Poorest 10% of people have seen household income fall in recent years, research shows

The lead author of the report said: 'Ongoing high rates of inflation are likely to further erode incomes.'

Research suggest that this ongoing inflationary episode will further erode incomes, with nominal increases of at least 7% per year needed in 2022 and 2023 to avoid incomes stagnating. 

Adjusted for inflation, household income for the bottom 10% of earners fell in the years 2020 and 2021 while income growth stalled for most people in the bottom half of earners, new research shows.

The research was conducted by the Economic and Social Research Institute and funded by Community Foundation Ireland. It found that measures of inequality have actually increased in recent years after dropping to the lowest levels recorded in 2020.

According to the research, real income growth between 1987 and 2021 was stronger for the bottom fifth of earners compared to the top fifth. However, this pattern was not evident in the last few years of data.

Between 2020 and 2021, incomes did not grow on average for the bottom two-fifths of households, and fell in real terms for the bottom 10%. While income growth stalled across much of the rest of the distribution, the data also show that incomes grew around the middle and at the very top of earners. 

“This pattern of income growth has led to an increase in measures of income inequality,” the report said.

The research found that the material deprivation rate — the share of individuals unable to afford two or more items from a list of 10 essentials — also rose, from 13.3% in 2021 to 16.6% in 2022. Among these items include the ability to buy a warm waterproof coat, new clothes, a meal with meat or fish every second day, or home heating oil during the year. 

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The fall in household income was as a result of a decline in employment earnings which was driven by a reduction in hours worked per week and months of full-time work per year. This suggests the recovery in the labour market was not experienced equally by households.

The sluggish patterns of growth occurred before the sharp rise in prices that followed the invasion of Ukraine in early 2022.

“This ongoing inflationary episode will further erode incomes, with nominal increases of at least 7% per year needed in 2022 and 2023 — levels of growth last experienced in 2006 and 2007 — to avoid incomes stagnating,” the research said.

Rising inequality

Barra Roantree, lead author of the report, said that while growth has been strong and inclusive over recent decades leaving income inequality at a record low, this data “suggests incomes fell for the poorest tenth of individuals and stalled for most others in the bottom half of the distribution”.

He said this should be of “concern to policymakers”. “Ongoing high rates of inflation are likely to further erode incomes, raising the prospect of three years without real income growth for most households,” he said.

Mr Roantree said that the Government will face difficult decisions in the forthcoming budget next month about which groups to prioritise given the country’s reliance on “potentially transitory receipts from corporation tax”, with untargeted tax cuts or increases in spending “risking stoking further inflation”.

The full report is due to be published on Thursday. It was compiled using data from the Survey of Income and Living Conditions collected by the Central Statistics Office.