Economic Growth and Income Inequality: Setting the Context

Abstract

One of the most frequently expressed concerns about Ireland’s unprecedented economic boom has been that the benefits have not been shared evenly, that rising living standards have been accompanied by widening gaps, leaving Ireland with a particularly unequal distribution of income. High levels of income inequality can impact on quality of life in a society through a variety of direct and indirect channels, ranging from the social exclusion faced by those near the bottom to the psychological stresses and loss of social cohesion that may be felt throughout the population. It is therefore important to assess to what extent the common understanding of income inequality trends in Ireland is in fact accurate. This chapter first shows how the spectacular economic growth in the past decade has seen the gap in average income between Ireland and the richer OECD countries narrow dramatically. It then discusses trends in Ireland’s income distribution, looking at what happened to income inequality during the boom and how Ireland compares to other rich countries in terms of levels of, and recent trends in, inequality. This reveals that rapid growth has not greatly affected the Irish ranking in terms of income inequality: Ireland continues to have a high degree of economic inequality in comparative terms after the boom, just as it did beforehand. A low redistributive ‘effort’ is a long-standing characteristic of Ireland’s welfare state, and Ireland’s new-found prosperity opens up choices that will determine whether this high level of income inequality persists into the future.