From top: Salary payments; Michael Taft

Most of the income increase over the last five years has been concentrated among higher-income groups

Michael Taft writes:

In a previous blog I discussed the issue of who is benefiting from income increases, using national accounts and the Survey on Income and Living Conditions.

Here’s another look at the issue, this time with the assistance of the CSO’s Earnings database, focusing on wages. This will give us another, potentially more provocative, look at the issue.

That wages are rising is not in doubt.

Since wages (average weekly earnings) bottomed out in 2011,there has been a growth of 7 percent in the private sector while public sector wages have flat-lined. This has resulted in an economy-wide growth of 3 percent.

We always have to be aware of the compositional effect, though – a change in the composition of the group you are measuring.

Here is a simple example: we are measuring the average income of all customers in the pub.There’s 10 customers (slow night) and they have an average income of €36,000.

Then a millionaire walks in. We measure the same group – all the customers of the pub; but now the average is substantially higher. The original 10 customers haven’t experienced any change in income; it’s just that the composition of the group we’re measuring has changed.

So the 7 percent increase in private sector weekly earnings doesn’t mean every worker received that wage increase – more jobs created in in high income sectors (financial, information & communication) will change the composition.

With that caveat, let’s proceed to the next measurement.

The CSO measures average weekly earnings of three types of employees:

Mangers & Professionals: this includes associated professionals
White-Collar Employees: this includes clerical, sales and service employees
Blue-Collar Employees: this includes production, transport, craft and other manual workers

How have these two groups fared?

Managers & professionals have been big gainers – over €100 per week, or nearly 10 percent increase. All other employees, however, have seen their weekly incomes fall. Even if with a compositional effect, its’ a significant difference.

There are some differences when we look under the hood. In the industrial sector (manufacturing, utilities, and mining), the three groups experience similar increases with managers & professionals receiving a 11 percent increase, white-collar workers receiving a 10 percent while blue-collar workers received a 14 percent increase.

However, the rest of the economy brings down the average of the latter two groups.

Rooting under the hood some more here’s another interesting finding: the Information and Communication sector makes up 3.9 percent of all employees in the economy. Yet this sector accounted for 21.2 percent of the entire increase in average weekly earnings.

This shouldn’t be too surprising given the number of multi-nationals in this sector that have located and expanded here in the last five years. Still, it gives evidence of the concentration of earnings.

What does all this mean? Even with a compositional effect, it shows that most of the income increase over the last five years has been concentrated among higher-income groups.

Here are the annualised average earnings for the three categories of workers in the first quarter of this year:

Managers & Professionals: €62,300

White-Collar Employees: €24,500

Blue-Collar Employees: €26,100

Again, we have to mindful that, especially among service workers (e.g. hospitality), some of this difference can be accounted for by less working hours.

We can’t say how much because the data doesn’t provide earnings per hour or working hours; we can’t produce full-time equivalents.However, Information & Communication employees earn nearly three times the hourly wage as hospitality workers – even more of a gap than the annualised earnings above.

Bottom-line: earnings inequality is growing in the economy. This may not mean much if you don’t think inequality is a problem.

However, if you think rising inequality will result in economic inefficiency and social erosion then you should be concerned. Very concerned.

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