Austerity increases long-term unemployment and income inequality and decreases wages

A recently published IMF working paper ‘The Distributional Effects of Fiscal Consolidation’ shows that austerity does not work and will not work for Ireland. 

The findings of the paper shows that fiscal consolidation has had significant distributional effects by raising inequality, decreasing wage income shares and increasing long-term unemployment.

The evidence also shows that spending-based adjustments have had, on average, larger distributional effects than tax-based adjustments.  The impact of expenditure cuts on income inequality in the medium-term is about 1 percentage point compared with 0.6 percentage point for tax based measures.  Expenditure cuts impact most on those on low and middle incomes and this paper shows that these cuts impose medium and long-term distributional costs to those least capable of bearing it. 

Social Justice Ireland has consistently pointed out to Government and the ‘troika’ that at a moral level the current austerity approach is unethical because it was those on low and middle incomes who have borne the brunt of the adjustment rather than the rich and powerful. Austerity, in practice, is also a failure because it has simply produced a fractured society, a weak economy and persistently high unemployment.  Social Justice Ireland has argued that austerity is not working for Ireland and that a new approach is needed. In our policy briefing Budget Choices 2014 we show how Government can reduce the deficit without imposing anymore expenditure cuts in the budget.

The IMF Paper can be accessed here

The 2014 Budget Choices can be accessed here