A very interesting paper on lifetime income inequality

Brendan Burgess

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Most studies measure income inequality at a point in time. But a lot of inequality is between periods in one's life. For example, as a student or young worker you would be in the lower deciles of the earnings distribution but when you are more advanced in work, you are up towards the top, and will probably fall again as you get older.

Barra Roantree gave a very interesting paper at the Dublin Economics Workshop and shows that inequality is a lot less when measured from a lifetime perspective

[broken link removed]

"From a lifetime perspective…
Inequality is lower and the tax & benefit system does less to reduce it This is because quite a lot of inequality is transitory or age-related
• People experience temporary periods of unemployment or low pay
• Given strong age-profile of earnings, snapshot inequality measures heavily influenced by people being at different stages of life

… and much of what the system does is intrapersonal redistribution
• That is, between periods of life rather than across individuals
• Many net tax payers today, but net benefit recipients tomorrow
• We estimate around 60% of total redistribution is intrapersonal (relative
to either a lump-sum or proportional baseline)
• Nothing to do with ‘contributory’ benefits, which are very limited"

The standard measure of inequality is the Gini coefficient. In simple terms, if one person earned all the income and no one else earned anything, the coefficient would be 1. If everyone had the same income, the coefficient would be zero.

This is the key slide



In the UK, the Gini coefficient before tax and social welfare drops from around 0.49 to 0.28.

Brendan
 
An interesting paper indeed. Reflective of the variance of circumstances each of us encounter in our lives.
I note the following from the paper;

Individuals’ circumstances vary a lot over time meaning distinguishing
families as e.g. “working” and “non-working” not especially useful
• Unemployment experienced by large share of adults at some point
• Even lifetime poorest are – on average – in work for large % of lives

This last point would tend to support my view that the 'welfare lifestyle culture' of people who never bother to work are the thin end of the wedge when it comes to social welfare recipients.
The first point, acknowledging unemployment experienced by large share of adults at some point would indicate to me that blunt instrument policies of cutting welfare, moving people out of social housing etc would all be counterproductive in the greater scheme of things.
 
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TheBigShort said:
my view that the 'welfare lifestyle culture' of people who never bother to work are the thin end of the wedge when it comes to social welfare recipients.
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An interesting phrase. I have always taken it to mean the start point for something larger. In this case people have seen how achievable a welfare lifestyle is, from a (small) number of people who pursue it, and now (many) others have asked themselves, why don't I do that too.
 

The wedge refers to the social welfare bill. The thin end refers to those who never go to work.
The thick end refers to everyone else, who despite doing their best, trying to make a living, simply cannot afford to live in this society on low incomes. (See report above that identifies these people

TheBigShort said:
Even lifetime poorest are – on average – in work for large % of lives
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Cutting welfare to reduce taxes won't work. You will inadvertently push more people under the welfare thresholds, thus making the wedge bigger.
 
TBS,

I'm not convinced that one cannot afford to live in this society on a low income; my sense is that a low income does not provide the lifestyle that the media has convinced everyone that they should have.

For example, someone on a low income (or on social welfare) shouldn't take an overseas holiday, shouldn't own a car, shouldn't set foot in a pub, shouldn't shop anywhere other than Pennys or Lidl, shouldn't buy takeaway coffee, shouldn't eat takeaways, and should never eat out.

The relative acceptability of a low or social welfare type income is a problem and a barrier. These should simply deliver the most basic subsistence standard of living.

This "living wage" stuff is horse manure being shovelled by the Paul Murphys and Sinn Fein/IRAs of this world to secure their mates' a standard of living that they do not deserve.
 


I have to agree with this. People have confused "need" with "want". A person may "needs" meat to survive but "wants" fillet steak. Until we differentiate between "need" and "want" the "living wage" will be set to high.
 

Why? And what should they do?
If I earn a low income, and Ryanair offer a €10 flight to London, why can't I take it?
Why can't I own a car? Or set foot in a pub?
 
The Horseman said:
I have to agree with this. People have confused "need" with "want". A person may "needs" meat to survive but "wants" fillet steak. Until we differentiate between "need" and "want" the "living wage" will be set to high.
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It's frankly ridiculous to agree with Gekko comment. If I have been working for 30yrs and become redundant, and struggle to get a new job for a period, I'm not allowed a takeaway, or a coffee?
It's ridiculous thinking. What should be done, set up a Gestapo type welfare police state to monitor my welfare spend that I have been contributing for last 30yrs?
It's more hyperbolic nonsense.
 
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I don't have an issue with somebody who has been contributing for 30 yrs getting a higher level of welfare payments and spending it as they see fit, I do however have an issue with increasing tax to fund a lifestyle for those who have never contributed. I am excluding those who are sick in this scenario. Those who are fit for and have always been fit for work but choose not to work should not be pandered to.

Social welfare benefits should be linked to contributions made by the person, if you have contributed more than your neighbor then you benefits should be more than your neighbors.
 

Which is completely different to what Gekko said. So which is it? If I'm on welfare, can I have a coffee or not? Or a pint? Or even a car and a foreign holiday?
 
TheBigShort said:
Which is completely different to what Gekko said. So which is it? If I'm on welfare, can I have a coffee or not? Or a pint? Or even a car and a foreign holiday?
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The topic of this thread relates to those living in poverty and the need for a living wage. Yet again we want to give a blunt mechanism whereby everybody gets a living wage. This living wage calculated no doubt on what people want rather than need.

I will reiterate my point that I don't have an issue with those who have contributed get a return based on their contributions. I do however have an issue with those who don't contribute despite being able to.

And to answer your question, if you have contributed then yes have your coffee, pint etc, if you haven't then no you can't.
 
The Horseman said:
I will reiterate my point that I don't have an issue with those who have contributed get a return based on their contributions.
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That is completely different to what Gekko said. He did not distinguish between those who have 'contributed' and those who have not. He applied, typically blunt thinking, to the topic. How you agreed with it, I don't know?

The Horseman said:
I will reiterate my point that I don't have an issue with those who have contributed get a return based on their contributions
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And by 'contribute' what does that mean? PAYE taxes, PRSI, USC? Or a combination of all or some? For how long should contributions be made?

The topic is about a paper study on lifetime inequality. One of the points made in the paper is;

Even lifetime poorest are – on average – in work for large % of lives.

So who are we talking about when we talk about those 'who don't contribute'?
How many people are we actually talking about?
 
To contribute means paying PRSI, in my opinion.

So JSB should be more generous, and JSA should be less generous.

The CSP should not be just 11 euro a week more than the NCSP.

We are talking about at least 100,000 people on LT means-tested benefits.
 

Fair enough, but what if I'm working in a job for €370 a week and , completely out of my control, government decides that there will be no PRSI contribution from the first €370 a week of anybody's income.
Six months later the company I work for closes down. I claim welfare, should I be allowed to buy a takeaway and coffee?
 


The benefits should be based on all employment related taxes/charges. PAYE,PRSI,USC are all levied on wages so if you contribute for each then your benefit should reflect all contributions made. The contributions should have some grading structure. The longer you have been working the longer your benefit should last based on the contributions you have made. These contributions can be averaged over your working years.

The system should be more equitable for those who contribute as opposed to those who don't irrespective of how many people we are talking about the system is not fit for purpose. Times have moved on and the system needs to reflect those changes. To have a truly equitable and fit for purpose process people should be assessed on all benefits they receive.

Do you think it is fair that one person who has better themselves by going to college sacrificing to get qualifications with the idea of not relying on the State and who has paid all employment related taxes (Prsi,Paye, USC etc) well in excess of somebody who either has not worked or has only worked intermittently on low wage work should be treated the same when it comes to State benefits.
 
The Horseman said:
The benefits should be based on all employment related taxes/charges. PAYE,PRSI,USC are all levied on wages so if you contribute for each then your benefit should reflect all contributions made. The contributions should have some grading
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That's, fine. So what you are proposing is that if earn a high income, contributing high taxes etc, and you subsequently become unemployed, that your welfare benefits should reflect the level of tax you have contributed?
Is it ok that such a person, on welfare, takes a foreign holiday?


No I don't think it is fair insofar as someone who has never worked. I do think there is scope to recognise the contributions already made.
In terms of someone who just happens to be low paid, I would be hesitant to make any significant difference. After all, high earners need low earners to do the work that they are not willing to do themselves.
 
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If you are on a lower social welfare rate because you did not contribute high levels of tax then you can spend your benefits as you see fit. However if the benefit bill is to remain at the same amount then those who have not contributed much to the various taxes (PRSI, PAYE, USC) you may not have the funds to go on holiday. The distribution of the benefits will favour those who have contributed as opposed to those who have not. This specifically refers to those who can work and excludes the sick and the elderly.

The problem exists and by changing the system in line with my suggestion above ensures a fairer distribution of contributions and it will eventually weed out those who choose not to work. If you use the average contributions made as your weighting factor then the standard of living the contributor had before needing social benefit will fall by a representative % for both high and low paid workers rather than disproportionately on the higher contributor.
 

I understand the point you are making, but if I'm on minimum wage I currently don't pay very much PRSI, what would my welfare rate be if I was made redundant? Compared to say someone on €50,000 or €100,000?
 
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