellery, paintings, antiques)

‘Economic Benefit’ of Wealth

Other Benefits

Cash-Equivalent Benefits

Income

•Less easy to quantify, e.g.:

•Ability to absorb shocks

•Resilience to risks

•Access to influential people

• Intergenerational transfer

•Quantifiable, e.g.:

•Access to (cheaper) credit

•Housing (imputed rent)

•Different sources:

•Deposit Interest

•Rents

•Dividends

•Loan interest

Wealth is concentrated among few people, and so are these benefits

Job Creation

• But isn’t the concentration of capital (i.e. wealth held by individuals and companies) the engine of job creation?

• Yes: productive investment (public and private) is needed for job creation, alongside innovation, skills, leadership, market niches, and much more.

• No: most wealth is either not productively invested (e.g. housing is a non-productive asset) or involves collecting passive income (e.g. rent, dividends from non-Irish companies) not investment in job-creating businesses in Ireland.

8. Public Services

Four ‘pillars’ of social policy • Incomes policy

– redistribution through social transfers is only a part-solution – employment law, wage bargaining, minimum wage, taxation, pensions,

etc. are extremely important to raise incomes

• Health and personal care services • Education • Housing

• Employment, health, education and housing are the decisive

policies for more economic equality • This requires significant tax revenue, but most of it for services, not

social transfer • Regulation also has a decisive role to play (e.g. energy prices, rents)

‘Economic Benefit’ of Public Services

Other Benefits

Cash-Equivalent Benefits

Income

• Less easy to quantify, e.g.:

• Insurance against bad luck/risks

• Opportunity/access to labour market (education, training, child care, elder care, public transport)

• Quantifiable, e.g.:

• Medical card, GP card

• Hospital services

• Schools/college education

• Differential rent, rent supplement

• Public transport

• Different sources:

• Social insurance working age payments

• Assistance working age payments

• State pensions

• Secondary payments

• (Employment)

Public services offer economic benefit to all, especially people with lower incomes

UK Example 1/2

http://www.tuc.org.uk/equality-issues/government-welfare-and-spending-cuts-are-having-devastating-impact-disabled-people

UK Example 2/2

Source: http://www.tuc.org.uk/sites/default/files/extras/wherethemoneygoes.pdf (p. 7)

9. Policy Options

• The greatest solution to inequality is (quality) employment. • The economy require a symbiotic relationship between

wealth and public services, with efficiency and effectiveness of both in the economic system.

• Ireland is an outlier, with low taxation and weak public services, combined with inefficient wealth (e.g. non-productive investment in property, investments led by tax breaks, lowest investment levels in EU).

• A stable, sustainable tax and social insurance base is required to pay for four ‘pillars’ of social policy, which in turn underpin the economy.

• Public services are also essential to make up for income disparity across groups in Ireland.

Facts

• Top 1% in Ireland has 10.5% national income – (e.g. USA 15.4%, France 8.1% or Denmark 5.4%)

• Near wage stagnation % since 1979, versus more than doubling of top incomes in real terms

• Top 20% has 60% of all market income • U-shape tax curve

– Top 10% pays 29% tax (mostly direct, e.g. income tax) – Bottom 10% pays 28% (mostly indirect, e.g. VAT) – Middle pays c.18-21% (more indirect than direct)

• Effective tax rate of top 10% is 23% (not ‘marginal rate’ of 52%) • Ireland is a low tax economy (29% GDP v. EU average of 36% GDP in

2011)

Main Income Policy Levers

• Employment Policy – Minimum wage, wage agreements (e.g. JLC REAs), wage

bargaining, trade union recognition, public pay

• Fiscal Policy – Income tax, PRSI (social insurance), USC – Treatment of employee income (PAYE) versus capital gains,

passive income, self-employment

• Pensions Policy – Fiscal treatment (tax reliefs)

• Social Transfers – Social protection, CAP (farmers)

Example Other Social Policy Levers

• Education Policy – Lifelong education, training, reskilling, income for students

• Healthcare Policy – Primary care/GPs, dental care, A&E, hospital care

• Personal care Policy – Childcare, disability care, nursing homes

• Housing Policy – Social housing, rent supplement, planning, public transport,

building regulations – EG “Adequate Housing” defined by UN CESCR General Comment

4: Security of tenure; Availability of services, materials, facilities and infrastructure; Affordability; Habitability; Accessibility; Location; Cultural Adequacy

Towards Equality-Led Recovery…

• Wage-led Growth (ILO) http://www.ilo.org/travail/whatwedo/publications/WCMS_192507/lang--en/index.htm

• Virtuous Cycle (Robert Reich) http://www.youtube.com/watch?v=q-rpkZe2OEo (video), http://robertreich.org

• The Price of Inequality (Joseph Stiglitz) http://www.josephstiglitz.com/

• Inequality: the challenge of the century (FEPS) http://progressiveeconomy.eu/content/journal-progressive-economy-march-2014

• Redistribution, Inequality and Growth (IMF staff) http://www.imf.org/external/pubs/ft/sdn/2014/sdn1402.pdf

• Urgent action needed to tackle rising inequality (OECD) http://www.oecd.org/social/urgent-action-needed-to-tackle-rising-inequality-and-social-divisions-says-oecd.htm