Budget Views

ECONOMIST RICHARD Tol yesterday welcomed a new study measuring the difference between earned income and social welfare published by the Economic and Social Research Institute (ESRI) for its annual Budget Perspectives Conference.

But the former ESRI economist said he still believes the think-tank is underestimating the true cost of working, and therefore widening the income gap between employment and welfare.

Prof Tol left the institute earlier this year after a working paper on the subject that he co-authored was withdrawn by the ESRI.

Yesterday Prof Tol conceded some ground to Tim Callan and others who have just published a new study on the matter.

The study suggests that only one in eight people in receipt of unemployment benefit is better off staying on welfare than moving to paid employment.

The paper was presented at the conference yesterday.

Writing on the irisheconomy.ieblog, Prof Tol said: "For the first time, Callan et al include the cost of working in their analysis. We showed earlier that this is an important consideration."

He went on: “Our paper was primarily intended to address a blind spot in labour economics. Unfortunately, what was meant to be an academic contribution became a public issue.”

He conceded that the new study had “information on the age composition of the household, whereas we had to work with average costs for a typical family. In these regards, the new analysis is superior to our work.

“The main difference, however, is due to transport costs.

“There, Callan et al run into the same problem that we did: the primary data are incomplete and one needs to rely on secondary data. This introduces all sorts of biases. I am not convinced that Callan et al got this right,” he wrote.

“They include only the cost of commuting, disregarding extra school runs, social calls associated with work etc. They ignore that commuters would own a different car than people who stay at home. In our paper, we compared travel costs in work and out of work, correcting for income, regardless of whether travel was from home to work and back.”

He concluded, “I suspect that Callan et al underestimate the travel cost due to work.”