Unsqueezing The Middle

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Michael-Taft

Shopping on Grafton Street, Dublin last Christmas; Michael Taft

The ‘squeezed middle’ are used to blame low-income groups of being a burden on average earners and, therefore, argue for cuts in both social protection and taxation.

This is far from the reality.

Michael Taft writes:

Seamus Coffey, of University College Cork, has been digging up some more numbers which he self- deprecatingly refers to as one more ‘silly addition’ to what can be done with income distribution statistic.

But silly they are not. They give insight into another aspect of Ireland’s income structure.

When we debate income distribution we usually do so through the prism of the relationship between the ‘top’ and ‘bottom’ income groups or the Gini co-efficient.

What Seamus looks at are the fortunes of the middle income group and specifically compares Ireland with Sweden in the middle deciles (a decile represents 10 percent of the population).

I have reproduced Seamus’s table below but if it is difficult to read you can access it here.

1

The numbers measure the percentage of ‘equivalised income’ each decile receives (equivalised factors in household size).

In the table we see that in green Ireland, the lowest 10 percent income group receives 3.2 percent of all income; the top 10 percent receives 24.4 percent – or nearly a quarter of all income.

Regardless of the magnitude, there is nothing surprising in this. Top income groups take more than low-income groups.

However, Seamus points us to the middle of the decile group – what has been described in the debate as the ‘squeezed middle’ and compares us to blue Sweden.

There is a huge gap between the two countries in these middle deciles – 4th to 7th. Indeed, if Irish squeezed middle households took as much of a percentage of total income as Swedish middle decile households, each Irish household would be, on average, €5,000 better off. That’s a nice tidy sum.

Using the Eurostat data here is my own take. Rather than compare Ireland to Sweden (Sweden is pretty egalitarian but they’ve been at it for decades), I compare Ireland with the average of our peer group – other small open economies: Austria, Belgium, Denmark, Finland and Sweden.

And since I’ve used the middle 60 percent in the past I’ll keep to that and calculate the income for households in the 3rd to 8th decile. That’s a bigger middle.

2

Ireland’s low and middle income groups are below the share of those same groups in the other small open economies.

However the Irish top 20 percent group take considerably more than their counterparts in the other five countries.

What does this mean in Euros? If Ireland had the same share of disposable income:

Households in the lower income group would receive, on average, an extra €2,200.

Households in the middle income group would receive, on average, an extra €2,300.

Households in the high income groups would, however, lose on average €9,100.

In small open economies, low and average income groups make more at the expense of their high income groups.

Of course, one could argue that the real issue is not the share of total disposable income but rather how much income. You can be more equal but a lot poorer.

So let’s look at the top cut-off point for each decile (the point at which you enter the next highest decile) measured in purchasing power parities to factor in currency and living costs.

3

Other small open economies are more equal and more prosperous. Irish households are between 14.8 percent below the other countries (7th decile) to 20.6 percent below in the 3rd decile.

When income inequality is mentioned the first that many people do is reach for Robin Hood’s bow and arrow. Yes, it’s good to be well-armed but there are other issues besides tax and redistribution.

Here are two that might help explain the gap.

First, in other European countries there is greater collective bargaining coverage than in Ireland – one reason being that workers have a right to collective bargaining which employers are required by law to respect. This is not the case in Ireland.

Trade union density and collective bargaining have been show to increase workers’ wages.

Frank Walsh of UCD estimates that workers in trade unions engaged in collective bargaining are 8 to 10 percent better off than their non-union counter-parts in a like-for-like comparison (occupation, economic sector, workplace size, etc.).

But there are other labour-related issues: the right of part-time workers to take up extra hours in the workplace when they become available; the right of part-time workers to certain hours (that is, ending precariousness); and statutory rights to Sunday premium and overtime pay.

Strengthening labour rights through workplace organisation and statutory rights can translate into higher living standards for middle income groups.

Second, we’ve come to think of social protection as ‘welfare for the poor’. In other European countries, social protection is just that – protection throughout society and throughout the workforce.

For instance, if you become sick and your employer doesn’t have a sick-leave plan, you have to wait for a week to get Illness Benefit from the Social Protection Department and then it’s only €188 per week. In other EU countries you can start to receive sick-leave after the first or second day and they are income-related, covering up to 70 to 80 percent of your wage.

Or take maternity leave: in Ireland it’s a flat-rate of €230 per week. In other EU countries, up to 100 percent of the wage is provided.

A strong social protection system – that protects people both in work and out of work – helps maintains income during periods of illness and injury, temporary unemployment, maternity (and paternity) leave and retirement. That could be another contributing factor in supporting middle income groups.

There are some who use the ‘squeezed middle’ trope as part of ideological discourse that seeks to blame low-income groups of being a burden on average earners and, therefore, argue for cuts in both social protection and taxation. This is far from the reality.

You want help the ‘squeezed middle’? Increase labour rights in the workplace and build a strong social protection system. That’s an agenda for all workers.

Michael Taft is Research Officer with Unite the Union. His column appears here every Tuesday. He is author of the political economy blog, Unite’s Notes on the Front. Follow Michael on Twitter: @notesonthefront

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19 thoughts on “Unsqueezing The Middle

  1. dav

    Blushirts don’t care about the poor or the middle, they just want to line their rich mates pockets.

    1. dav

      you’ve been hanging around the boardwalk again? pity the blushirts wouldn’t make it so easy for you to score.

  2. Eoin

    Sweden is due to hit 3rd world status within 10 years according to the UN. This is due to rampant immigration, allegedly. So I’m not sure they are a suitable nation to compare to in any data study, as there seems to be some extreme conditions there.

    1. ahjayzis

      Cite that that UN report that says Sweden is headed for third world status please.

      Go on, give us the link.

        1. Dόn 'The Unstoppable Force' Pídgéόní

          Tbf, this is how most pubic engagement with science goes

      1. edalicious

        When the phrase was coined (and still to this day, depending on how you define it), Sweden was a 3rd world country.

    2. LW

      “Sweden is due to hit 3rd world status within 10 years according to the UN. This is due to rampant immigration, allegedly. So I’m not sure they are a suitable nation to compare to in any data study, as there seems to be some extreme conditions there.”

      I was similarly stunned by Eoin’s assertion, so went looking online. His opening statement is taken almost verbatim from speisa, a website which appears to mainly delight in anti-immigration stuff. Their headline is based on a report from the UNDP, which isn’t available on the UNDP website, but is mirrored on the robinson rojas archive.

      The report is titled “A Hypothetical Cohort Model of Human Development” and it tries to predict trends in the Human Development Index, which is easily accessible on the UNDP website. The projection of the report shows Sweden dropping from 0.949 to 0.906, which would certainly not be dramatic enough to put it into “third-world” territory, even if it turned out to be correct.

      Unfortunately though, the authors of the report got both Sweden’s HDI score in 2010, and the growth profile, wrong and Sweden has managed to slowly and steadily increase it’s HDI score over the intervening period. Good news for all! Except the people who blindly accept anti-immigration rhetoric as basis of economic decisions I suppose?

      http://speisa.com/modules/articles/index.php/item.454/sweden-to-become-a-third-world-country-by-2030-according-to-un.html
      http://ww.rrojasdatabank.info/HDRP_2010_40.pdf
      http://hdr.undp.org/sites/default/files/hdr_2015_statistical_annex.pdf

  3. Owen C

    I think Michael is wowing us with science a bit too much here. If he is trying to say “Ireland is unequal, the rich get so much of the wealth/income”, I don’t think anyone would be trying to deny this. What i think Seamus was trying to point out is that relative inequality seems to have a much greater impact on the Irish middle class than in most other comparable countries. If you set up a graph using the data above, showing the relative ranking of the following small open economies (Ireland, Finland, Denmark, Sweden, Belgium, Netherlands, Austria) on the vertical axis and by decile on the horizontal axis (I’ll email to Broadsheet if they would like), the biggest gap in the entire chart occurs between the relatively poor ranking of the Irish middle class vs this peer group. In all of this peer group, low and middle income earners appear quite high up the rankings (ie in relative terms, they seem to get relatively high amounts of national disposable income) and do not deteriorate significantly until you get to the 6th or 7th decile (ie as you hit this level of upper middle class wealth, you fall down the rankings and so have a relatively smaller amount of national disposable income vs the rest of the EU). In Ireland, the deterioration begins at the 4th decile (ie lower or middle middle class), supporting Seamus’ suggestion that this cohort are the ones facing the biggest relative burden of supporting the economy.

    *every here is relative, as Michael points out – actual purchasing power decides how good or bad our standard of living is, but thats a separate discussion*

  4. Jake38

    A great argument for raising the threshold at which the confiscatory marginal rate of tax in this country is imposed (currently at all of 36k annually).

  5. :-Joe

    Quote ” There are some who use the ‘squeezed middle’ trope as part of ideological discourse that seeks to blame low-income groups of being a burden on average earners and, therefore, argue for cuts in both social protection and taxation. This is far from the reality……. ”

    All you clowns who keep voting for FF/FG as both majority government and opposition instead of an alternative socially democratic / so-called “left” group of candidates need to wake up.

    The deluded middle class keep on dreaming they can reach the top echelons one day if they believe in the lies and swallow another falsehood from the establishment’s grand old idealogical mind trick.

    The establishment wants you to fear becoming poor so you will help punish the weak, keep grinding the wheels of the economic engine disproportionally and all for their benefit of more power and more control.

    Ultimately you lose because you will not be rewarded and at everyone’s expense overall.

    :-J

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