Thursday, July 01, 2021

Irish standard of living at 13th in EU27 and 19th among rich OECD countries

In 2020 Ireland's standard of living per capita was 13th in the EU27 ranking. Among the 31 advanced (defined by the International Monetary Fund: IMF1) / rich countries of the 38 member Organisation for Economic Cooperation and Development (OECD) Ireland had the 19th ranking for Household net adjusted disposable income per capita. The poor occupational pension coverage in the Irish private-sector workforce is also relevant to the standard of living.

According to the Central Statistics Office in 2020, 6 in 10 Irish workers have "some form of pension coverage" — the number of years coverage varies among private-sector workers as employers have no obligation to provide occupational pensions. The 2017 Public Service Pay Commission report noted that the Irish Pensions Authority indicated "that pension coverage in the public sector remains at 100%, with the equivalent coverage figure for the private sector at 40%."

State pensions accounted for almost a third of average wages in 2020 (€12,900 vs €40,300).

While the Irish public sector including politicians (18% of the workforce) has guaranteed pension payouts (defined benefit), up to 60% of Irish private pension funds are eaten up by charges and fees from finance firms.

In contrast to the shambolic Irish system, the OECD says that in Denmark occupational pension schemes are fully funded defined-contribution schemes agreed between the social partners through collective agreements. Some 85% of the employed workforce is covered by such schemes." Danish self-employed have separate schemes and total coverage encompasses "almost the entire population and comes close to absolute universality."

Danish households differ from households in most other countries in that they have very large pension wealth, according to the Danish National Bank. "This means that many Danes can look forward to relatively high income after retirement, which reduces their need to be debt-free when they retire."

Finland is the best European country for retirement in 2021 according to a ranking of 37 European countries. Weather is not part of the criteria but Spain is in second place and Ireland is in the 29th rank. The Netherlands and Denmark top a pensions rankings and Ireland is in 14th place out of 39 advanced and emerging countries. Ireland achieved a 'B' rating in the 2020 Mercer Global Pensions Index. However, Mercer notes a clear deficiency “Unfortunately, there is very little transparency about the overall costs of running most pension systems or the total direct and indirect fees that they charge to participants and sponsors.”

In 2020 Luxembourg headed the rankings of gross domestic product (GDP) per capita at 166% above the EU average. Ireland had the second-highest level of GDP per capita in the EU, at 111% above and Bulgaria had the lowest GDP per capita, at 45% below the EU average. Eurostat says Luxembourg's ranking "is partly explained by the fact that a large number of foreign residents are employed in the country and thus contribute to its GDP, while they are not included in the resident population." Ireland's ranking reflects foreign multinational firm distortionsIreland was the most profitable location for US firms in 2018!

While GDP is mainly an indicator of the level of economic activity, Actual Individual Consumption (AIC) is a useful proxy for the average standard of living. AIC per capita reflects the material welfare of households and it tracks individual consumption including consumer goods and services purchased by households, in addition to services provided by non-profit institutions and general government for individual consumption. For example, health and education services.

In 2020 the Irish AIC was 5% below the EU average and it also was behind Italy, which has had very low growth in the past 20 years — in 2000 Italian GDP per capita was at $35,700 (constant 2010 US$) and at $36,300 in 2019.

Actual individual consumption (AIC) is a measure of the material welfare of households. In 2020, AIC per capita expressed in purchasing power standards (PPS) varied from 61% to 131% of the EU average across the 27 member states.

This information on actual individual consumption comes from preliminary estimates on purchasing power parities for 2020 published by Eurostat. More detailed data are available in a Statistics Explained article.

In 2020, 9 EU member states recorded AIC per capita above the EU average. The highest level in the EU was recorded in Luxembourg, 31% above the EU average, followed by Germany (23% above) and Denmark (21% above). The Netherlands, Austria, Finland, Belgium, Sweden and France recorded levels between 5% and 20% above the EU average.

In 13 member states, AIC per capita was between the EU average and 25% below. In Cyprus, Italy, Lithuania and Ireland the levels were 10% or less below the EU average, while Spain, Czechia, Portugal, Malta, Poland and Slovenia were between 11% and 20% below. Romania, Estonia and Greece were between 21% and 25% below the EU average.

Five member states recorded AIC per capita 25% or more below the EU average. Slovakia, Latvia, Hungary and Croatia were between 25% and 35% below, while Bulgaria had AIC per capita 39% below the EU average.


In 2020, the highest price level for consumer goods and services among the EU member states was observed in Denmark (41% above the EU average) and the lowest in Romania (45% below the average).

Ireland was second-highest in the EU27 at 36% above the average. German prices were only 8% above the average.

Eurostat said that "The results are based on price surveys covering more than 2 000 consumer goods and services which were conducted across 37 European countries participating in the Eurostat-OECD Purchasing Power Parities Program."

AIC price indices show Denmark 42% above the EU average; Ireland is at 38%; France 10%; Germany 9%; Italy 3% and Spain -4% below the average.

  • First estimates for 2020 presented are based on GDP and population data for 2020, extracted on 4 June 2021, and the most recent PPPs available. Revised estimates will be published in December 2021.
  • Eurostat says the Covid-19 pandemic has affected the price collection for purchasing power parities (PPPs) during 2020 and the estimation of 2020 expenditures used in the calculation of the first estimates of 2020 PPPs. More information is available here.
  • Luxembourg: The high GDP per capita in Luxembourg is partly due to the country's large share of cross-border workers in total employment. While contributing to GDP, these workers are not taken into consideration as part of the resident population which is used to calculate GDP per capita.
  • Ireland: The high GDP per capita in Ireland relates to 1) profits shifting by foreign multinational firms 2) the inclusion of large foreign-owned firms that have changed their domiciles to Ireland for tax purposes 3) global aviation leasing firms that are headquartered in Ireland and 4) the inclusion of net overseas contract manufacturing value related to the allocation of intellectual property (IP) to Ireland by large global firms.
  • Eurostat Statistics Explained article on consumption and GDP per capita
  • Eurostat website section dedicated to purchasing power parities
  • Eurostat database on purchasing power parities
  • Eurostat metadata on purchasing power parities

The chart above shows that Ireland was in 21st place in a World Bank ranking of Actual Individual Consumption per capita for 2017, adjusted for price differences (purchasing power parities - PPS) and comprising both public and private consumption of goods and services. It is widely seen as a useful measure of individual welfare. Here the 25 countries have populations above 1m.

Ireland’s AIC per capita in 2020 was about 94% of the EU average, down from 115% in 2006-7. This placed Ireland behind not only the UK and all 6 of the original founder members of the EEC but also Austria and the three Nordic member states.

Patrick Honohan, emeritus professor of economics at Trinty College and governor of the Central Bank of Ireland 2019-2015, said in a February 2021 Central Bank Economic Letter:

"On average across the world, AIC includes about two-thirds of GDP, but the ratio varies widely. Still, if one is going to use one of these available national data series as a rough measure of current living standards of households, AIC, adjusted for price differentials across countries seems a good option."

The World Bank noted that while Singapore had the highest PPP-based GDP per capita in the Asia-Pacific region at $93,981, its PPP-based AIC per capita is significantly lower at $31,966.

The corresponding Irish levels are $78,211 and $26,744.

The Organisation for Economic Cooperation and Development (OECD) — a club for mainly rich countries — has Ireland at 19th ranking for household adjusted disposable income2.

Prof Honohan added "Taking the US as a reference point and again concentrating on the AIC per person consumption measure (adjusted for purchasing power) we find that Ireland began at about 47% of the US level in 1950; the same figure was recorded in 1993. There had been just a brief few years 1978-81 when unsustainable borrowing enabled Irish consumption levels to exceed 50% of the US benchmark. After 1993, though, there was a steady increase to 68% (by 2007) before the borrowing binge of the early 2000s came to an end, after which the ratio came down to 60%.

At this level, Ireland’s average per capita consumption ranks 21 in the world (ignoring countries of less than a million population). Ahead of Ireland are the EU countries mentioned above as well as Norway and Switzerland, along with four “Anglo” countries (US, Canada, Australia and New Zealand), and four jurisdictions in East Asia (Hong Kong, Japan, Singapore and Taiwan). Spain, Cyprus and a handful of Gulf oil-producing countries have been ahead of Ireland from time to time in recent years, but not at the latest data."

1. IMF's Advanced Economies 39: 

US; Japan; 19 Euro Area countries; Canada; UK; Australia; Czechia; Denmark; Iceland; Israel; Korea; New Zealand; Norway; Singapore, Sweden, Switzerland and Taiwan ─ total 35.

Hong Kong and Macao are effectively part of China. Puerto Rico is part of the US and San Marino is a statelet with a population of 34,000 people.

The main IMF criteria used to classify the world into advanced economies and emerging market and developing economies are (1) per capita income level, (2) export diversification — so oil exporters that have high per capita GDP would not make the advanced classification because around 70% of its exports are oil and (3) degree of integration into the global financial system.

"In the first criteria, we look at an average over a number of years given that volatility (due to say oil production) can have a marked year-to-year effect. Classification is not based on strict criteria, economic or otherwise, and it has evolved over time. The objective is to facilitate analysis by providing a reasonably meaningful method of organizing data."

The IMF says reclassification only happens when something marked changes or the case for change in terms of the three criteria above becomes overwhelming. For example, Lithuania joining the Euro Area was a significant change in circumstances that warranted a reclassification from an emerging market and developing economy to an advanced economy. Most reclassifications in recent years were related to countries joining the Euro Area.

2. The OECD says "It's the maximum amount that a household can afford to consume without having to reduce its assets or to increase its liabilities. It's obtained, as defined by the System of National Accounts – SNA, by adding to people’s gross income (earnings, self-employment and capital income, as well as current monetary transfers received from other sectors) the social transfers in-kind that households receive from governments (such as education and health care services), and then subtracting the taxes on income and wealth, the social security contributions paid by households as well as the depreciation of capital goods consumed by households. Available data refer to the sum of households and non-profit institutions serving households."


Ireland's CSO (Central Statistics Office) July 2021: Actual Individual Consumption - An International Comparison

Retooling Ireland's economic engine - look to Denmark & Netherlands