The Very Real Cost of Rising Inequality

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Inequality is one of those concepts that for many people remain somewhat abstract and amorphous.  There are few that are against equality, but it has difficult gaining traction in the popular debate.  When you’re trapped in deprivation, debt, or low-pay then income or more hours of work becomes the measure of the solution.  Equality, however framed, remains detached.

It shouldn’t be.  For all of us are paying a real Euro-and-cents cost for rising inequality.  Inequality has many facets – economic, social, cultural, gender, sexual.  Let’s just look at one aspect – rising income inequality with the assistance of a valuable database:  the World Top Incomes Database.

Equality 1

In 1977, the top 10 percent income group’s share of national income was 27 percent.  By 2009 this had increased to 36 percent – a rise of 9 percentage points.  Two years into the recession saw a drop in this share as income from the speculative bubble fell faster than the national average.  However, don’t worry – Eurostat shows that since 2009 it has started rising again.  While the data isn’t directly comparable (the World Incomes Database is based on tax revenue data, while Eurostat which is based on a survey of households shows little medium-term movement), an indicative number would be that it has risen to 37 percent in 2012.

Another way of looking at this is that the lowest 90 percent saw their share of national income fall from 72.7 percent in 1977 to 63 percent in 2012 (using the indicative number).

Again, this graph is abstract.   So let’s play a little game.  What would be the impact on households if the share of the lower 90 percent had remained the same; that is, how much more money would the lower 90 percent have today if their share of the income was the same as in 1977?

The bottom 90 percent of households would have €10.975 billion more.  Nearly €11 billion spread out among approximately 1.5 million households.

  • For each household, this would mean approximately €7,400 more income

Of course, there would be differences given the variations in household types (single, couple with children, single parents, etc.).  And this is just a suggestive estimate.  But imagine the improvement in their fortune if a low-paid couple (on €30,000 per year) were receiving an extra €140 or more per week.  And compare this to the €4 weekly increase from the tax cuts, which won’t even keep pace with inflation.

Imagine how much better off a minimum wage worker would be, or someone with disabilities, or a self-employed struggling to get a business off the ground. Fewer people in deprivation, more people out of arrears:  imagine the economic boost by redirecting income from ‘savers’ to ‘spenders’ – not just consumer spending but business investment on foot of anticipated growth.

Ireland has not been doing well in the ol’ inequality stakes.  According to the database, Ireland ranks second of the EU-15 countries reporting with up-to-date data – behind the UK (though probably Greece and Portugal as well if they had data).

Equality 2

Not only is Ireland’s inequality share high, it has risen faster than all other countries reporting.

Reducing inequality is not a zero-sum redistributive exercise.  It’s not a matter of ‘confiscating’ the income of the top 10 percent and redistributing it among the rest (though there is a role for some of that).  It is about growing the incomes of the lower 90 percent share faster than the top 10 percent.  This would kick-start an alternative graph – one where the income share of the top 10 percent starts to fall, as others rise.

This requires wage rises, increased income supports, more innovative tax/social protection measures such as a partial Basic Income and the ending of precariousness.  It requires emphasising taxation on capital (unproductive) and redirecting it away from labour and consumption.  It means not only full employment, but full quality employment.  It means equal access to education and health, without fiscal upfront fiscal costs.  This requires a determined effort to put equality at the heart of policy.

Most of us are paying for inequality even if we can’t directly feel it.  This is socially inequitable, economically irrational and fiscally damaging.  To reverse this should be a major feature of any progressive agenda.

It is not the whole answer.  We need economic investment to grow the pie from which equality will give people a bigger slice.  We need to address the fundamental flaws in our indigenous enterprise sector.  We need to reduce debt – sovereign and household.  We need to do so much more.  Reversing the slide into greater inequality is only one component.

But is a darned important one.

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