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News : Irish Economy Last Updated: Apr 24, 2015 - 11:35 AM

Ireland: ESRI research shows income of poor fell most during recession
By Michael Hennigan, Finfacts founder and editor
Apr 24, 2015 - 9:21 AM

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Ireland: The biggest income loss during the recession was incurred by the poorest in Irish society according to the results of a new study by the Economic and Social Research Institute (ESRI), which will be presented Friday afternoon in Dublin.

In recent times the Irish coalition has copied the "squeezed middle" label that has been used by Ed Miliband, British Labour Party leader, since his election in 2010 — last year The Guardian noted in a piece titled, Who exactly are Ed Miliband's squeezed middle class? "Around 36% of Britons consider themselves to be middle class, says pollster Ipsos Mori, and they are more likely to name the economy, education and healthcare as important issues for the country than those who consider themselves to be working class."

Last November, Michael Noonan, finance minister, defined the phenomenon of the “squeezed middle” or “coping classes” as those who earn between €32,800 and €70,000.

In a radio interview, he said he wanted to reduce income tax for middle income earners in 2015 and 2016 if the Coalition is re-elected.

The excess-pensioned like Noonan tend to ignore the impact that one of the lowest private sector occupational pension coverage level in the developed world, has on income and poverty — a 2011 paper concluded: "Receiving a public pension only is a pathway into relative poverty, with 76% of recipients living below 40% of the average industrial wage, i.e., below an income of €11,964 per year. Occupational pension coverage is relatively low. Only one third of retirees receive an income from this source."

Michael Savage (ESRI), Tim Callan (ESRI), Brian Nolan (Institute for New Economic Thinking at the Oxford Martin School) and Brian Colgan (ESRI) examine how the distribution of income in Ireland has evolved over the years 2008 to 2013.

They say that the Gini coefficient — the best known summary measure of inequality — has been broadly stable throughout these years. Further analysis shows that there has been a fall in the share of the poorest 10% of the population. This falling share of a shrinking cake means that real incomes for the poorest decile fell by over 20%, compared with an average fall in real income of around 13%. "The gap is greater when measuring real incomes after housing costs — a fall of 27% for the poorest decile as against 15% on average.

The authors say these results are based on “snapshots” of the income distribution in each year, so there are changes from year to year in terms of who is in particular income groups or deciles. Using the CSO’s Survey on Income and Living Conditions "we are also able to follow given individuals to see how their incomes have changed one year after first observing them. Analysis of these data show that the fall in incomes in the bottom decile does not arise from falling incomes of those already in the bottom decile, but from declines in the income of those entering the bottom decile. Most of those entering the bottom decile come from the bottom one-third of the income distribution, rather than the middle or upper reaches."

The economists say that discretionary changes in policy (i.e., changes compared with a neutral budget) gave rise to complex effects, with the greatest reduction in income being that for the top decile, and the next greatest for the bottom decile.

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