The Irish labour market is full of interesting things. What you see and hear on a daily basis is roughly in the following order of coverage starting with the most talked about:
- Public sector pay issues and associated matters. Number One.
- Public-private sector pay differences (always the number one item of news and interest when wage statistics are updated).
- Remuneration and associated pension arrangements for retiring public servants (or those in the not-for-profit sector).
- Wage settlement figures (for those specialising in industrial relations news)
- Wage trends more generally in the economy (sometimes by sector and gender)
- Low pay and labour cost (usually cited as a risk factor by some commentators)
Then there is one area which rarely gets a mention:
Remuneration of high-paid employees in the private sector and associated pension arrangements.
Various sources of data are available on remuneration of highly paid persons in publicly quoted companies, only. The Central Statistics Office in conjunction with the Revenue Commissioners in the Republic of Ireland publish statistics on high incomes as part of their regular reporting. However, the latter is based on the concept of ‘tax cases’ (which includes jointly assessed couples). Separately, the CSO publishes the EU Survey of Living Conditions (EUSILC), annually. The next edition of EUSILC is expected early in the new year and will report on incomes (including income derived from labour) for the year 2015. The Quarterly Earnings, Hours and Employment Survey (EHECS) provides data on average earnings and hours worked by employees but does not provide information on the distribution of earnings from low to high. The National Employment Survey (NES) was published a number of years ago and provides data on the distribution of earnings for 2009 (there was an update in which some 2010 data were used).
The problem with all survey-based data is that the numbers are based on samples and are subject to statistical error as well as data coverage issues. It is accepted by most analysts that incomes reported at the very bottom and at the very top of the income distribution are probably subject to greater bias and under-reporting. In the case of very high earners there is the additional complication that households and individuals in the sample are hard to reach and, moreover, difficult to assess given the manner in which incomes and assets are managed in ‘tax efficient’ ways to use a euphemism of the tax avoidance industry. Tax evasion is another matter and may be linked, in turn, to the ‘black economy’ which is not a negligible part of total economic activity as covered in standard international accounts rules.
What do we know about the highest income groups? The most reliable and useful information source is EUSILC – notwithstanding the reservations and limitations touched on above.
Chart 1 is drawn from a recent NERI Research InBrief [ The Distribution of Household Income in the Republic of Ireland ]
Chart 1: Ireland’s Gross Household Income Distribution, 2014
The spread of ‘gross income’ is very wide. ‘Gross income’ includes all types of income as well as pensions and social payments but before deduction of taxes on income and does not include employer pension contributions towards future income. Though the ‘median’ household average was just over €40,000 per annum (remember this includes everyone in the house) the ‘mean’ average was much higher at just over €56,000. With such a long tail to the right and a relatively small but very high income group ‘pulling’ the mean average well up above the median average.
There is no strict definition of ‘high income’. We could take the top 10% of households, for example. According to this data source an estimated 175,000 households, or 10% of the total received €119,000 or more in 2014 (before deduction of taxes). If we were to take the top 5% we find that there were 90,000 households receiving €150,000 or more (easy to remember numbers!). Then, if we were to take the top 2% of households we find a total of 36,000 households receiving €200,000 or more per annum. Based on an estimated mean average income of €288,000 in 2014 we get a figure of approximately €10.5 billion in gross household income for the top 2%.
That is a tidy sum.
Although the data cannot be readily broken down further it is likely that many thousands of households receive much more than quarter of a million euro in income per annum. If we were to turn the data into household disposable income we would find that the top 10% received €80,000 or more in disposable income in 2014 while the top 5% received €99,000+ and the top 2% received €130,000+). It can be revealed that the top 1% received €173,00 and upwards. Altogether, the top 2% received approximately €7.8 billion in disposable income (multiplying the means by each household income interval and then summing for all intervals from €131,000 of disposable income upwards).
Whatever might be said about these households they are surely not poor.
How do these estimates compare with published Revenue Commissioner statistics using ‘tax cases’?
Statistics are published, jointly, by the CSO and Revenue Commissioners. The latest available statistics refer to 2014 and are available online here . A number of crucial definitional and coverage issues arise. Principal among these are the following:
(i) The term ‘gross income’ as used by the Revenue Commissioners is a much narrower concept than that used in household surveys. The Revenue definition, deducts particular streams of income eligible for tax relief (for example pension contributions by employees). This confusion of terminology is illustrated by references to ‘gross income’ in your P60, for example.
(ii) Revenue statistics are based on ‘tax cases’ corresponding to single persons or married persons jointly assessed or otherwise. In other words, the unit of analysis in the case of all persons is neither individuals or households. It is a mix of both and it is not possible to disentangle them.
The Revenue stats show that, in 2014, there were 40,809 ‘tax cases’ who received €150,000 or more in ‘gross income’ as defined by Revenue. As a side issue it is interesting to note that income tax including USC but not PRSI paid by these ‘tax cases’ came to €4.3 billion (or 37.8%) out of €11.3 billion in ‘gross income’. So much for the prohibitively high levels of personal taxation in the Republic of Ireland.
How does the distribution of income at the very to compare internationally? Fortunately, there are some data available through the Eurostat website here (using code ilc_di01). The EU comparison refers to national equivalised income shares. In other words, the household data is adjusted to reflect household size. Sticking with the ‘top 2%, the comparison, for 2014, shows the Republic of Ireland falling close to the EU28 average with the top 2% claiming 8% of disposable equivalised income (Chart 2). The cut-off equivalised income point for the top 2% Republic was €66,639 in 2014.
In a recent blog [ Hangin' with the 1 Percent ], Unite economist Michael Taft, has calculated the ratio of the income at which households enter the top 1% to the income level at which they move from the bottom decile to the 2 nd decile. He shows how the share of the top 1% as well as this ratio can be sensitive to the business cycle as economic recessions tend to impart a disproportionate hit to top incomes as these depend relatively on incomes from capital (rent, dividends, interest, etc.).
Can the wage/non-wage components of income in the top 2% be estimated? Not really since the best available information, as of now, is a breakdown of income for the top 10% published by the CSO here . This shows an implicit curve where wage income of employees rises with income up to the 9 th decile. In the 10 th decile the share of employee income in total ‘direct income’ (all forms of market income plus social transfers and adjusted to exclude employer social contributions) is just short of 71%. What we do not know is the following:
The share of wage income and other forms of income for the very top 1% ( Thomas Picketty in Capital in the 21 st Century ) has shown significant differences in this share as you move closer and closer to 100%.
The extent of wage inequality across the whole economy in 2014 and for the years 2006-2014 encompassing a boom, a crash and the initial green shoots of recovery is unkown. Hopefully, the long awaited National Employment Survey will throw some light on these matters. Even still, there is much that is missing and not available in relation to remuneration of highly paid persons in the private sector. Statistical household surveys and administrative data published by the Revenue Commissioners can only give us a very incomplete and broad brush picture. However, they do suggest high levels of disposable income in the hands of a very small number of persons. This is where a debate on wages needs to be rebalanced.