Uneven labour market recovery marked by income decline for lower earners, warns ESRI

Incomes for some of the poorest people in the Republic are in danger of a more pronounced stagnation amid a rise in deprivation and poverty in recent years, according to the Economic and Social Research Institute (ESRI).

A new report published by the think tank on Tuesday indicates that incomes for the poorest 10 per cent in the Republic declined in real terms between 2020 and 2021 and stalled for the other two-fifths of the bottom half of the table, reversing roughly a decade of growth for lower and middle-income earners.

A “statistically significant” year-on-year increase in material deprivation was also evident between 2021 and 2022. Some 16.6 per cent of people surveyed indicated they could not afford two or more essential items out of a list of 10 compared with 13.3 per cent the previous year.

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The research, funded by Community Foundation Ireland, also notes an increase in income inequality in 2022, the first since 2017.

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For earners in the bottom half of the distribution, the drop-off in income growth was largely driven by a fall in employment income, a consequence of working fewer usual hours per week and a fall in full-time work relative to an increase in part-time hours worked.

Given that 2020 was its Covid-depressed nadir, the data indicates the sharp labour market recovery in 2021, in which an additional 200,000 people found work compared to the previous year, “was more muted” for those in lower-income households.

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While this decline “need not be cause for excessive concern”, the research highlights that income growth was declining even before the Russian invasion of Ukraine in early 2022 set off the “ongoing inflationary episode” underpinned by soaring energy prices. Against this backdrop, the ESRI warns that the adequacy of social welfare payments is at risk of being eroded unless once-off measures rolled out in recent budgets are repeated or the level of payments and tax credits is revisited over the coming years.

Maintaining this equilibrium will be “a challenge” for the Government given other pressures on the public finances, said lead report author Barra Roantree, assistant professor of economics at Trinity College Dublin. “Policymakers will face difficult decisions in Budget 2024 about which groups to prioritise given our reliance on potentially transitory receipts from corporation tax, with untargeted tax cuts or increases in spending risking stoking further inflation.”

Core spending is expected to rise by €5.25 billion in Budget 2024, or 6.1 per cent, giving an overall package of €6.4 billion, excluding one-off measures.