We’ve often considered ourselves closer to Boston than to Berlin, but new research about how income and wealth are distributed in Ireland suggests a pattern that is closer to Europe than to the US.
Brian Nolan, a professor at the school of applied social science at University College Dublin, has used income-tax records to measure the share contributed by the wealthy in Ireland over recent decades, in the same way that Thomas Piketty and others have done in the US.
His analysis indicates that the proportion of wealth of the most affluent 1 per cent in Ireland fell from about 12 per cent of the total accumulated capital in the country before the second World War to 6 per cent in the 1970s, climbing back to 12 per cent only during the boom years.
But the rich appear to have taken a hit as a result of the economic downturn. The latest available data, from 2009, shows that the share of the wealthiest 1 per cent fell to about 10 per cent of total accumulated capital.
By contrast, in the US the share of the richest 1 per cent’s accumulated capital rose from 10 per cent of the country’s total in the 1980s to about 25 per cent today. This kind of concentration of wealth has not been seen in the US since the 1920s.
Although the level of inequality is similar, the identity of the rich has changed dramatically. In the years before the second World War most wealth was inherited. Today most wealth is in the hands of senior managers of large corporations.
While the concentration of wealth at the top in Ireland isn’t as exaggerated as it is in the US, Nolan says inequality of income in Ireland is more pronounced here than the average across Europe. The surprise is that during the boom years in Ireland, wealth was relatively evenly distributed.
“The sense that the boom was accompanied by sharp inequality across the board is not reflected in the statistics,” says Nolan. “Whereas in the US the rich got richer and the rest stood still, here the whole engine moved ahead.”
In fact the poorest 10th of the population saw their real earnings (adjusted for inflation) rise by almost 70 per cent in the 15 years to 2009, compared with just over 50 per cent for middle earners and just under 40 per cent for the wealthiest 10th.
So, given that we tend to see ourselves as closer to the US and UK in economic matters, what accounts for this difference in wealth distribution?
Many economists agree that the reason for stagnating earnings at the bottom of the income ladder in the US and UK is linked to the decline of low-skill areas of the economy, such as manufacturing.
Ireland doesn’t have the same legacy of an outdated manufacturing base. In addition, the inflow of investment from overseas has been concentrated in higher-skilled jobs and higher-end manufacturing that can’t easily be outsourced or automated.
Some also point to the construction boom as a factor in boosting incomes among the less well-educated sections of the workforce – at least until 2008. But high unemployment resulted in income inequality increasing in 2010, according to the latest figures.
For all the talk of what is, by US standards at least, a fairly even distribution of wealth in Ireland, the analysis will be cold comfort to many.
