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