If the retired are not poor, is it right for them to keep all-day free bus passes?

There has been a considerable fuss over a suggestion for a modest scaling-back of the benefits to the retired. It was proposed that ‘free bus travel’ be available only at off-peak travel times. At all other times, free bus travel would continue to apply.

The fuss has been strikingly one-side: the proposal was denounced by politicians, interest groups and journalists. Otherwise, silence; including on this blog.

The case for this change is easily stated – rush hour is busy because of workers travelling to/from work at times they don’t control. So it is a more efficient use of the bus system that people with more discretion over when to travel, notably the retired, would use (free) buses only at other times.  (Of course they could travel as paying passengers at any time.) Nearly one-tenth of passengers on the buses at rush hour use free bus passes. So either we expand the bus system or we move bus-pass holders to (free) travel at another time and release a lot of bus space.

Available information suggests this change would also improve fairness. There is considerable evidence that the retired are not poor, either in income or in wealth terms. Removing a small fraction of the bus subsidy would seem to be fair, especially if it also made the bus service work better.

The CSO’s 2013 Household Finance and Consumption Survey (Table 12) indicates that in households where the head of household was under 35, median net wealth was €4,000. For households headed by a person 65 or older, median net wealth was €348,000. It seems legitimate to conclude that the retired are not poor in terms of their net wealth. (This is hardly surprising; they have had decades more than twenty-somethings in which to save. Grey and wrinkled has a few compensations.)

For incomes, the CSO Survey on Income and Living Conditions (Table 1e) reported that in 2016 median net disposable income (adjusting for household size) was €21,387 for those aged 18-64 and not a very great deal less, €17,956, for those over 65. So for every €100 of net disposable equivalised income of the median member of the first group, the median retired person has an income of €84. The costs of the retired are surely lower than those working (mortgage, children’s education costs)? In any case, according to the report (Table 2) those aged over 65, have a lower risk of poverty (10.2% v. 16.6%) and also a lower rate of deprivation (13.1% v. 20.9%) compared to those of working age.

Given the similarity of incomes, there seems a solid basis to say the over 65s are not poor in income terms either, compared to the working age population.

Yet the older generation have various non-means-tested benefits including free bus passes. They were also essentially exempted from the post-2008 income and benefit reductions. I will leave the inter-generational aspects of the planning laws for another occasion.

Subsidies for the retired was recently raised in the UK which “continue[s] to treat pensioners as though they need free travel, winter fuel allowances and the like, despite the fact they are on average now the best-off demographic group in the country.” In a comment pertinent to the Irish case, the writer argued that amongst the UK groups needing more public funds are children and the mentally ill. If money goes to the over-65s, it will be harder or impossible to finance the other programmes.

The broader setting for this discussion is whether our prevailing redistributive and other policies in fact discriminate against younger rather than older generations. Many of the retired and soon-to-be-retired, benefitted from lower costs of going to college, drastically lower house prices, and much more generous pension schemes that today’s twenty- than thirty-somethings will have. On top of this there are pensions, free bus travel and other benefits; some of this money may have more deserving uses, not excluding healthier public finances.

From this perspective, do we redistribute income on the basis of means or, say, voting propensity? Regarding the latter, a rough calculation (exit poll age data, total turnout, and population less non-nationals) suggests that in the 2016 general election turnout was 41% for voters under 24, and 61% for those over 65. 

How, then, was the bus-policy reform proposal responded to? It did not go down well! Its author was personally vilified and the proposal was drowned in ridiculous hyperbole, while more important aspects of the speaker’s policy recommendations at the conference passed unremarked. One Minister remarked that the civil servant’s suggestion was unprecedented. It’s not hard to see why.

There was the usual claim by a journalist that “free bus pass holders have contributed to the economy for decades” On that principle, shouldn’t everyone have everything free forever? (Where are our free newspapers?)

Senator Buttimer of Fine Gael demanded that the civil servant be fired. The Independent Alliance judged that this change would cause “severe hardship” and could jeopardise the ability of the retired to get to hospital. (Severe hardship? Really? No pensions, no cars, no taxis, no offspring, in Independent Alliance constituencies?)

Even the elusive Minister Ross took to the battlements to declare that the change would happen only over his dead body, although some think the Minister’s body has been alarmingly immobile since he took office. (Missing Minister.)  The Minister added that this modest change was no less than “an extraordinary assault on the rights of older people.” (An extraordinary assault?)

As for the temerity of the civil servant, I believe the department he works for is called Public Expenditure and Reform. His remarks were made at a conference where the OECD recommended that Ireland needs to focus more on evaluation of the impact of public policies. The responses amounted to saying: our supporters like this policy, we are not interested in any evaluation.

This sorry episode is reminiscent of the ‘anti-expert’ commentary of members of the Bertie Ahern governments. Minister Martin Cullen in the mid-2000s dismissed warnings of economic overheating contained in an ESRI mid-term review of the public investment programme, as merely the views of ESRI ‘sandal wearers’. He insisted that the government would press ahead in the face of the advice it had itself commissioned. Ten years on, some current Ministers seem to believe much the same thing.

The retired in the population used to be poor. That’s not been true for a long time. Policy has to catch up. The Government should seek to improve the efficiency of the transport system particularly when it can be achieved at no loss of fairness. In any event, they should give a civil hearing to policy suggestions.

Complete inflexibility from the retired may leave them with few sympathisers should the large deficits in the public pension scheme require real fiscal surgery in the future.

Redistribution in the Age of Austerity

Readers of this blog might be interested in this working paper we’ve just put up on the Levy working paper series. The abstract is below.

We examine the relationship between changes in a country’s public sector fiscal position and inequality at the top and bottom of the income distribution during the age of austerity (2006–13). We use a parametric Lorenz curve model and Gini-like indices of inequality as our measures to assess distributional changes. Based on the EU’s Statistics on Income and Living Conditions SLIC and International Monetary Fund data for 12 European countries, we find that more severe adjustments to the cyclically adjusted primary balance (i.e., more austerity) are associated with a more unequal distribution of income driven by rising inequality at the top. The data also weakly suggest a decrease in inequality at the bottom. The distributional impact of austerity measures reflects the reliance on regressive policies, and likely produces increased incentives for rent seeking while reducing incentives for workers to increase productivity.

Garret FitzGerald Lecture and Autumn School

UCD College of Social Sciences and Law will host the Garret FitzGerald Lecture and Autumn School on Monday 19th October, in the UCD Sutherland School of Law. The daytime School (from midday) will focus on the significance of the social sciences. The evening Lecture will be delivered by Professor Cass R Sunstein,Harvard Law School, on the theme ‘Is Behavioural Science Compatible with Democracy?’. More details and bookings here.

Save the Date: September 30 Conference on Higher Education Funding in Maynooth

On Wednesday, September 30, we are holding a one-day conference on ‘Higher Education Funding: Drawing on the International Experience’ in Maynooth.

The context for this conference is the debate on how to fund higher education in Ireland. In 2014, the Minister for Education established an Expert Group on Future Funding for Higher Education, and the motivation for the conference is to inform the discussion about the choice of funding options available; we have a particular interest in the interaction between funding mechanisms and differential access to higher education along socioeconomic lines.

International speakers include Sara Goldrick-Rab of the University of Wisconsin-Madison, who has written extensively on the issue of higher education funding in the US; Claire Crawford of Warwick University and the IFS, who has written several detailed analyses of the UK system; and Bruce Chapman of the Australian National University, whose name is particularly associated with income-contingent student loans, both in terms of his academic research and his role as policy advisor to many governments.

Local speakers include Rory O’Donnell of NESC and Delma Byrne of Maynooth University.

The conference will be open to all. I’ll post further details here in the coming weeks.

Update: Full details are now available here.

Inequality in the Irish Context

John FitzGerald’s ESRI piece has added to the debate on income inequality in the Irish context, with some reaction from TASC’s Cormac Staunton, the Irish Times’ Chris Johns, and some other guy giving the flavour of the exchanges from right and left.

Edit: I think David’s forthcoming ESR piece (.pdf) is a real contribution to the debate and should be noted up here, too.

 

The 75% of the world’s population not covered by Piketty

In between grading exam papers I have been wading through the Piketty book.  Its a bit like walking through a muddy field.  The going is sometimes a bit stodgy, but you eventually get there.  There have been many reviews and commentaries on the book – one of the best I think is by Debraj Ray (http://debrajray.blogspot.co.uk/2014/05/nit-piketty.html ), who also wrote what I believe to be the best textbook on Development Economics in 1998, which, alas, I don’t think was ever updated.

Ray is sceptical about Piketty’s “Fundamental Laws of Capitalism”, but believes that the book makes a major contribution in highlighting the concentration of top incomes, arising from both an increasing share of income accruing to capital and also the phenomenon of very high returns to human capital at the top of the wage distribution.

All of this I am sure is very familiar to readers of this blog – Piketty’s must be one of the most reviewed economics books of the last 30 years.  But what seems to get less coverage is what has been happening to the approximately 75% of the world population not covered by the Piketty book.  A recent World Bank study by Lakner and Milanovic (covered here in Vox http://www.voxeu.org/article/global-income-distribution-1988 ) shows that over the 1988-2008 period, growth for the bottom 75% of the world (with the exception of the very bottom 7% or so) has been well above average, thus contributing to an overall compression of the world income distribution.  There have basically been three broad changes in world income distribution over the last 30 years.  Yes, the top 1% have seen high growth, while those between about the 75th and 99th percentiles have done relatively poorly – these are the phenomena covered in Piketty.  But the vast majority of the bottom 75% have also done relatively well, particularly those just above the median – effectively the Chinese and Indian middle classes are catching up with lower income groups in the OECD countries.  The net effect of these three changes is a fall in overall world income inequality.  The data stops at 2008 but my guess is that developments since then have probably only accentuated these trends.  And further globalisation is likely to have the same effect.

The piece finishes off with some speculation about the political implications of all this, which I am not quite so convinced by.  But overall, given that inequality seems to be flavour of the moth these days, it is interesting to get a more global view.

Symposium at NUI Maynooth: “Can Social Investment Save Social Europe?”

On Thurs., 29th of May, a special seminar on Social Investment in Europe will be hosted by the Department of Sociology/ NIRSA, Political Economy and Work Cluster and the New Deals in the New Economy project. The seminar will run from 9.30 to 1.30 and will be followed by the launch of a new MA in Sociology (Work, Labour Markets and Employment) by Minister Joan Burton.

‘Social Investment’ focuses on investing in people’s skills and capacities and supporting them to participate fully in employment and social life (EU Commission). Does ‘social investment’ lead to a renewal or an erosion of the welfare state? Will ‘social investment’ support economic and social recovery?

The event will start at 9.30 with registration and coffee followed by the seminar at 10.00 in the Phoenix building on the North Campus in NUIM keynoted by Prof Anton Hemerijck, VU University Amsterdam and Prof Brian Nolan, UCD, and chaired by Prof. Seán Ó Riain.

Following a break for coffee there will be a roundtable discussion with: Rossella Ciccia (NUIM), Tom Healy (NERI) and Rory O’Donnell (NESC), chaired by Mary Murphy (NUIM).

See more at: http://www.nuim.ie/sociology/news/can-social-investment-save-social-europe

Please register for seminar by emailing newdeals@nuim.ie before May 26th, 2014

Survey on Income and Living Conditions

The results from the 2012 wave of the EU-SILC have been published by the CSO.

There had been some difficulties with the statistics estimated from the survey in previous years which may account for the lag in getting the 2012 data published.  The data was collected between January 2012 and January 2013.

The main results are summarised in this table.

Of the reported 2012 changes in the poverty and income inequality measures, only the change in the deprivation rate is reported as being statistically significant.

The average weekly net equivalised disposable income for the bottom decile was €118.55 in 2012.  Income decile data was not provided in the 2011 release and the 2010 figures were withdrawn.  In the 2009 release, the average weekly equivalised net disposable income for the bottom decile was €160.05.

Comparable figures for the top decile are €1,041.71 in 2009 and €958.44 in 2012.  It should be noted that possible differences in the composition of the deciles between years make such changes difficult to fully interpret.  The income shares by decile are provided in this table.

The first table here shows that average equivalised disposable income for the population fell by 10.5 per cent between 2009 (€23,326) and 2012 (€20,856).  The second table shows that the share going to the bottom decile fell by 16.7 per cent between the same years (from 3.6 per cent in 2009 to 3.0 per cent in 2012). 

There is more detail in the full publication.  The Department of Social Protection have issued this press release.

Chartbook of economic inequality

Readers of the blog may be interested in a Vox piece by Tony Atkinson and Salvatore Morelli on the Chartbook of Economic Inequality. It provides a summary of changes in inequality for 25 countries (alas not including Ireland) over a 100 year period.  If you follow the links you can get the data on an Excel basis or in chart format.  The vox link is here  http://www.voxeu.org/article/chartbook-economic-inequality.

ESRI Studies on Taxes and Transfers

Here are links to two studies released through the ESRI this week.  One chart is taken from each but there is much more detail in both particularly the second.

Distributional Impact of Tax, Welfare and Public Service Pay Policies: Budget 2014 and Budgets 2009-2014

   

Social Transfers and Poverty Alleviation in Ireland

Income inequality

This week the OECD released an update of their income inequality statistics which was covered in an article by Dan O’Brien in yesterday’s Irish Times.  For household disposable income Ireland is not unusually unequal.

  • Gini co-efficient: Ireland 0.307 versus OECD average of 0.313
  • 90/10 income share: Ireland 7.5 versus OECD average of 9.4

Under both measures Ireland is less unequal than the OECD average.  Data is for 2010 except for 2009 data from Hungary, Ireland, Japan, New Zealand and Turkey, and 2011 data from Chile.

The OECD dataset also includes a gini-coefficient for direct income (i.e. household income prior to taxes and transfers).  Direct income includes employee earnings, employer social insurance contributions, self-employed earnings and other direct income.  There is no data for Hungary, Mexico or Turkey.  The following chart has the most recent figures (mainly 2010) for this gini coefficient (most equal first).

For the 31 countries shown, Ireland has the highest level of inequality for direct income, and by some distance. The (2009) Irish figure is 0.591 compared to an arithmetic average for the sample of 0.470. 

Charts showing the impact each country’s tax and transfer system has on the gini coefficient and the resulting gini coefficients for household disposable income are below the fold.

Continue reading “Income inequality”

Long Run Income Inequality in Ireland

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

ESRI QEC Research Notes

Last week the latest ESRI Quarterly Economic Commentary was published. It includes 5 research notes including one by myself on the regional dimension of the unemployment crisis.

While there is a lot of discussion about unemployment, the differences across regions have not received much attention. The note shows that the differences are significant. It also shows that things would look a lot worse if it had not been for a drop in labour force participation – in the Border region the unemployment rate could have reached 27%. Not surprisingly a sharp drop in employment is the major cause of the increase in unemployment, but a look at the sectoral breakdown of employment changes gives some interesting results. Firstly, construction employment appears to have contracted quite uniformly across the country. Secondly, employment in education and health actually grew. Thirdly, there are some interesting differences across the regions with respect to other sectors. For example, manufacturing declined much more in Dublin than elsewhere. Most importantly the analysis suggests that the underlying factors that are responsible for the differences in unemployment rates across the regions are very persistent but were hidden during the boom. You can expect some more analysis on this in the near future.

The other notes are:
Tax and Taxable Capacity: Ireland in Comparative Perspective
Comparing Public and Private Sector Pay in Ireland: Size Matters
Trends in Consumption since the Crisis
Revisions to Population, Migration and the Labour Force, 2007-2011

Work and Poverty in Ireland

A new report commissioned by the Department of Social Protection and undertaken by the ESRI is available here

The focus of the report is on the very low work intensity (VLWI) measure of social exclusion with which Ireland is a significant outlier.  In Ireland 22.8% of people under 60 live in households with very low work intensity compared to an EU27 average of 10%.  The report looks at the trend in this measure over time and the characteristics of households that comprise this group. 

Property Tax: ESRI Conference Paper

 

A conference paper  provides evidence relevant to some key choices in the design of a new property tax.  While the paper does not recommend a specific blueprint, it draws on evidence from other countries as to “what works” and analyses the impact of different forms of property tax on a nationally representative sample of households.

Ronan Lyons post yesterday contained three main comments on the paper.  Because some of these appear to have drawn primarily on an Irish Independent report that contained inaccuracies, rather than on the paper itself, it seemed best to issue this as a new post.

1.        The first comment is that “there should be no exemptions from a property tax, only deferrals”.  The  SWITCH model is set up to analyse policy choices.  As I see it, the level of an income exemption limit is a choice variable, and in this context, zero would be Ronan’s preferred option.  Our research found a range of positive values in evidence in many countries. For example, the UK Council Tax Benefit effectively exempts those with incomes close to minimum social security levels. In Northern Ireland, they have set a higher income limit than in the rest of the UK. In our analysis we report income distribution impacts for the zero case, and also for levels at the State Contributory Pension and State Pension+25%. Our work points out the implications of the different choices. Making such a choice is a matter for public debate and government decision. Our paper aims to inform that choice.

2.       The second comment is that “a property tax should most certainly not be related back to income”.  I’m not sure what he has in mind here but it is important not to misunderstand our analysis. Apart from income exemption limits and some marginal relief above this (necessary to prevent 100%+ tax  rates), the property tax bill we consider is simply a flat percentage of market value. We analyse what the outcome is in terms of how the burden is spread across the income distribution – this depends on how, in practice, property values and incomes are related, as well as on the effects of exemption limit provisions. These are questions of legitimate interest for research and policy.

3.       Thirdly, it is stated that our paper asserts that Ireland has “no database on site values”: This is not what we said – it reflects an inaccuracy in the Irish Independent’s report. What we said is that “to our knowledge, there is no data source which combines information on site characteristics (location and size) and household incomes, so that it is not possible to provide a clear picture of how a Site Value Tax relates to ability to pay or its impact on the distribution of income”. If there is such a source, we would be glad to hear of it.

 

2010 Survey of Income and Living Conditions

The CSO have now released the full results of the 2010 EU-SILC.  The report gives lots of detail on income and poverty in Ireland.  One graph immediately stood out.

Care has to be taken when interpreting this as different households are surveyed each year and the composition of the households in each decile will also change.  Detailed tables can be seen in the report which can be compared to those in the 2009 release.

When looking at the annual change by household composition the following can be seen.

The largest drops are seen for households with one adult aged under 65 and no children under 18, and “other households with children”.  Drops are also recorded for other categories.

Household Budget Survey

The CSO have released the first results of the most recent HBS which was taken between August 2009 and September 2010.  There is also this press release.

Average weekly expenditure is estimated to be €810 per week or around €42,000 per year.  The release contains lots of detailed information by income decile, region, location and household tenure.

Tax Breaks for Job Creators

Stephen Collins reports that ‘project champions’ and their teams will be given large tax breaks to incentivize them to come to Ireland to set up projects that entail ‘new product development’.

Is this a good idea? Anyone know of any empirical evidence on the effectiveness of these types of tax breaks (assuming that they exist elsewhere)?

United Left Alliance convention

My invitation to the above event at the week-end being unaccountably delayed, it’s interesting to see the Irish Times relaying the views of colleague Professor Terrence McDonough (IT do note correct spelling please.) here.

In summary:

“He said the country should default on its debt, leave the euro, build a single public bank, provide a jobs guarantee for all workers and nationalise the Corrib gas field.”