Work pays better than welfare for most unemployed, ESRI finds

Findings have important implications for policymakers

Among those people in employment or unemployed facing a situation where work pays less than welfare, more than 70 per cent chose work rather than welfare.  Photograph: Frank Miller

Among those people in employment or unemployed facing a situation where work pays less than welfare, more than 70 per cent chose work rather than welfare. Photograph: Frank Miller

Wed, Jun 11, 2014, 01:00

Getting a job pays more than staying on welfare for the vast majority of people even when in-work costs like childcare and travel are taken into account, according to a study by the Economic and Social Research Institute (ESRI).

The finding appears to debunk the myth that Ireland’s relatively generous social welfare system gives no incentive for people to work.

The research, which will be presented today at the ESRI’s annual Budget Perspectives seminar in Dublin, found close to six out of seven people would be financially better off in work than on welfare.

Among those people in employment or unemployed facing a situation where work pays less than welfare, more than 70 per cent chose work rather than welfare. The findings have important implications for policymakers as it suggests 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,” it said.

The ESRI based its analysis on Switch, the ESRI tax-benefit model, which provides a picture of the financial incentive to work faced by unemployed people and by employees in Ireland, and data from the Central Statistic Office’s Survey on Income and Living Conditions.

Most of those who receive Jobseeker allowance are single and do not have children. For these groups, the study found work, even at the minimum wage, paid more than welfare.

The study found that, for those with families, extra payments for dependent children and/or in respect of a non-working spouse can mean that the net rewards from work are reduced.

Choosing to work

However, it said that even those who, on a “snapshot” basis, would be “better off on the dole” tend to choose work.

The reasons for this included that fact that prolonged unemployment tends to reduce future wages; being in employment provides opportunities for wages to grow; and there are non-financial benefits to being in work, including social and psychological benefits

The study also pinpointed there are also compliance costs associated with welfare payments – such as requirements to attend training and to search for work.

“Policy initiatives to improve the reward from work are welcome, but they cannot be expected to have a major impact on overall unemployment,” Prof Tim Callan, one of the study’s authors, said.

Another piece of research to be presented at the seminar by Cormac O’Dea from the Institute for Fiscal Studies in London highlights the lack of information on the impact of cuts in spending on public services on varying income groups.