Monday, December 1, 2014

At-risk-of-poverty rates: Ireland and Sweden decomposed

Here is a chart of the at-risk-of-poverty rate for the population aged under 60 in each of the 28 EU countries.  The weighted-average for the EU15 is 17.4 per cent. 

AROP under 60s

The highlighted countries are Ireland and Sweden which are both below the EU15 average, though Sweden (7th lowest) is more so than Ireland (16th lowest).  The income thresholds used are €14,832 in Sweden and €11,447 in Ireland, though other differences also matter.

Here is a table that looks at the at-risk-of-poverty rates (again for those aged under 60) but decomposed by the work intensity of the household.  The rates for Ireland and Sweden are again highlighted.

At risk of poverty by work intensity

The rankings are not inverted!  For all work intensity levels, Ireland has a lower at-risk-of-poverty rate than Sweden and in most cases by a very large amount.

Ireland has the lowest at-risk-of-poverty rates for people in households with medium and low levels of work intensity.  Ireland is only outside the top four for households with very-low work intensity (6th) but the gap to Sweden (27th) is very large.  In Ireland 46.7 per cent of people aged under 60 who live in households with very-low work intensity are deemed to be at-risk-of-poverty; in Sweden it is 71.7 per cent and as can be seen this is the second highest in the EU.

By work intensity Ireland scores 2, 4, 1, 1, 6 for AROP yet only has the 16th lowest overall rate in the EU.  In contrast Sweden scores 14, 24, 16, 25 and 27 and has the 7th lowest overall AROP rate in the EU for people aged under 60.

Whatever we may want to copy from Sweden it would not appear that the interaction of their tax and transfer system with work intensity is one of them.  Ireland’s tax and transfer system means that households with low and very-low work intensity have a substantially lower at-risk-of-poverty rate then their equivalents in Sweden.  The table above suggests that increased progressive income tax and increased transfer payments would have limited impact on the overall at-risk-of-poverty rate.

If we artificially apply the Irish AROP rates by work-intensity of the household to the Swedish distribution of the population by the work-intensity of the household the resulting overall AROP rate would be less than six per cent.

Obviously, as this indicates the overall rate is determined by the composition of households in each country.  Ireland must have a greater proportion of higher-risk households – and we do by some distance.

Population Distribution by work intensity

[The figures for Sweden sum to 98.2 per cent rather than 100.  For Ireland the sum is 99.4 per cent which is in the realm of rounding errors.]

We can see that Sweden has the lowest proportion of medium-, low-  and very-low work intensity households in the EU.  In contrast Ireland has the third-highest proportion of low work intensity households and the highest proportion of very-low work intensity households in the EU.

Again, we can conclude that the composition of household types is different.  And it is.

Household Types

Ireland has significantly fewer single-person households and significantly more households with children.  Ireland also has more three-adult households.

There is considerable noise in Ireland about our at-risk-of-poverty rates (with much of it excluding the first three words of the phrase) and our ranking relative to other countries.  Sweden has a lower AROP rate than Ireland but actually understanding why that is so requires a journey that most go beyond tax and transfers yet the debate in Ireland rarely does so.

To conclude here is a big table with the at-risk-of-poverty rates by household types shown in the previous table.  Click to enlarge.

AROP by Household Type 2012

Unsurprisingly, Ireland performs worse than Sweden for almost all household types.  This is likely a function of the work-intensity figures shown earlier.

Ireland performs significantly better for one-person aged over 65 households (16.3 per cent versus 36.7 per cent) and marginally better for single parent households (31.1 per cent versus 33.3 per cent).  For all other household types Ireland underperforms Sweden.

A final note on the above table is that Ireland has a lower at-risk-of-poverty rate than the EU15 average for all household types with children.

  • Single person with dependent children: 31.1% v 33.6
  • Two adults with one dependent child: 10.4% 13.1%
  • Two adults with two dependent children: 13.4% v 14.9%
  • Two adults with 3+ dependent children: 17.9% v 23.3%
  • Three adults with dependent children: 17.5% v 20.7%

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