The level and distribution of income in Ireland in the 2020 SILC

Eurostat have 2020 figures for Ireland to the EU-SILC, the EU’s Statistics on Income and Living Conditions.  Ireland is one of the last countries to have provided figures to Eurostat and the national version won’t be published by the CSO for another few weeks.

Those figures won’t be much different to what is now available on Eurostat but will come with much more detailed background notes.  One such item to be explained is that all the 2020 figures Eurostat have for Ireland are marked with a “b” – for series break.  It is not yet clear what this is. It could be that was a change during 2020 with in-person interviews shelved as COVID hit.

And at the outset it is probably worth noting that although this is the 2020 SILC, the year represents when the data was collected rather than the period for which it applies to.  The CSO carry out the survey across the full year, and respondents are asked for details of their income in the 12 months prior to the survey.

Thus, if someone was interviewed in January 2020 for the 2020 SILC, the reference period for their income would almost wholly encompass 2019.  This would move one month forward for people interviewed in February and so on.  Indeed, when this data goes through the OECD’s methodology it will be assigned to 2019 when published on the OECD’s income inequality database.

Another difference worth noting is the equivalent scale used to compare households of different sizes.  The CSO apply a national equivalence scale with applies a weight of 1.00 to the first adult, 0.66 to all subsequent adults and 0.33 to all children under 14.  These are added together with the household’s income divided by the result to get income in terms of equivalent people.

Eurostat uses the OECD-modified scale which gives a weight of 1.00 to the first adult, but 0.5 to all subsequent adults and 0.3 to all children under 14.

This means that a household of 2 adults and 2 young children would have an equivalising factor of 2.32 with the CSO’s approach and a factor of 2.1 with Eurostat’s approach.  This changes the level of equivalised income within each dataset but should not have a hugely significant impact on growth rates or other relative comparisons.  So, the figures the CSO itself publishes in a few weeks could be slightly different but the overall trends will be the same.

The Level of Income

We will start with median equivalised income in nominal terms.

SILC Eurostat Median Nominal Equivalised Disposable Income 2004-2020

In and of itself the actual level is not that informative.  Eurostat’s figure for 2020 is €26,250 but income per equivalent person is not a concept we can readily relate to.  What matters are the growth rate and relative differences, both within the income distribution in Ireland and with other countries.

SILC Eurostat Growth in Median Nominal Equivalised Disposable Income 2005-2020

Eurostat’s figures show that for the SILC data collected in 2020, the change in median equivalised income was +2.8 per cent.  That matches the average nominal growth rate of the previous 15 years though the significant volatility in the outcomes that gave rise to that average is evident from the chart.

Relative to the rest of the EU15, Ireland had the fourth-highest median equivalised disposable income  - in nominal terms.  While some exchange rate conversions are made no adjustment is made for different price levels in the below chart.

EU15 SILC Median Income 2020

The Distribution of Income

Three of the commonly used inequality measures that are applied to the SILC data are the gini coefficient, the quintile share ratio and the at-risk-of-poverty rate.  Here is the gini coefficient fir Ireland since 2004 with a higher figure representing higher inequality.

SILC Eurostat Gini Coefficient 2004-2020

Ireland’s estimated gini co-efficient has been trending downward over the last few decades – but it should be noted that the changes are exaggerated by the truncated vertical axis used in the above chart.  The changes are small.  The Eurostat figure for the 2020 SILC is not significantly different from what it was the previous year, going from 0.283 to 0.287.

EU15 SILC Gini Coefficient 2020

Within the EU15, Ireland’s gini coefficient for disposable income is in the middle of the pack.  Ireland stands out more for the change in the gini coefficient over the last 15 years.  This following chart shows how the average for each country from 2018 to 2020 differs from its average for 2004 to 2006. 

EU15 SILC Gini Coefficient Change 2005 to 2020

For most of the EU15, the gini was either unchanged or increasing over the period.  For those countries showing a reduction in their gini coefficient the fall in Ireland was the second largest, with only Portugal showing a larger fall.

The gini coefficient is a useful indicator but as an measure which condenses a population-wide distribution of income into a single number looking at other measures can also be useful.  The quintile share ratio compares the income share of the top 20 per cent of the income distribution to the income share of the bottom 20 per cent.

SILC CSO Income Quintile Share 2004-2020

The pattern here corresponds to what is shown by the gini coefficient.  Over the last 15 years, Ireland’s quintile share ratio has fallen from around five in the mid-2000s to around four now.  This indicates that incomes at the bottom of the income distribution have grown faster than those at the top.

Ireland’s quintile share ratio is the sixth lowest in the EU15.

EU15 SILC Quintile Share Ratio 2020

The at-risk-of-poverty rate focuses in the lower end of the income distribution and looks at how many people live in households with an equivalised income that is less than 60 per cent of the national median. 

With Eurostat putting Ireland’s median equivalised income at €26,250 in 2020, this gives an at-risk-of-poverty threshold of €15,750 for a single-person household.  If we multiple this by 2.1 we get the threshold for a 2 adult plus 2 young children household: €33,075.

Here is the share of people in Ireland who live in households with an equivalised income below the 60 per cent threshold.

SILC Eurostat At Risk of Poverty Rate 2004-2020

This shows a similar pattern to the quintile share ratio and Ireland’s position in the EU15 is also the same (sixth lowest).

EU15 SILC AROP 2020

As it is a measure of inequality, the at-risk-of-poverty rate is not always a good indicator of changes in living standards at the lower end of the income distribution.  The post-2008 period in Ireland is a good illustration of this.  We know that there were very significant falls in income but this is not reflected in any noticeable increase in the at-risk-of-poverty rate in the period from 2009 to 2012.

This is because the at-risk-of-poverty rate is a relative measure.  As incomes in the economy fell, the threshold for been assessed as at-risk-of-poverty also fell.  One way to get an insight into absolute changes in living standards is to use a fixed threshold (with changes only made for inflation rather than the general trend of income in the economy).  Eurostat provide an anchored at-risk-of-poverty rate with the 2005 threshold as the anchor.

SILC Eurostat Anchored AROP Rate 2005-2020

The at-risk-of-poverty rate was 20 per cent in 2005.  In the chart above, the 2005 threshold is rolled forward (adjusted for inflation) and the share of the population below that threshold is reported.  It is the changes rather than the levels that are informative here.  We can see that this anchored at-risk-of-poverty measure rose significantly after 2008.  It had been falling consistently since 2014, but was unchanged in 2020.

There’s much more to the SILC than income figures but that’s probably enough for now.

The level and distribution of income in Ireland in the 2020 SILC