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Why is Relative Income Poverty so High in Ireland?

By Tim Callan, Mary J. Keeney, Brian Nolan and Bertrand Maitre

Abstract

Although relative income poverty rates vary from year to year, the rankings of different industrialised countries according to these poverty measures tend to be rather stable. Ireland is consistently among a group of countries with relative income poverty rates considerably above the European Union average (though not as high as the USA). This has not changed over the course of Irelands recent economic boom, since our relative income poverty rates themselves have not fallen indeed they have generally risen over that period. This study asks why Ireland has higher relative income poverty rates than many of our EU partners? More specifically, it explores what we can learn from an in-depth comparison with a number of other European countries, including some of the best performers in the European Union in terms of that indicator. This approach has parallels with a number of developments in the social and employment policy agenda at EU level. Atkinson (2000) notes that the Belgian government proposed that all member states should seek to match the performance of the three best states in combating poverty. This links closely with the open method of co-ordination agreed at Lisbon, a process in which clear and mutually agreed objectives are defined, after which peer review, on the basis of national action plans, enables EU Member States to compare practices and learn from each other. This method respects and is in fact built upon local diversity. (Vandenbroucke, 2002). Similarly, the UKs new targets for child poverty include a criterion that the UK rate should be among the best in Europe. We begin (Chapter 2) by discussing the nature of relative income poverty rates as poverty measures, their limitations and uses and their growing importance in an EU context. Chapter 3 then looks at how relative income poverty rates actually vary across EU member states, using the latest harmonised data. Chapter 4 reviews some of the main findings of previous investigations into cross-country differences in relative income poverty rates, and undertakes a new investigation of the role of wage inequality in explaining differences in relative income poverty. Our research then employs a variety of analytic approaches to see what is distinctive about Ireland. The implications for relative income poverty rates of differences in age structure, household structure, and labour market conditions are explored in Chapter 5, focusing on five countries. This is done by simulating what the relative income poverty rate would be if each of these countries shared a common age structure, household structure or pattern of unemployment and labour market participation. This exercise and other studies carried out elsewhere point towards the importance of social protection as a key influence. In Chapter 6 we therefore look in detail at social protection spending in Ireland compared with other EU countries. What would be the impact on relative poverty if the level and/or structure of social protection spending in Ireland were to become similar to that of countries with low poverty rates, such as Denmark and the Netherlands? We explore this question using SWITCH, the Irish tax-benefit model. The main findings are drawn together in Chapter 7.

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