How Middle is the Middle Class?

David McWilliams informs us that we are all, now, middle class. Yet Noel Whelan refers to a powerful middle class whose entrenched interests discourages political parties from enacting progressive reforms. Can these two well-informed commentators be referring to the same group of people? No, and that’s the problem with the term middle class and our attempts to define the broad economic nature of Irish society.

Middle class means different things to different people. This arises out of the changing meaning of the term and the fact that it has varying connotations in different societies at different stages of development. It has meant the wealthiest groups; groups in the middle of the social hierarchy and can even refer to elements of that other imprecise term, working class.

While not suggesting that debates over the relevance and identity of class are no longer valid (they very much are), lets see if we can simplify matters by focusing on just one element – income. Thanks to the recent 2005 EU Income and Living Survey published by the CSO we can get a more precise picture of income distribution in society. Of course, such surveys are limited – for instance, the CSO survey doesn’t include wealth (e.g. property, shares, yachts, etc.). However, by focussing on income distribution we can begin to bring a little clarity to the issue of ‘how many are making how much’.

The CSO groups households into deciles – from the lowest 10% to the highest 10% and records both direct income (from employment) and social transfers (e.g. Child Benefit, social welfare payments, etc.).

The lowest 10% earned €171 per week, or less than €8,900 a year. Compare that to the top 10% earning slightly over €110,000 a year – over 12 times more than the poorest. That’s all net, after tax. Those are the extremes.

What about those in the middle? The average gross household income in the state was €776 per week, or a little over €40,000 per year. This average, or middle, figure is hardly a ransom, especially as this includes two-income and even three-income households.

However, averages can be misleading since extremes can distort the mean figure. So let’s break down the deciles into three groups:

• Lower-income groups:  the lowest three deciles or 30%
• Middle-income groups: the middle four deciles or 40%
• Upper-income groups: the upper three deciles or 30%

So how much do middle-income households earn a year? In gross terms (before tax) between €404 and €1,169 per week. Or between, approximately, €19,900 and €49,200 per year, after tax. Of course, there is a considerable life-style difference between a single household at the upper end of this scale and a household with two partners and two children. But one is struck at how little middle-income earners take home.

So middle is the middle-income group that a household with two workers on the average industrial wage would actually find themselves in the top 30% income group.

Nearly two-thirds of all households earn less than the national average, so skewered is income in favour of highest groups. And if the CSO data included wealth and property, it would be skewed off the chart.

So when Mr. Whelan refers to the ‘middle classes’ he is actually referring to upper income groups who are not in the middle of anything. In fairness, Mr. Whelan would probably claim he meant high-income groups when he said ‘middle classes’. What Mr. McWilliams refers to is a little harder to pin down as he also includes less precise factors such as ‘life-style’ aspirations. But for most households, facing the reality of income every morning on their way to work, it may be that aspiration is all that ties them to the ‘middle class’.

However one breaks it down, the simple fact is that up to 70% live on extremely poor to extremely modest incomes. And they have to live on a rather small slice of the national cake. For nearly three-quarters of all direct income goes to the upper-income groups, i.e. the top 30% income bracket.

This is not a class but rather an income analysis. But a clearer measurement of income distribution will assist us in taking up Mr. Whelan’s challenge – to analyse the distributional impact of certain State programmes (e.g. Child Benefit, free university tuition, SSIAs, as well as pensions, etc.), in order to make them more progressive.

But more important is the strategic benefit such a measurement can provide. The Left need not be put off from pursuing a strong redistribution programme for fear of offending some vast middle class (though taking on the much smaller but more powerful vested interests will be battle enough). Our growing wealth primarily flows to upper income groups leaving both low and middle-income groups splashing about in the undertow. A progressive platform, based on universal benefits (such as Child Benefit) and strong social insurance programmes, has the ability to appeal to a vast proportion of income earners – low and middle.

In other words, we need not be as politically pessimistic as Mr. Whelan is in confronting social inequality. There are simply too many people who would benefit.

Comments

[david]

"Nearly two-thirds of all households earn less than the national average, so skewered is income in favour of highest groups."

...the presumption, always there but never explained, is that inequality of income is a bad thing. Why? Some people work a lot harder than others. Some people are a lot smarter than others. They get paid for producing goods and services that other people want, and they are entitled to. What's "skewered" is productivity, and that's just a fact of life.

Of course there are some exceptions. Sometimes a person's income is quite unrelated to their productivity, e.g. politicians, lawyers, state board appointees, and public sector workers. Or in terms of taxing for welfare - when the government steps in to punish work and reward non-work - you get a socialist hellhole such as France. People who would work hard have their energy and enthusiasm crushed, while the poor get addicted to welfare, breeding a laziness that gets passed from generation to generation.

We've got a lot to be thankful for in Ireland today. I guess in many ways the last decade has been a complete disaster for the Irish Left, hasn't it? Lower taxes allowed people to gain wealth far beyond the imaginations of previous generations. Virtually anyone can get rich, provided they're willing to put in the hours, and their spirit has not been destroyed by welfare addiction. With record employment and unprecedented opportunity, the Marxist concept of class warfare has been, once again, totally discredited. Because, instead of getting green with envy at the wealth of someone else, it’s far more productive just to get good at your job.

It's good to see how the Labour party, or at least those members of it who care about being in government, are finally facing up to the painful truth that the socialism they want is never going to happen here. Sure, some of them are still dreaming about it. And yes, they would damage Ireland's prosperity. But no major tax rises after the election? Thanks Pat. I might vote for you in 2012 after you’ve admitted that the Right was right all along.

[rdlp715]

David of November 2006 must feel like a right idiot now eh?