Rising Wage Inequality


From top: Minister for Finance and Public Expenditure and Reform Paschal Donohoe launches Budget 2018 last November.; Michael Taft

Following an exchange of graphs on Twitter with Seamus Coffey (@seamuscoffey), chair of the Irish Advisory Fiscal Council, I did some looking around Eurostat’s Structural Earnings Survey database. This dataset focuses on employee earnings.

We can not only compare Irish wages to other EU countries, we can look into the ratio of high wages to low wages. The news isn’t particularly good. The following focuses on the business economy which can be used as a proxy for the private sector.

The SES comes out every four years so the data lags a bit but is still relevant.

Unlike the average wage, the median wage measures the mid-way point at which 50 percent earn above and 50 percent earn below (if we were to measure average the pattern would be pretty much the same).

We find that Ireland is well down table, above France and the UK. To reach the mean average of the other countries, the Irish median wage would have to increase by 8.6 percent, or nearly €3,200.

But not all employees rank towards the bottom.

The median wage in the first decile (the lowest 10 percent income earners) falls even further behind the mean average: the median wage would need a 22 percent increase to reach the average. However, in the 9th decile (the second highest income group), the Irish median wage is actually above the average (3 percent).

So not only is the Irish private sector median wage low, it is skewered against the lower-paid.
This results in a highly unequal situation, though not the most unequal among our EU peer group.

In terms of the ratio between the 9th and 1st decile, Ireland ranks 3rd from the bottom– ahead of the UK and Germany which comes in at the bottom (this should caution us about the alleged strong economic performance of Germany – it is built on precarious mini-jobs which now employs one-in-five employees).

Another concern is the rise in inequality.

In Ireland inequality jumped during the property boom period and has remained high since, significantly above the mean average of our peer group. The other EU countries remained on the whole relatively stable but this includes considerable increases in inequality in Germany and Netherlands.

The one downside to this data is that it doesn’t include employees’ full wage; in particular, the social wage.

This is the portion of a workers’ wage that the employer pays into the Social Insurance or similar fund.

From this fund, people can access free healthcare and enhanced pay-related in-work benefits (maternity benefit, illness benefit, etc.); that is, except in Ireland where the social wage is weak which results in low in-work benefits while forcing Irish workers to pay for goods and services on the private market which, in other countries, would be provided free or at below-market rates (e.g. GP care, prescription medicine, etc.).

Before we turn to tax and redistribution to reduce inequality let’s first consider policies at the workplace level since that is where inequality starts in the market economy.

A big instrument in fighting inequality is workers’ ability to bargain collectively with their employers. I have discussed this in some detail so I won’t go into details here.

But here’s this from the International Monetary Fund: which found that union membership and collective bargaining reduce economy-wide inequalities:

‘We find evidence that the erosion of labor market institutions is associated with the rise of income inequality . . . notably at the top of the income distribution . . . the decline in unionization is related to the rise of top income shares and less redistribution, while the erosion of minimum wages is correlated with considerable increases in overall inequality.’

A quick look at the CSO’s analysis of the distributional impact of public sector wages (which are collectively bargained) and private sector wages (which are largely not) shows the former has a more egalitarian wage structure with much smaller gap between the top and bottom income scales.

And the great thing about a collective bargaining strategy to tackle market inequality is that it doesn’t have a financial cost, unlike social protection programmes such as Family Income Supplement which effectively subsidises low wages.

We should be concerned about wage inequality, the inefficiencies it brings to the market economy and the corrosive effect it has on social cohesion.

And we should translate that concern into giving men and women more power in the workplace. In this way, every workplace can start making a contribution to reducing inequality.

Michael Taft is a researcher for SIPTU and author of the political economy blog, Notes on the Front. His column appears here every Tuesday

15 thoughts on “Rising Wage Inequality

  1. pity

    Emm… skewed, not skewered? Or, hmmm, maybe both?

    Do these figures take the fake “self-employed”, the most exploited group of all, into account?

    1. Michael Taft

      pity – you’re right to point out the exploitation of bogus self-employed. Unfortunately, the Structural Earnings Survey doesn’t take into account self-employed earnings (bogus or not). Another problem is bogus self-employed, by its very nature, cannot be measured – though a recent Government report attempted to put an estimate on it.

      1. david

        Wow total gobbi’y gook
        It seems they want to make the whole average wage cost of living a complex nature few will understand.
        Then they can keep telling us utter bull.
        This country is heading off a cliffs edge and brexit will be the push
        So where is the fiscal space.?
        All I know is that the cost of living is rising so far out of control and its all going to end in tears.

  2. Fact Checker

    Ninth-decile incomes are high in Ireland because of the extreme presence of the multinational sector (one in six private sector employees) which likes high-skilled workers and pays them US wages.

    This is not the case in Germany where most MNCs are actually German, don’t employ a huge amount of the workforce and, when they do, they have enough monopsony power to keep a lid on wages.

    Employment rates for the high-skilled are very high in Ireland and they pay a lot of taxes. It is really a very good feature of the Irish economy.

    As for the bottom decile, wages are low because these workers are not highly skilled, aren’t employed by the productive MNC sector, and are hurt (in PPP terms) by high consumer prices in Ireland.

    I am really not convinced by the collective bargaining argument. Most low-paid employees are in sectors that just won’t get much union coverage as the work is casual and the firms are very small.

    For that reason the policy to address in-work poverty for the last 20 years has been a combination of the national minimum wage and working family payment (formerly FIS). This has been quite effective. The at-risk-of-poverty rate for working households is the lowest in Europe. (https://pbs.twimg.com/media/DYuYgqdWsAAGVBi.jpg:large)

    The real problem – as Seamus often points out – is the very high share of households in Ireland with very few hours worked or none at all. Maybe a topic for your next piece Michael?

    1. Michael Taft

      Fact Checker – you’re right to point out the presence of multi-nationals and their impact on wage distribution. But the comparison with Germany is interesting as that country (the highest inequality in the EU-peer group) has the highest private sector annual earnings in the EU peer-group in the 9th decile – nearly 10 percent higher than Irish earnings. At the other end, in the first decile, they have lower earnings. I don’t think Irish wages in the 9th decile can be considered ‘high’; they are approximately average within our peer group and trail six other countries. No doubt MNC employment is crucial to Ireland – especially in the ‘modern’ manufacturing and ICT sectors. However,

      The at-risk data is something that Seamus and I got into a constructive Twitter conversation about – you may want to look up the original post; it’s not as straight-forward as one might think.

      Collective bargaining on the sectoral level (which features in many continental countries) can overcome the employment nature of sectors and contracts – we have such bodies already; however, employers are boycotting them. That is a key issue.

      Yes, I will be doing something on employment rates and work-intensity soon. I suspect that that, like in-work poverty stats, are full of caveats and contrasting contexts.


    2. Alan

      Those lowly paid employees are in for a shock when their jobs are gone due to AI. This is the elephant in the room

  3. nellyb

    Many people don’t grasp the true meaning of equality, with great business and social dividends it brings. Mentality needs to be changed first, starting in school. As for public service – for the sake of that very equality, everyone in society should get an opportunity to work in service of the state. No state employment contract running over 5 or 10 years per individual. “Rotation” will stop festering of unwanted tendencies and actually bring some good ideas and real change. It would also correct the situation with state pensions. It’s been completely monopolised. Paid into by all, ring-fenced to some. Private pension contributions are on Las Vegas tables of “free market” as we speak, there will be nothing left by the time we retire. Go figure.

  4. Jake38

    Why only a comparison with 9 other EU countries and not with 27? Perhaps a little skewed selectivity?

      1. Andy


        Western countries with centuries of industrialization behind them are peers for a country with 2 or 3 decades of decent performance but was effectively a 3rd world country a century ago?

        1. Fact Checker


          In the same way that South Korea and Japan are peer countries now even though Japan industrialised half a century earlier.

  5. qwerty123

    Michael’s articles on BS remind me of a flower growing from a pot of manure of failed politicians and “academics”. Michael, I think you need to consider purchasing power parity, very relevant. I am surprised Swedish wages are below average actually, but again, great piece.

    1. pity

      Not only purchasing power parity, but how much of the wage is available for spending on lighthearted little treats like, well, food and clothes and things. Many Irish people have enormous repayments out of every paycheck for their home (either rented or mortgaged) or their car (https://www.irishtimes.com/business/financial-services/central-bank-warns-of-pcp-car-finance-debt-threat-1.3443108) or both. Many also pay enormous health insurance for a service which would be free for all in any rational society, but instead is yet another source of profit.

    2. Michael Taft

      qwerty123 – thanks for that. The relevant tables are in purchasing power parity (PPP in the table/chart). I should have made that clear in the text.

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