ESRI at odds with IMF on work and welfare

Thu, Sep 27, 2012, 01:00

A CONTROVERSY over the difference between paid employment and social welfare is likely to reignite today when a new study is published rejecting suggestions by the International Monetary Fund that some welfare rates act as a disincentive to work.

“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,” the ESRI says.

The paper, which is to be presented this morning at the Economic and Social Research Institute, says the gap between welfare and work income is average for the richer, long-standing members of the EU.

The ESRI finds that “for most of Ireland’s unemployed the financial incentive to work is similar to that for many EU-15 countries”.

The paper is written by Prof Tim Callan and four others.

It also rejects claims that welfare recipients are better off in Ireland than in Britain.

While unemployment benefit rates in the UK are considerably lower than in Ireland, half of recipients also receive additional benefits to cover the costs of housing, whereas in Ireland only 12 per cent receive housing benefit on top of their jobless benefit.

The paper finds that 14 per cent of those with young children, who face the highest childcare costs, are better off on welfare.

Earlier this year the ESRI withdrew one of its own working papers that criticised a study by Prof Callan.

That paper, co-written by Richard Tol, stated that the work-welfare gap was large because the costs of working, such as childcare and commuting, had been understated.

The institute said the Tol paper was withdrawn because it contained inaccuracies.

Referring to that paper, the ESRI today says Prof Tol overstated the costs associated with working.

Writing on the blog irisheconomy.iein January, Prof Tol said the “ESRI should work harder on transparency and quality management. ESRI data and models should be in the public domain”.

In a separate paper, Prof John Fitzgerald says it is too early to know whether budget adjustments undertaken thus far will be sufficient to stabilise the public finances by 2015.

Only if underlying budgetary dynamics appear worse than envisaged should a larger package of cuts and tax increases be contemplated.

Despite this conclusion, the paper says the original adjustment path set out at the time of Ireland EU-IMF bailout in late 2010 was “probably not ambitious enough”.

On past experience, the paper states, it is “only towards the end of a period of fiscal adjustment, as the negative growth effects ease off, that there is generally rapid progress on reducing the deficit”.