“Work Incentives: New Evidence for Ireland”

By Tim Callan, Claire Keane, Michael Savage, John R. Walsh, Kevin Timoney (ESRI).

Better off in work – not on the dole

New research from the ESRI finds that 94 per cent of Irish people are better off in employment than out of work – even after taking account of childcare and travel to work costs. Of the remaining 6 per cent, even though they would be “better off on the dole”, most are actually in work.

Over 86 per cent of those with young children, who face the highest childcare costs, are better off in work. These findings come from a major new study on work incentives in Ireland, undertaken using SWITCH, the ESRI tax benefit model, and launched at the ESRI’s Budget Perspectives Conference.

The study analyses recent data on incomes, travel to work patterns and childcare costs, using internationally established and accepted methods. Comparison with similar studies in the UK shows that replacement rates – the ratio of out-of-work income to in-work income – are broadly similar in Ireland and the UK. Although headline unemployment benefit rates are higher in Ireland, half of the UK unemployed also receive Housing Benefit, which brings overall payments much closer. Ireland does have a higher proportion facing the very highest disincentives to work. This is mainly due to the Rent and Mortgage Supplement scheme, which provides support for housing costs to those out of work, but little or no support to those in work. Previous ESRI research also found that work incentives were undermined by this scheme, which covers 1 in 8 unemployed people, and the Troika has highlighted the need for action in this area.

However, the study rejects the claim by the Troika that Ireland’s unemployed generally face high replacement rates by international standards. Careful analysis of the OECD database shows that Irish replacement rates are in the middle of the range for EU-15 countries. Previous analyses do not accurately represent Ireland’s position, largely because the examples chosen included Rent and Mortgage Supplement, which is given to only a small proportion of unemployed people. Excluding this supplement gives a more accurate picture and shows that Ireland is similar to many EU countries.

Speaking at the conference, Professor Tim Callan said “Comparisons based on nationally representative samples give a more accurate picture than selected examples. Overall, we find that the unemployed face similar work incentives here to elsewhere in the EU. The very large majority are better off in work not out of work.”

For further information please contact:

Tim Callan (Research Professor, ESRI), tim.callan@esri.ie; +353 1 863201