Who gets what and how

Who gets what (and how)?

The question of economic equality Nat O’Connor Social Policy Network 8th April 2014

Messages 1.

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3.

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9.

The concept of ‘benefit’ from the economy Working age population  Labour force Who gets what income?

Fallacy of ‘inactivity’ (unwaged work) Why economic equality?

Benefit from the economy, revisited Wealth Public services Policy options

1. Benefit from the Economy Other Benefits

• Less easy to quantify, e.g.: • Access to networks • Insider knowledge • Reduced risk

Cash-Equivalent Benefits

• Quantifiable, e.g.: • Pension • Company car • Cheap loans

Income

• 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

% Unemployed % ‘Inactive’ Emp. Une.

% 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

535,393

18,739

3.5

28,911

5.4

487,743

91.1

4,588,252

1,780,781

38.8

451,183

9.8

2,356,288

51.4

Older age (65+) TOTAL

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

C. (0-14) 979,590

Student or pupil

-

979,590

Looking after home/ family

Retired

Unable to work due to permanent illness or disability

Other economic status

-

-

-

-

(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

706

353

79,597 (15%)

382,947 (72%)

22,411 (4.2%)

2,196

5,872

1,388,428 (30%)

339,918 (7.4%)

457,394 (10%)

156,993 (3.4%)

13,316

O. (65+) 535,393 TOTAL 4,588,252

CSO Census 2011 data

3. Who gets what income?

Annual household disposable income Equivalised (x/person)

• • • • • •

At work Unemployed Student Home duties Retired Illness/disability

€54,053 €29,910 €28,233 €30,821 €35,102 €22,089

Source: SILC 2011 Equivalised income splits household income among individuals

€26,907 €15,383 €16,273 €17,061 €22,481 €15,351

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

At work Unemployed Student Home duties Retired Illness/disability

Source: SILC 2011

RP

D

CP

6.5% 30.6% 31.4% 21.6% 8.9% 22.8%

15.0% 42.4% 24.7% 27.7% 9.8% 35.9%

2.1% 16.5% 10.6% 8.7% 1.6% 11.1%

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

Recipients of Working Age on Employment Supports

57,982

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

Subtotal

886,925

127,923

TOTAL

1,014,848

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

(Farm Assist)

12,566

€208 (CE scheme)

(100% disablement)

€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

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)

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 c. 160,000 to

3%

Retired

Exited from employment in most cases

10%

c. 460,000

Rounding up of numbers and percentages

Per cent

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 cashequivalent benefits and other benefits.

– Social Transfers, mentioned earlier, obviously provide income – NGOs may also provide ‘public’ services

7. Wealth • Income  Wealth • Flow versus Stock

Illustrative Examples 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

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-havingdevastating-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. nonproductive 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-risinginequality-and-social-divisions-says-oecd.htm