Belfast Telegraph

Cost of living a crucial consideration for new recruits alongside pay

Economy Watch

Average house prices are nearly 70% higher in the Republic compared to Northern Ireland

By Neil Gibson, chief economist, EY Ireland

EY, like an encouragingly large number of firms, is hiring. This is always an interesting time.

Within the economics team I am in, we have to decide which of our offices we will recruit into - we have six across the island- and have to consider what makes an attractive package for potential recruits.

Recruitment has become a much more complex business with salary now only one part of the conversation. Organisational values and purpose increasingly matter, as do flexibility and working conditions.

However, salary clearly still matters and, even in a place as small as the island of Ireland, living costs vary considerably. This is predominantly due to the differentials in housing costs with Dublin becomingly an increasingly expensive location. This reflects its desirability, but with average rents now 33% higher than their 2008 peak (touching €2,046 in the city centre), it does take a significant chunk of new recruits' pay packets.

Commuting distances are constrained by the infrastructure and the cost of living differences are driving widening salary differentials.

How far does money go in different locations? This is a complex question and the available data is patchy. Whilst average salary figures and simple online calculations allow some basic comparisons to be made of take home pay, there are very few reliable indicators of local costs beyond housing.

Median wages are a better guide of spending power than mean (average) figures, due to the skewing effect of high earners but, sadly in the Republic of Ireland, the median wage data only exists up to 2014 and has to be projected thereafter.

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Overall, salaries are 26% higher in the Republic, with the gap falling to just under 20% for median salaries.

                                                                   RoI                    NI                RoI premium

Mean wage (all employees)                          £34,300            £25,400       26%

Median wage (all employees)                       £27,000            £22,000       19%

Monthly take home pay at median wage     £1,900              £1,530         19%


Looking at spending power, the differential in take home pay at the median wage is 19% but housing can be a significant drain on individuals' resources.

With average house prices nearly 70% higher in 2018 in the Republic, the amount of disposable income after housing costs is likely to be much more similar across the two jurisdictions.

Recent work by the EY economics team on housing affordability suggested that saving for a deposit was extremely challenging in a number of the Republic's labour markets, with a worker on an average income requiring more than 15 years to save for a deposit in counties Meath, Wicklow and Kildare.

A further difference in the two economies is the level of saving which is much lower in Northern Ireland, according to published estimates.

There are other spending requirements in the Republic which further converge the level of discretionary spending available, for example costs for prescriptions or for visiting the GP. Recent data published by Eurostat suggested Dublin was the fourth most expensive EU city to buy food in and Mercer listed it as the Eurozone's most expensive city. The pay differentials clearly do not tell the full story.

Published data on spending by commodity gives a further useful insight into where people's money goes.

The headline data suggests NI citizens spend relatively more money on a range of items including clothing, tobacco, car ownership and recreation and culture. In contrast, citizens in the Republic spend relatively more on housing, healthcare and restaurants and hotels. There are many complex factors underpinning these differences. Lower incomes in Northern Ireland may dictate the higher spending on tobacco and clothing and footwear.

On the other hand, spending on personal transport and recreation may reflect more disposable income due to lower housing and healthcare costs. It is worth pointing out, however, that the comparison is only in shares of spending, in absolute terms, Northern Ireland spending is almost always lower. More work would be required to fully unpick the spending but it adds an interesting lens to the comparative standard of living debate.

Across the 12 UK regions, Northern Ireland consumers spend proportionally more than any other region on a range of items including bread, meat, sugar and sweet products, vehicle fuel, social protection, restaurants, education (somewhat surprisingly) and heating oil.

It spends proportionally less than any other region on hotels, financial services and, bizarrely, purchasing of bikes.

In summary, housing can have a hugely distorting effect on spending patterns and, although incomes are lower in Northern Ireland, the data indicates consumers can spend a higher proportion of their money on discretionary items.

Undoubtedly the levels of subvention Northern Ireland enjoys help to improve standards of living by boosting spending power. This, coupled with more affordable housing, possibly helps to partly explain the consistent table-topping happiness scores that subvention achieves in apparent contrast to headline economic performance.

Belfast Telegraph