Irish Economy
Irish Budget 2015: ESRI budget conference hears work pays better than welfare
By Michael Hennigan, Finfacts founder and editor
Jun 11, 2014 - 9:37 AM

Irish Budget 2015: Next year's budget will be officially disclosed on Tuesday October 14th 2014 - - after extensive leaking! - - and the 17th Budget Perspectives Conference underway in Dublin this morning and will discuss a paper on work and welfare in Ireland produced by the ESRI SWITCH team. It provides the results of an in-depth examination of financial incentives to work in Ireland.

The opening session will explore medium-term fiscal challenges from a macroeconomic perspective (Prof John FitzGerald) and the impact of housing market developments on consumption (Kieran McQuinn and Yvonne McCarthy). This year’s guest speaker is Cormac O’Dea from the Institute for Fiscal Studies (IFS, London); his paper looks at the distributional effects of public services spending cuts in the UK.

The "Welfare Targeting and Work Incentives” paper by Michael Savage, Tim Callan, Claire Keane, Elish Kelly and John R. Walsh  confirms that work pays more than welfare for close to 6 out of 7 unemployed people - - even when in-work costs like childcare and travel to work are taken into account.

Among those people in employment or unemployed facing a situation where work pays less than welfare, more than 7 out of 10 choose work rather than welfare. Policy initiatives to improve the reward from work are worthwhile, but will have only a limited impact on overall unemployment. More substantial reductions in unemployment will require a revival of international and national demand, and activation measures providing skills and training in areas where new jobs will arise.

Most of those who receive Jobseeker payments are single and do not have children. Work, even at the minimum wage, pays more than welfare for these groups. For those with families, extra payments for dependent children and in respect of a non-working spouse can mean that the net rewards from work are reduced. But even those who, on a “snapshot” basis, would be “better off on the dole” tend to choose work. The reasons for this include

• the fact that prolonged unemployment tends to reduce future wages;
• being in employment provides opportunities for wages to grow;
• there are non-financial benefits to being in work, including social and psychological benefits;
• there are also compliance costs associated with welfare payments – such as requirements to attend training and to search for work – and penalties associated with non-compliance.

Research at ESRI identifies Rent Supplement as an aspect of policy which tends to reduce the reward from work, because it is not payable to those in full-time employment. The new Housing Assistance Payment is designed to replace Rent Supplement for many recipients, and to improve the net reward from employment by allowing for a housing-related payment for those in full-time work

Speaking at the conference, Professor Tim Callan said “Policy initiatives to improve the reward from work are welcome, but they cannot be expected to have a major impact on overall unemployment.”

"Can We Measure Who Loses Most From Public Service Spending Cuts?" [pdf], the paper by Cormac O’Dea (Institute for Fiscal Studies, London), looks at the fiscal tightening currently under way in Ireland and elsewhere involves changes to taxes and benefits (i.e. charges and payments to the public in cash) and changes to spending on public services (i.e. transfers to the public in kind).

He says it is possible (and common) to assess how much households with different levels of income are losing from increases to taxes and cuts to benefits. It is much harder, and less common, for researchers to quantify the impact across the income distribution of cuts to spending on public services. As a result while there is evidence on how much increases in income tax and cuts to Jobseeker’s Allowance, for example, have affected households, there is much less evidence on how cuts to spending on public services such as health and education have affected them. The reason for this is that doing so involves tackling questions such as (taking spending on education as an example):

• How much do households value the provision of education?
• How much does the quality of education change when the education budget is cut?
• How much do households value such a change in quality?

O'Dea says that answering these questions is difficult and often controversial. Not tackling such questions, however, will mean that the impact of a large part of the fiscal consolidation on households will be missed.

Irish Budget 2015 Page