Ireland's Taoiseach, Leo Varadkar, recently caused a bit of a stir by asserting that families who earn €100,000 should not be seen as rich. Opponents were quick to highlight this as further evidence that Varadkar and his party are elitist and out of touch with reality. However a poll the next day on thejournal.ie seemed to support Leo's comment, with 67% of (more than 20,000) respondents agreeing that a €100k income did not make a family rich. Millions of people around the world are surviving on less than €1 per day, so relatively even the poorest person in Ireland is 'rich' - but what does that really mean in the local/national perspective?
Look at the Data
The most recent detailed income distribution figures from the CSO are for the year 2015, and a simple division of total income by the number of individuals gives an average annual income of €39k, i.e. the 'average wage'. 124,204 people earned more than €100k, 5.4% of the working population. From this perspective, Leo's assertion may indeed look elitist - after all, if someone earns 3 times more then the average person, and is in the top 5%, then they must be rich, right?
However if we look a a little more closely at the figures we might think again. For example, it is reported that 423,992 people earned less than €10,000, with an average income of just €4.5k per annum. Indeed 711,698 people earned less than €17k - 31% of the the total number of workers.
The minimum wage is €9.55 per hour, the average working week is 40 hours and there are about 46 working weeks in the year, which means that the minimum that a person in full time employment should be earning is around €17.5k.
Obviously the figures exclude those who earn nothing, i.e. the unemployed, students, retired, carers and so on. However it is clear that the CSO figures do include people working part time or who work for only part of the year, which drags average income figures down sharply.
The figures, which are limited to the self-employed, PAYE and company directorships, also exclude several forms of income that are frequently associated with wealth, such as investment returns or income from the partnerships typically found in architectural, legal and medical practices. Presumably if these were included the average would be raised.
Adjusting the Figures for Reality
We cannot easily include estimates for the types of income that are excluded, but we can make a crude basic adjustment to exclude part-time workers by removing those who earned less than €15k in the year. If we do this then the average salary jumps up to €51k per annum, and 7.4% of workers are seen to earn more than €100k - about 1 in 13.
The jump-out figure is that an average income for a full-time worker is over €50k. That means that a household with two average incomes will be earning more than €100k.
For a married person in a single-income household, a €100k annual PAYE salary will provide €5,387.00 per month after taxes, while the average cost of sustaining a family of 2 adults and 2 children in Dublin is estimated at €5134 per month, leaving €253 per month for savings or discretionary spending.
Of course many households have only one or no people working, but in an economy at nearly full employment it is clear that Varadkar's observation is more than accurate, i.e. €100k is a pretty normal income for a household, and far from rich.
The '1%'
Sometimes when people talk about the 'rich' or the 'elite' they refer to the '1%'. Well in Ireland in 2015, even when part-timers are included in calculations, only those individuals earning over €200k became members of the '1%' club. Figures are not readily available at household level, but many of those earning in the €200k range will be in single income households. If we were to identify the top 1% of households, we would probably have to set the bar around the €300k mark.
Since 2015 Ireland has seen significant wage inflation. Leo himself cited the latest 'average salary' figure as being €44k, an increase of 12% since 2015, so the '1%' cut-off has likely moved higher also.
Salary Scales and Clusters
Another observable phenomenon in the figures are 3 'local maximums' around which numbers of earners are bunched. We can see one around €20-€25k bracket, another around €40k-€50k, and another from €100k-€150k. This reflects another reality of work - that there are glass ceilings in income for different professions that people eventually cluster at.
For low-skilled jobs the glass ceiling that people approach after gaining seniority and working for a number of years seems to be about 1.5 times the minimum wage. For skilled jobs, the starting salary seems to be about €25k and climbs to a ceiling around €70k. There is then a gap, which is presumably where a minority take on the additional commitment and responsibility of management, making a leap up to around the €100k mark.
Conclusion
Irish salaries are quite high by international standards, and it seems that a €100k income is fairly common. However taxes are also high, and so are the costs of living - in particular housing, health and childcare are much higher than international norms. The comments on the journal.ie poll bear out the reality of Irish life for most households earning €100k...
"100k when you have mortgage, kids, creche etc does not make you rich. Sure, you will put food on the table and have a nice family holiday once a year but you won’t see anyone driving around in a Ferrari." - Peter Cavey
"Collectively we just earned just under a hundred. Paid just shy of 28 on tax. Taking into account, mortgage, childcare insurance and bills we have 1000 disposable income a month. So no, we are absolutely not rich! Saving is difficult. Not whinging at all, I know we’re in a fortunate situation. There are plenty worse off. Childcare is crippling though. 1700 a month! I don’t understand how people are expected to handle it on lower salaries." - Ivana Tinkle
'Ivana Tinkle' is probably not a real name, but the sentiment expressed is a common one. If households earning the average dual income figure of €100k need to budget carefully and find it hard to save, what does that say about households with only one average salary, or one salary in the lower income range? If Ireland could somehow address its cost of living problems, it would become a much more attractive, and easier, place to live.
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John Thompson is a Managing Partner with Client Solutions Business Intelligence and Analytics Division. His primary focus for the past 15 years has been the effective design, management and optimal utilisation of large analytic data systems.
