The Distribution of Income in Ireland (2000) - Combat Poverty Agency

90 The Distribution of Income in IrelandThe distribution among households of income coming directlyfrom the market did not become more unequal over theperiod; instead, an important factor was that social welfaretransfers, though having an equalising effect in each year, hadmore impact in 1994. The period between 1994 and 1997 alsosaw a considerable change in composition both at the top andbottom of the distribution, with younger households moving upand older ones moving down.Over the period from 1973-87, on the other hand, inequalityin the distribution of disposable household income fell markedly,with the share of the top decile down by 1.4 per cent oftotal income and that of the bottom quintile up by 0.9 per cent.The share of the top decile fell both from 1973 to 1980 and from1980 to 1987, but the increase for the bottom decile was in thelatter period. An important factor at work over this period wasthe increasingly redistributive impact of income tax and employees'social insurance contributions, reflecting both an increasein progressivity and a very substantial rise in the averagetax rate. From 1987 to 1994 this continued but at a muchslower rate, helping to explain the greater stability in the shapeof the distribution over those years.Using data from the European Community Household PanelSurvey, Ireland had one of the more unequal income distributionsin the EU in the mid-1990s. In the earlier study by Atkinsonet al, based on data from the mid-late 1980s, Ireland rankedamong the most unequal in the OECD. The more recent datasuggest rather that Ireland is one of a group of EU countries -the others being the UK, Greece and Spain - with relatively highinequality, though not as high as Portugal. This conclusion holdswhen one adjusts income for differences in household size andcomposition using equivalence scales. The equivalence scaleemployed was seen to make a difference to the level of the Ginicoefficient in some countries, but not to the overall pattern interms of country groupings.As far as international trends in income inequality are concerned,a fairly widespread though not universal trend towardsincreased inequality in the period from the mid-1980s to themid-1990s was found in a recent OECD comparative study. Themost notable common underlying feature noted was that theConclusionsshare of earnings going to the lower income groups among theworking population decreased in all the countries covered in thestudy. This was not, or not entirely, translated into higher inequalityof disposable incomes because both transfers and taxesoff-set its effects, and indeed in many countries the redistributiveeffects of taxes and transfers increased over the period.Data from the ESRI household surveys was also used to examinethe distribution of earnings among Irish employees in1987, 1994 and 1997. The dispersion in Irish earnings was relativelyhigh by international standards in 1994, having increasedfrom 1987 by more than most other OECD countries for whichdata are available. The combination of changes in the ageeducationprofile of employees and higher returns to educationaccounted for much of that increase in dispersion. Between 1994and 1997, when Irish economic growth accelerated rapidly, theincrease in earnings inequality slowed although the top of thedistribution did continue to move away from the middle.The participation of married women in the paid labour forcehas been increasing rapidly in Ireland, so their wages havebeen accounting for a growing proportion of household income.Elsewhere, this has been seen to increase household incomeinequality. That was found not to be the case for Irelandbetween 1987 and 1994, indeed the overall impact of increasedparticipation was seen to have an equalising effect. This wasmostly because increases in female employment rates weregreatest among wives married to husbands with relatively lowearnings. There is no guarantee that this has continued to bethe case as married women's labour force participation hascontinued to rise, but this finding serves to demonstrate thecomplexity of the relationship between trends in the labourmarket and the household income distribution.Much remains to be done before we fully understand howme shape of the Irish income distribution has been evolvingand the nature of the forces producing that distribution. Thisstudy should be seen as providing one of the building-blockson which such an understanding can be built.91