ESRI: PUP not a disincentive to employment

Social Protection Minister Heather Humphreys. The ESRI has said that more than 95% of people on the PUP scheme will be financially better off going back to work.

The pandemic unemployment payment (PUP) scheme is not a significant disincentive for people to return to work, fiscal think-tank the Economic and Social Research Institute (ESRI) has said.

In a detailed research paper, the ESRI said the various Covid income support schemes have significantly helped to lessen the blow from lost income for many affected workers.

However, despite criticism of the scheme, it said that more than 95% of people on the PUP, which is expected to be phased out from October, are still financially better off at work.

“While concerns have been raised that PUP disincentivises employment the vast majority of PUP recipients would be financially better off in employment,” said the ESRI’s Dora Tuda.

Without the PUP and the employment wage subsidy scheme (EWSS), unemployment caused by the pandemic would have decreased household income by an average of 7%, the ESRI said.

'Income loss halved'

“As a result of the introduction of the PUP and EWSS, the estimated average income loss was more than halved, to 3%. While the PUP does slightly weaken the financial incentive to work, it also supports incomes more strongly further up the income distribution due to its higher rate compared to pre-existing supports,” it said.

The ESRI said the widespread job losses induced by the Covid pandemic have had a “substantial negative impact” on household income in Ireland. 

However, the income losses experienced by families would have been even more severe were it not for pre-existing income support systems such as unemployment benefits and the two new pandemic-related measures, it said.

“The roll-out of the EWSS subsidised the retention of links between employers and employees, a feat that would have been difficult for the Irish Short-Time Work Scheme, which is not widely taken up,” the ESRI said.

“The PUP, with its tiered payments, improved the link between unemployment benefits and prior income, which helps to maintain family living standards during a period of unemployment. It also extended eligibility to young adults who may otherwise not have been eligible for welfare.”

Removal of schemes 

However, the institute said “a substantial proportion” of younger people, including students, may face sharp reductions in their income levels when these support schemes are finally removed.

“As we face the withdrawal of the PUP and wage subsidies, certain groups including young adults, those in education and working age adults without children, will be most affected if the economy takes time to recover,” said ESRI senior research officer Claire Keane.

“The pandemic has highlighted some gaps in the welfare system and public support for reform may currently be high. If the negative effects of the pandemic linger, higher income supports for young adults may help this group. Better in-work supports could also improve financial incentives to work and continue to support the incomes of those most affected by the pandemic,” she said.

Elsewhere, the UK government’s decision to end its furlough income protection scheme for crisis-hit workers will wreck the chances of a post-Covid recovery for many companies, critics have said.

While the UK government last week extended a ban on the eviction of companies that have ceased paying rent due to the impact of the pandemic, the country’s finance minister Rishi Sunak ruled out any extension of any other Covid business supports, despite the government forcing many businesses to close for an extra four weeks as it delays the full reopening of its economy on health grounds.

Critics have said there remains a gap of 2.8m workers, who have either been furloughed or are out of work, to close before supports are withdrawn.