People on welfare not better off, says ESRI

WORK PAYS better than welfare, with only about 3 per cent of unemployed people “better off” receiving social welfare benefits than working, researchers at the Economic and Social Research Institute have found.

A new study states that eight out of 10 unemployed people would increase their income by at least 50 per cent if they were to find a job, while six out of 10 unemployed people would actually double their income if they were to find a job.

The risk of “poverty traps” in Ireland was overstated in past studies, the researchers said, because “non-typical examples” were used to create the impression that most unemployed people are “better off on the dole”.

In certain studies, unemployed people were assumed to be paid the rent or mortgage supplement as part of their social welfare package. However, only one in eight recipients of jobseekers’ benefit or allowance payments actually receives a rent or mortgage supplement.

Presenting the study’s findings to the Economic and Social Research Institute’s Budget Perspectives conference in Dublin yesterday, economist Tim Callan said about four in five unemployed people have a replacement rate of less than 60 per cent.

Replacement rates are the percentage of a person’s calculated take-home pay that they would receive in social welfare benefits if they were unemployed.

“Very high replacement rates are very uncommon,” he said.

While replacement rates are calculated to be higher for couples with children because of additional payments they may receive if unemployed, this type of family represents less than one-fifth of total unemployment claimants, according to an analysis of Live Register data by the National Economic and Social Council.

For a single person with no children, replacement rates in Ireland are 33 per cent of the national average wage and 46 per cent of a salary that pays two-thirds the national average wage. This is at the lowest end of the spectrum of OECD countries, Mr Callan said.

A Department of Social Protection official told an Oireachtas committee last month that there was “no escaping” the fact that some people on the rent and mortgage supplement scheme were “better off” on social welfare.

It is understood the Government is hoping to achieve cuts in next year’s welfare budget from a substantial reduction in the €500 million annual expenditure on rent supplements.

The ESRI study on Taxes, Welfare and Work Incentives also examined marginal effective tax rates and found that for a significant number of one-parent families and single-income couples with children, there is “a very weak financial incentive” to earn more.

Addressing the economic backdrop to budget 2012, ESRI economist Joe Durkan told the conference it would become clear at the end of November whether the Government would meet its fiscal targets, but that it looked like a €3.6 billion budget adjustment would be enough to meet its 2012 target.

Further fiscal contraction over the next three to four years is unavoidable, he said, but the contraction should be less than that which occurred between 2009 and 2011.

“At a certain point, people’s debt will reach a level that they are happy with and they will start spending again. But we can’t predict when that will happen,” he added. Fellow ESRI economist John FitzGerald agreed with Mr Durkan that the Irish economy was on track to recover.

“But I’m not infallible, Joe Durkan is not infallible and there remains some uncertainty,” he said. “If the rest of Europe doesn’t sort things out, then all bets are off.”