Last year’s Dubai Irish Derby, Curragh, Co Kildare ; Michael Taft
The recovering economy will lift all boats, we are assured
But beneath the surface all is not well
Michael Taft writes:
The economy is in strong growth, but if polls are anything to go by most people are not feeling the breeze. As Goodbody economist Dermot O’Leary says:
‘While people broadly accept that the country is better off than a year ago, a large majority believe that it has not yet benefited them personally. One recent survey suggested that only 15pc of people feel that they have personally benefited. Trickle-down economics appears to be clogged up.’
For many this will change over the coming months. Employment is rising, wage increases are occurring. However, social protection payments, with the exception of pensions, have been largely frozen (that is, they have been cut in real terms) and there is some evidence that wage increases are primarily going to managers and professionals.
The CSO shows that in the last two years, weekly income for managers and professionals increased while all other employees (sales, clerical, service, production, building and transport workers) saw their weekly income fall.
Trying to nail down the ‘who is benefitting’ numbers from the data can be difficult, as in many cases it lags by a year or two and in other cases it doesn’t exist. So we have to go about connecting-the-dots.
With the help of Seamus Coffey’s useful post on household income, we can make a start. This tracks the rise of household disposable income by comparing the first nine months in each of the last four years.
Seamus’s full table can be found here; what follows shows the increases in the main income categories.
Total household income rose by 16 percent over the last four years. Employee income rose by 7 percent, while total self-employed income rose by over a third.
Net property income – mostly dividend income according to Seamus – nearly trebled, though this is a small category.
Another way of looking at the data is:
In the last four years, employees received 32 percent of the total rise in household income (in the last year it made up 28 percent)
Self-employed took 46 percent of the rise in income (54 percent in the last year)
Net property income accounted for 22 percent of the rise in income (18 percent in the last year)
Clearly, it is self-employed income that has been the main beneficiary of the rise in total income. Who accounts for this? Farmers, professionals (doctors, lawyers, consultants), craft workers? The data is silent. Nor, from this table, do we know how the increases are distributed among different income groups.
Let’s turn to another dataset – the Survey of Income and Living Conditions (SILC). This cannot be overlaid on the above data which is taken from the national accounts – different methodologies, slightly different categories. The data from SILC refers to equivalised income – that is, it takes account of how many people are living in the household.
However, we can get a sense of who is benefitting (the CSO didn’t publish the 2011 data, and 2015 will come on stream later this year).
What is this table telling us?
Of the increase in all direct income (direct income excludes social transfers), the top 10 percent income group took nearly 47 percent.
Of the increase in employees’ income (wages and salaries), the top 10 percent took nearly a third of the total increase in employee income.
Regarding self-employed income, the top 10 percent took 77 percent of the rise.
And 55 percent of the total increase in Other Direct Income (in SILC this refers to interest, dividends, rent and private pensions) went to the top 10 percent. It would be reasonable to assume that increases in employee income are more widely distributed among different income groups; less so for self-employed and other direct income.
So let’s summarise:
Household income is increasing. In the last year it jumped by 8.5 percent. However, over 50 percent of this rise was taken up by the self-employed with another 18 percent going on net property income.
Within the self-employed, SILC shows that the main beneficiaries are the top 10 percent; ditto for other direct income like dividends and rent.
So we have a clear and substantial rise in overall household income. However, when we look below the surface we find evidence (not necessarily conclusive evidence but certainly persuasive) that most of it is landing in the pockets of the self-employed and capital/private pension income – and most of that is landing in the pockets of the top 10 percent.
Maybe that’s why people are not feeling it. Because the money is not heading in their direction; nor is there any uplift in social transfers.
In any recovery boats lift at different times and at different rates. That’s why in the upcoming election it’s not enough to learn about what parties will do about growing the economy.
Just as importantly, we need to learn how they are going to spread that growth around, how they are going to ensure that all boats are lifted; and what special attention they will give to the many, many small boats that are in bad need of repair.
Otherwise the economic pond will be dominated by a few big boats which will sail right over the rest of us.
Michael Taft is Research with Unite the Union. His column will appear here every Tuesday. He is author of the political economy blog, Unite’s Notes on the Front. Follow Michael on Twitter: @notesonthefront