Income inequality north and south of the border are “very similar” but driven by different factors, according to a study.
The Economic and Social Research Institute (ESRI) published research on Friday into the drivers of income inequality on the island of Ireland on behalf of the Taoiseach’s shared island unit.
The study measured income inequality using 2019 data and the Gini coefficient method, where 0 per cent is perfect equality and 100 per cent is if all income is held by one person.
Differences in demographics, working patterns, wage levels and the tax-benefit system between Ireland and Northern Ireland have an effect on how income is distributed differently.
The research found that differences in inequality of market incomes north and south of the border are driven by two counteracting forces.
According to the ESRI study, a younger and more highly educated population in Ireland results in lower income inequality as there are relatively fewer people with no earnings.
But higher and more unequal wages paid to workers in Ireland sees relatively higher market income inequality.
In addition, although the Irish tax system is more progressive and reduces income inequality more than the Northern Irish tax system, the level and coverage of means-tested benefits in Ireland is lower than in Northern Ireland.
Therefore, according to the research, the Irish means-tested benefit system reduces inequality less than Northern Ireland’s means-tested benefit system.
The combination of these opposing effects result in similar overall levels of redistribution by the two tax-benefit systems.
Report co-author and associate research professor at the ESRI Karina Doorley said: “This research sheds light on possible future developments in income inequality on the island of Ireland.
“Current trends in population ageing and upskilling are likely to affect the distribution of pre-tax and transfer income in both Ireland and Northern Ireland.
“The latter is likely to be particularly important in Northern Ireland, where baseline levels of education are lower.”
Report co-author Dora Tuda said: “This research finds that, if there is any convergence in the future between the tax-benefit systems of Ireland and Northern Ireland there may be a limited impact on income inequality due to opposing forces in the tax and benefit system.”
Michele Gubello, another report co-author, said: “Previous ESRI research indicates that most of the population of Ireland and Northern Ireland believes that their government should ‘reduce income inequality’.
“Understanding the drivers of income inequality can help to inform the debate on the degree of perceived fairness and potential acceptability of that inequality in society.”
