Closer to the Bottom than to the Top

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Irish living standards are now closer to the bottom of the EU-15 countries than to the top; they are closer to Greece than to Germany or Belgium or the UK or most other EU-15 countries.

Eurostat has just released its annual estimates of household living standards. To measure this they use Actual Individual Consumption (AIC).  According to Eurostat:

‘In national accounts, Household Final Consumption Expenditure (HFCE) denotes expenditure on goods and services that are purchased and paid for by households. Actual Individual Consumption (AIC), on the other hand, consists of goods and services actually consumed by individuals, irrespective of whether these goods and services are purchased and paid for by households, by government, or by non-profit organisations. In international volume comparisons, AIC is often seen as the preferable measure, since it is not influenced by the fact that the organisation of certain important services consumed by households, like health and education services differs a lot across countries.

For example, if dental services are paid for by the government in one country, and by households in another, an international comparison based on HFCE would not compare like with like, whereas one based on AIC would. . . Actual Individual Consumption per capita is an alternative indicator better adapted to describe the material welfare of households.’

In short, AIC captures goods and services bought by households and by Governments on behalf of households.

The following table shows the relationship of European countries’ living standards to the EU-15 average, with the EU-15 equalling 100.

LS1

Ireland is approximately 11 percent below the average EU-15 living standards.  We rank 12th in the league table.  What’s noteworthy is that we are closer to Greece than to most other countries.  We are 14 indice points above Greece but 15 points below the UK.  There are eight other countries above the UK.

During the recession, Irish living standards fell faster than any other EU-15 countries, bar Greece.  The following uses purchasing power parities which factors out currency and living costs.

LS2

Irish living standards fell by nearly 8 percent between 2007 and 2013.  This shouldn’t be surprising.  With a crash fuelled by a crisis in the private financial sector combined with austerity policies – it’s surprising they didn’t fall more (in actual Euros and cents, Irish living standards fell by nearly 14 percent but that includes inflation).

So while most other countries managed to increase living standards, we went in the opposite direction.  Even Portugal and Spain didn’t suffer as much as we did.

The future doesn’t hold out much solace for us.  According to EU projections, Irish living standards growth will trail all other countries.

LS3_

Between 2013 and 2015, Irish living standards per capita are projected to rise by a little over 1 percent.  This compares to an average EU-15 growth of over 4 percent.  If this holds over the medium-term, Spanish living standards will surpass our own, sending us even further to the bottom.

We had a lot of commentary in the wake of the recent elections – about how the economy is recovering but people aren’t feeling it.  Whatever about the recovery (let’s not forget that the latest official data shows the economy still mired in a domestic-demand recession; the only recovery is in forecasts), there is a real reason why people aren’t ‘feeling it’:  quite simply, there’s nothing to feel.  In 2013, Irish living standards actually fell.

No doubt, some will state that Irish living standards were bubble-inflated prior to the crash and that such a fall was inevitable.  Maybe so.  But it was never inevitable that over one million people would be living in official deprivation, that one-in-ten would suffer from food poverty, that unemployment and emigration would rise to such dizzying heights and that homelessness would reach ‘tsunami’ levels.  Successive governments had many options and they took the wrong ones.

Nor is the future cast in stone.  We can start growing our living standards with the right policies –raising the income floor, helping households with children (through affordable childcare and other programmes), increasing investment which is the key to long-term growth and housing the homeless.

But if all we get is a debate over tax cuts – well, don’t expect things to turn around any time soon.

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