One of the more unusual aspects of the labour market here is the high rate of market income inequality – that is income before taxes and transfers. According to the Organisation for Economic Co-operation and Development (OECD), we had the third-highest level of market income inequality in the industrialised world in 2021. In previous OECD reports, we’ve had the highest.
Remember, we are talking about pretax income here; when it comes to the spread of disposable income, Ireland is about average in OECD terms, reflecting the fact that we have a highly progressive tax system, a relatively large number of workers outside the tax net and a large number of middle-income earners paying the top rate of income tax.
In other words, tax and transfers smooth the kink in the earnings curve.
Divergence in gross pay nevertheless generates a lot of rancour. In the US, company bosses in the 1960s and 1970s might have earned 35 times their rank-and-file equivalents. In the 1980s this began to climb; now it’s over 300 times – a factor that is often cited as a driver of the polarising, fractious politics of the current era.
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The reason for Ireland’s high level of market income inequality has never been fully teased out.
The traditional explanation centres on the higher share of adults in jobless households here, but this doesn’t stand up to scrutiny. Greece, Italy, France and Belgium all have higher shares of adults in jobless households, but lower market income inequality. The Republic does, however, have a relatively high rate of low work intensity households (more on this later).
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The other explanation often trotted out relates to the Republic’s highly educated workforce. As workers go up the educational food chain, they tend to command higher wages. A Central Statistics Office study, published last week, indicated that employees with a doctorate (PhD) or higher qualification recorded the highest median hourly earnings in 2022 at €39.92.
But this explanation also falls down as there are other countries with the same educational profile (or better) without the same market income disparities.
The answer – at least the economic literature increasingly points in this direction – relates instead to the low level of participation in the workforce by women or, more precisely, the low participation rate by mothers.
According to the latest Labour Force Survey, participation by women in the Irish workforce was 61 per cent in second quarter of 2023 (compared to 70.6 per cent for men). This is low by international standards even though it is an improvement on pre-pandemic times. Before 2020, the participation rate for women was 58 per cent.
The recent increase has been attributed to remote working, which is said to have freed up more women to work.
While participation rates between childless men and women of working age are not particularly significant, OECD statistics indicate Ireland has very low participation rates for mothers, particularly for those from a low educational background.
One of the largest gaps – in terms of the rate of employment – between mothers of low and high educational backgrounds was recorded in Ireland.
The lack of affordable childcare is to blame, says the ESRI’s Claire Keane. For women with low rates of education, the prospect of returning to the workforce – perhaps to take a minimum wage job – along with the high cost of childcare “just doesn’t make sense”, she says.
“But even when women are participating, they are much more likely to work part-time because of the high cost or difficulty in getting childcare cover,” she says, suggesting the hourly gender pay gap is less significant than the differences in part-time/full-time rates of employment between men and women, which drive the gender pay gap more than anything else. This also accounts for the high rate of low work intensity households.
While the recent investment in funding childcare is welcome – Minister for Children Roderic O’Gorman has pledged to cut childcare fees for parents by an average of 50 per cent over the next two budgets – we are still laggards internationally, Keane says, noting that half of childcare provision in Ireland is conducted through informal channels that do not currently qualify for the National Childcare Scheme subsidies.
The system is also heavily reliant on private sector provision, which means it lies outside State control, unlike, say, primary school provision.
“If you think about it from an investment point of view, you’ve got the State investing in women’s education, and as soon as they have their first child, they’ve got this sort of penalty that follows them throughout their life,” she says.
“We can be quite short-sighted if we think only of the cost implication of subsidising childcare or providing publicly available childcare.
“What we should be thinking about is the positive impact. In the shorter term, you’ve got more women paying taxes; in the longer term, they’re more likely to have pensions and better pension coverage,” she says.
As the Irish economy increasingly runs up against capacity constraints, most obviously full employment, greater participation by women could unlock a supply of labour.
Countries with higher levels of female empowerment tend to be more productive and therefore more prosperous.
Women formed an important pool of skilled labour when demand for workers grew as the Irish economy expanded in the 1990s. About a quarter of the growth of the 1990s can be attributed to the rise in women’s economic participation, according to one economist. Increased workforce participation by women could be key to Ireland’s future prosperity.
