Should we be worried about Income Inequality in Ireland?

This is a link to an excellent summary by Richard Layte on why we should be worried about income inequality in Ireland.

Ireland has a high level of income inequality when compared to other OECD and European countries. It is in the same bracket as the UK, Baltic countries and southern regions of Europe. But, not quite as high as the UK.

This begs the immediate question as to why we have high levels of income inequality but simultaneously why it is not as high as the UK. I think a strong case can be made that the minimum wage, increased social transfers and wage setting institutions explain this difference. All of which were associated with the Irish Sisyphean attempt to construct a quasi corporatist political economy, locally known as social partnership  (i.e. an industrial relations system that is more like Europe than the UK).

The paper by Richard Layte is the ESRI at its best (I cannot quite comprehend their analysis of the current recession i.e. no focus on investment and growth or their orthodox approach to analysing the labour market). It shows that there is a direct causal relationship between levels of mental health anxiety and income inequality. More unequal countries produce less social cohesion and more social insecurity. The sense of being ‘inferior’ to others creates a tension that leads to increased mental health problems.

In more unequal societies children from poorer social classes are less likely to achieve or succeed in their life ambitions. In this way, inequality is a structural barrier that can only be tackled by compressing the difference between income. This means designing wage policies that are egalitarian.

A pure labour mrket cannot reduce wage differentials. Hence, there is a contradiction between favoring pure markets for the allocation of labour and wages and the social objective of reducing income inequality. In the Irish case this would require a national incomes policy that is explicitly social democratic in design. But, the present government appear to be committed to an industrial relations policy that encourages a market based approach to wage coordination (i.e to encurage competition).

Social partnership in Ireland, despite all its problems, was an attempt at a national incomes policy (albeit based on reducing income taxes and hence increasing individual wages over a collective investment in public goods). If Ireland wants to reduce income inequality it will require egalitarian wage coordination that is non-market in design and a fiscal policy that is explicitly aimed at closing the gap between rich and poor.

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2 responses to “Should we be worried about Income Inequality in Ireland?

  1. If Ireland wants to reduce income inequality it will require egalitarian wage coordination that is non-market in design and a fiscal policy that is explicitly aimed at closing the gap between rich and poor.

    I wonder if an alternative to that might be to challenge the idea that the current wage distribution is a ‘natural’ outcome of the market doing what it does, and probe how the design of the market enables the distribution to be so skewed. Current wage distributions are determined, among other things, by how decisions in large firms are made and who makes them.

    It has been accepted in priduct markets that the state (or EU) can intervene when a player’s power becomes too large or when multiple players’ co-ordinate activity. Can we transfer some of those legal precepts into wage markets?

  2. Agreed. In Ireland the main critique of non-market wage bargaining is that the public sector rather than large private firms set the trend. There is an element of truth in this, given that the state is the largest employer in the economy. This is quite unlike Austria and other small Euro countries where unionised export companies set the trend. The wages of 80 percent of the Eurozone economy are set through collective bargaining not the market. This is because wage agreements are legally extended to all employees. This legal-formal difference explains why Ireland is the outlier. I have a paper being published on this topic in New Political Economy next month.

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