Who gets what (and how)? The question of economic equality Nat O’Connor Social Policy Network 8th April 2014
Messages 1. 2. 3. 4. 5. 6. 7. 8. 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