Long Run Income Inequality in Ireland

This post was written by David Madden

Those of you interested in long run trends in income inequality in Ireland might like to take a look at this piece from the magazine “Significance”.  It uses the difference between incomes of the top 10% less the incomes of the top 1% as its summary measure for inequality.  It takes a pure time series approach and suggests that for the last 40 years or so there is a  12 year cycle in inequality with a very slight upward trend.

Warning: As John McHale might put it, it is “wonkish”!

http://www.significancemagazine.org/details/webexclusive/4386781/Income-inequality-in-Ireland-from-1922-to-2009.html

11 Responses to “Long Run Income Inequality in Ireland”

  1. Jane Gray Says:

    Very interesting, David. Thank you for this.

  2. Seán Ó Riain Says:

    Thanks, very useful.

    Just looking at the raw data here is interesting.

    The lowest share of the 9% is in 1977 at 21.65% and it reaches a high of 27.14% in 1995.
    Over this period, the share of the top 1% grows from 5.64% (its low) to 8.19% (its high at the time).
    In these twenty years, the 9% account for 68% of the increase in the share of income going to the top 10%.

    From 1995 onwards the trend changes. By 2006 the top 1% reach their high of 12.51%, an increase of 4.32% in ten years. During this period, the 9% share of income declines 2.55%. During the boom years of the 90s and the bubble of the 2000s, all of the increase in the share of the top 10% is down to the top 1% increasing their share.

    In the crisis years, the top 1% lose some of their gains and the 9% regain some lost share.

  3. Michael Hennigan - Finfacts Says:

    I agree too that this is useful.

    Prof Danny Dorling made an impressive presentation with interesting historical detail. Even the Queen of Mean, Leona Helmsley, gets a mention.

    Making a distinction between gross and after-tax income is important and when tax rates were high, in the UK relatively little income fell into the top bands. According to the FT, in 1978, when top rates were 83%, the richest 1% paid only 11% of total income tax.

    By contrast, the top 1% of income taxpayers in 2012 accounted for 12.4% of income and 26.6% of income tax.

    In 1966, George Harrison, the Beatle, slammed a 95% rate in Taxman: “There’s one for you 19 for me/Cause I’m the taxman,” he sang. A year later, the introduction of a special charge on investment income pushed top rates higher to 136.25%.

    In the US until recent weeks, tax on capital gains and hedge fund income was at 15%.

    Capital gains and other investment income was taxed as regular wage income from 1986 until 1996, when the capital gains rate was reduced.

    Thomas Hungerford, an economist at the Congressional Research Service said: “By far, the largest contributor to this increase was changes in income from capital gains and dividends. Changes in wages had an equalizing effect over this period as did changes in taxes. Most of the equalizing effect of taxes took place after the 1993 tax hike; most of the equalizing effect, however, was reversed after the 2001 and 2003 Bush-era tax cuts….”

    Americans for long believed that they have a much greater chance of climbing up the economic pyramid than people elsewhere. However, several research studies suggest that Americans enjoy less economic mobility than their peers in Canada and much of Western Europe. This is a challenge to the popular notion of an “American exceptionalism” in economic mobility. Family background is seen as more important a determinant of income levels than in most comparable countries.

    At least five large studies in recent years have found the United States to be less mobile than comparable nations. A project led by Markus Jäntti, an economist at a Swedish university, found that 42% of American men raised in the bottom fifth of incomes stay there as adults. That shows a level of persistent disadvantage much higher than in Denmark (25%) and Britain (30%) - - a country famous for its class constraints.

    Meanwhile, just 8% of American men at the bottom rose to the top fifth. That compares with 12% of the British and 14% of the Danes.

    Mobility, schools and education are very important.

    Alan Milburn, who was a minister in Tony Blair’s said in a 2009 Cabinet Office report that the professions had “become more, not less, socially exclusive” with access governed by “who you know, not what you know”.

    The report suggested privately educated people took the lion’s share of jobs in some professions, despite accounting for only 7% of the population. Three-quarters of judges, 70% of finance directors and 45% of top civil servants went to independent schools, for example.

    1) Over half of professional occupations like law and finance are currently dominated by people from independent schools which are attended by just 7% of the population;

    2) 75% of judges and 45% of top civil servants were independently schooled ;

    3) A typical professional born in 1958 came from a family which earned 17% more than the average family income; but by 1970 the family income gap between those who went on to pursue a professional career and the average family had risen to 27% with journalism and accountancy seeing the biggest rise;

    4) Lawyers who were born in 1970 grew up in families 64% above the average family’s income and for doctors the figure was 63%;

    5) By contrast the teaching, academic and cultural professions saw a decline in numbers who had grown up in families with above average incomes.

    In contrast, the OECD paid this extraordinary tribute to the Finnish system where there are no fee-paying schools nor fee-paying universities:

    “Finnish schools seem to serve all students well, regardless of family background, socio-economic status or ability. …possible factors behind this success,…include political consensus to educate all children together in a common school system; an expectation that all children can achieve at high levels, regardless of family background or regional circumstance; single-minded pursuit of teaching excellence; collective school responsibility for learners who are struggling; modest financial resources that are tightly focused on the classroom and a climate of trust between educators and the community.”

    Finnish lessons for Irish education

    http://www.finfacts.ie/irishfinancenews/article_1025595.shtml

  4. David O'Donnell Says:

    Ta for link.

    @Seán Ó Riain

    Ta for inrterpretation of the ‘wonkish’

    @all

    Don’t s’pose we could get a few more bob in tax from the wonkish 1% and a few pfinnings from the 9% - or would this upset a wonkish ideology?

  5. anewdawn Says:

    Michael Hennigin..we are of course not Finland.

  6. Overseas commentator. Says:

    There are standard methods of measuring income inequality (Gini coefficient ,ratio between the first and the last decile of the income distribution etc. .)I do not see why this measure is an improvement of what already exists.

  7. John Foody Says:

    anewdawn…

    Finland today didn’t always have that education system either. They had to reform, build it, develop it, encourage it.

  8. Michael Hennigan - Finfacts Says:

    @ anewdawn

    Michael Hennigin..we are of course not Finland.

    Of course people like you are happy we remain more like Britain than Finland or Sweden.

    During the last economic debacle, the late UCD constitutional law professor and Fine Gael TD, John M. Kelly, said in ‘The Sunday Tribune’ in October 1986: “Ireland’s political and official rulers have largely behaved like a crew of maintenance engineers, just keeping a lot of old British structures and plant ticking over..”

    Two decades ago, Finland and Sweden gave equal rights to all workers with the exception of a category such as judges.

    Your patron saint is Sir Charles Trevelyan, a civil servant who was the inspiration for work lifetime employment.

    It’s ironic that Trevelyan, who ordered the closure of Indian corn depots in Ireland during the Famine (he didn’t want us to become dependents!), is the patron of insiders today who protect their own interests but are prepared to have a dual labour market for new entrants where the concept of equal pay for equal work is abandoned.

  9. Brian Says:

    This letter from todays Irish Times suggests Finland’s educational system may not be all we think it is.

    “Sir, – Fintan O’Toole, in his article on the educational policy of the present administration makes the point that when a banking crisis struck Finland in the 1990s that they responded by investing in education to become a “smart society”.

    On the contrary, when the crisis hit teachers were laid off and pupils sent home for periods of weeks all over Finland. Response to the present economic problems have included cuts to the system of universities of applied sciences which have seen the number of places on offer cut by an average of 8 per cent but by as much as 50 per cent. Further, the threat of temporary lay-offs at primary level has raised its head again in certain communities. – Yours, etc,

    DAVID FitzGERALD,
    Kulmakatu,
    Iisalmi,
    Finland.”

  10. Michael Hennigan - Finfacts Says:

    @ Brian

    It crossed my mind earlier that someone would cite this.

    However, the case still stands; the OECD referred to “modest financial resources that are tightly focused on the classroom” and I referred to the fact that Ireland’s cost per stundent are higher.

    The forces of conservatism will allways find some reason to maintain the status quo.

  11. anewdawn Says:

    Err..Michael that’s a bit of a rant. My point is that what works IF it does in sweden ir Finland may not work here as we are not them nir they us. To go from that to thr drooling imbecelity of a famine rant is an sign you might need a break son. .

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