Wage inequality in Ireland is high and rising. The following charts the gap between the highest and lowest wage earners (the top and bottom 10 percent groups). It is measured as a ratio between the two.
In 2000, the top 10 percent earned 3.3 times the amount of the bottom 10 percent. By 2017, this ratio rose to 4.1 times, indicating a rise in wage inequality. This is a ‘market’ measurement; that is, before taxation and social transfers. In other words, this is the ratio produced in the workplace.
Not only is wage inequality rising here, it is the highest in our EU peer group.
In 2017, the Irish wage ratio was the most unequal among our peer group in the EU (other high-income countries). In Finland, Denmark, Belgium and Sweden, the ratio between the top and bottom 10 percent of wage earners was 2.6 times or less; in Ireland it was over 4 times.
The issue is not the level of national minimum wages. Austria, Finland, Denmark and Sweden don’t have a statutory minimum wage.
The issue is bargaining power in the workplace. In these countries, most workers are covered by collective bargaining agreements which have been shown to favour average to low income workers. In Ireland, only 15 percent in the private sector are covered by such agreements.
There have been numerous reports showing the link between high levels of inequality and the erosion of social trust and solidarity. This, in turn, results in social and economic problems.
However, there is one aspect has not featured in the Irish debate: Brexit. High wage inequality means that more income is captured by the higher income groups. In a Brexit-induced downturn, this will mean more money that is ‘saved’, reducing consumer demand with all the negative consequences of a spending slowdown. Lower income groups spend most of their income but in Ireland they don’t capture as much income as other EU countries.
This means more saving and less spending than a labour market where wages are more equally distributed. This will undermine the economy’s resilience to a downturn.
Reversing wage inequality is a medium to long-term project. We can, though, make a start before Brexit sets in. We could ensure that aid to economic sectors (e.g. food sector, sectors reliant on UK trade) will come via collective agreements covering all firms in the sector. This will ensure that those affected by Brexit (i.e. workers) will be involved in drawing up the responses and over-seeing its implementation.
This won’t stop the negative impact of Brexit but it could ameliorate it – and set the foundations for reducing inequality in the future.
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