Homo Economicus Dublinius

Slí Eile03/08/2009

Slí Eile: Commenting on this website, anonymous said

...as a private sector worker married to a nurse I can assure you that the reality of life for us is very different to the majority of people who post to this site.
Fair point, although one cannot presume the background of all who contribute, comment or read any site on the internet.

Lets assume Home Economicus Dublinius is a 50 year old male, professor of economics in the Free University of Dublin who earns €120,000 a year, plus external research consultancy fees permitted by his institution of 25%, plus an unknown income stream from investments in property, bonds and equity (being a smart connoisseur of the markets, you know).

OK, Homo Economicus Dublinius has had to take a hardship hit this year of 10% in ‘pension’ levy on his base salary of €120,000. That translates into a nominal wage income cut of, say, 8% (on €150K).

Add to that, Government steals another 5% in various stealth charges and taxes. So the additional burden is over 10%. But, hold on, given sauce for the welfare goose we must factor in the impact of price deflation for the gander. So, his real cut in take-home pay is not as much as 10%. Still, it's hard – some adjustments to the property portfolio....

Now, someone on, say, €25,000 a year (cleaning attendant at the Free University of Dublin) needs to take a nominal pay cut of 20% to help the national war effort to make Ireland competitive again, and get the bloated public sector off the backs of hard-pressed taxpayers in the ‘real economy’ (read: private sector minus banking, property and estate). Or, more effective still, let's see the attendant’s job phased out altogether since she is on a contract and does not have to be replaced (the softest target surely in the public sector).

Where does that leave us?

This is not idle speculation.

Have a read of Kathy Sheridan’s piece in the Irish Times a couple of weeks ago (Taking Stock of the Newly Destitute):

Or, take a real couple this time:

A couple in their mid-40s who had worked hard since their teens, each running a small business, had bought an old house and were slowly doing it up, but failed to sell their first home before the slump. Now they can’t sell either. Both businesses have come to a stand-still, but for welfare purposes they are regarded as asset-rich so are entitled to no benefits. They are currently surviving on hand-outs from family members and the Vincent de Paul, as well as food parcels left on the doorstep by concerned friends.
And some economists are calling for cuts in welfare spending as well as reductions in the minimum wage. Well, let's say it again: it is one thing for someone in the top income decile in relatively secure employment to take a 10% cut in income; its quite another matter for someone in the middle income bracket to lose practically all income all at once (such as in the example above), and yet another matter for someone who is already among the ‘working poor’ (i.e. close the statutory minimum wage) to take a cut of 5, 10 or more percent.

Posted in: EconomicsEconomicsFiscal policy

Tagged with: DeflationeconomistsPay Cuts



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