View from Dublin: why the bet­ter-off were also hit by the down­turn

Belfast Telegraph - Business Telegraph - - News - BY BREN­DAN KEENAN

The Ir­ish class sys­tem hangs in the air in­vis­i­bly. We all know it ex­ists, but we would find it hard to de­scribe. Full marks, then, to three econ­o­mists from UCD, Ox­ford and the ESRI for giv­ing it a go. Per­haps they should get a bar too, for daring to ques­tion the ef­fects of aus­ter­ity in the Great Re­ces­sion. It is the pub­lic con­sen­sus that this bore more heav­ily on the less well-off.

There is no con­sen­sus among econ­o­mists on the first point, not least be­cause, even if the bank losses had been more widely shared, pub­lic fi­nances were wrecked and aus­ter­ity in some shape or form would have been re­quired. But the sec­ond point has not been ex­am­ined much at all — cer­tainly not the ef­fect of aus­ter­ity on the class sys­tem.

The higher classes have more wealth, of­ten in the value of their houses, but that also means debt. They also tend to have more fi­nan­cial obli­ga­tions, from school fees to pen­sion con­tri­bu­tions.

Cen­tral to the pa­per is the in­crease in “eco­nomic stress” in the re­ces­sion. The def­i­ni­tion here re­sem­bles the de­pri­va­tion index used as a poverty mea­sure, but with a greater em­pha­sis on hous­ing costs, mort­gages and things like back-to-school ex­penses. Stress is mea­sured by in­abil­ity to meet these costs with­out adding to debt or cut­ting back on other items. It is not part of this study but, on pa­per, the sub-prime loan phe­nom­e­non moved peo­ple up the so­cial scale by mak­ing them home­own­ers. No wonder politi­cians were re­luc­tant to call a halt.

The Ir­ish prop­erty bub­ble had dif­fer­ent char­ac­ter­is­tics, although sub-prime lend­ing was be­com­ing sig­nif­i­cant by the end. Even so, the prop­erty crash, com­bined with the pub­lic fi­nance cri­sis, meant the Ir­ish crash was worst of all, ri­valled only by Greece and Ice­land.

The study finds lit­tle change in in­come dif­fer­ences be­tween the groups from 2008 to 2012, although ac­tual in­comes were of course un­der se­vere pressure. When eco­nomic stress is in­cluded, a dif­fer­ent pic­ture emerges.

In 2008, as one might ex­pect, the two bot­tom classes had most eco­nomic stress, as is pre­sum­ably nor­mally al­ways the case. But the rise in stress in the fol­low­ing five years was great­est for the af­flu­ent class, where it more than dou­bled, re­flect­ing things like higher taxes, pay cuts, neg­a­tive eq­uity, loss of wealth and sav­ings.

The so-called pre­car­i­ous class had the small­est rel­a­tive change, with a 35% in­crease in eco­nomic stress. This com­pared with a 69% in­crease in the next group, the lower mid­dle-class — the high­est fig­ure apart from the 130% de­te­ri­o­ra­tion for the af­flu­ent.

The lower mid­dle-class in­cluded many who were self-em­ployed in the build­ing in­dus­try and lost their jobs in the re­ces­sion. While self-em­ployed made up 11% of the work­force in 2008, this had fallen to 7.5% by 2012 as they moved down the earn­ings scale into the lower ser­vices/tech­ni­cal groups, and the bot­tom rou­tine group.

There was also a two per­cent­age point move from the top pro­fes­sional/man­age­rial group into those earn­ing less than 16% of me­dian in­come.

Pay, tax and wel­fare changes will have helped even out the dif­fer­ences be­tween groups, although this is not part of the study. The authors do sug­gest, though, that the re­sults may point to the ori­gin of the ‘squeezed mid­dle’ com­plaints, which do not seem to be sup­ported by fig­ures for in­come alone. Look­ing at in­come alone, it can seem as if there is a straight­for­ward loss by the poor­est groups, lead­ing to claims of un­just aus­ter­ity poli­cies. Bring in eco­nomic stress and it looks more like a mid­dle-class squeeze.

It goes with­out say­ing that rel­a­tive changes are of no com­fort to peo­ple un­der eco­nomic stress, but they are im­por­tant for analysing the ef­fects of pol­icy and, ide­ally, in­flu­enc­ing new poli­cies.

It may also be true, how­ever, that chang­ing rel­a­tiv­i­ties do af­fect po­lit­i­cal at­ti­tudes, if only at an in­stinc­tive level. The in­crease in eco­nomic stress recorded by the pa­per was un­prece­dented and is bound to have in­flu­enced, not just peo­ple’s per­cep­tion of their own sit­u­a­tion, but their view of their po­si­tion in so­ci­ety, and how so­ci­ety has treated them.

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