Shared Island ESRI report examines why Income inequality is similar in Ireland and Northern Ireland

Income inequality, as measured by the Gini coefficient, is very similar in Ireland and Northern Ireland. Such is the finding of research undertaken as part of a research programme between the Department of the Taoiseach’s Shared Island Unit and the Economic and Social Research Institute (ESRI) which was launched today. Drawing on data from 2019, the study examines the drivers of income inequality on the island of Ireland.

Previous research has identified marked differences in demographics, working patterns, wage levels and the tax-benefit system between Ireland and Northern Ireland. These factors are important determinants of income distribution and are likely to contribute differently to how income is distributed in the two jurisdictions. Despite these differences, this research estimates that headline measures of income inequality, estimated using harmonised microsimulation models for Ireland (SWITCH) and Northern Ireland (UKMOD), are similar. Nevertheless, as seemingly similar income distributions can come about for different underlying reasons, this research analyses the drivers of income inequality in the two jurisdictions, focusing first on differences in market income inequality and then on differences in disposable income inequality.

Key findings

• The research finds that differences in inequality in market (pre-tax and transfer) income are driven by two counteracting forces. On the one hand, the younger and more highly educated population of Ireland results in lower income inequality as there are relatively fewer people with no earnings. On the other hand, the higher and more unequal wages paid to workers in Ireland result in relatively higher market income inequality, all else equal.
• Differences in the tax-benefit system also influence the distribution of disposable income in Ireland and Northern Ireland. The Irish tax system is more progressive and reduces income inequality more than the Northern Irish tax system. However, the level and coverage of means-tested benefits in Ireland is lower than Northern Ireland. Therefore, the Irish means-tested benefit system reduces inequality less than the Northern Irish means-tested benefit system. The combination of these two opposing effects results in similar overall levels of redistribution by the Irish and Northern Irish tax-benefit systems taken as a whole.

Report co-author Karina Doorley – an Associate Research Professor at the ESRI – 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 – a Research Officer at the ESRI – noted:

“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.”

Report co-author Michele Gubello – a Postdoctoral Researcher at the ESRI – noted:

“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.”