An economic think-tank has sought to challenge the perception that social welfare rates are “generous” when measured against the remuneration the person would receive if they chose to work.
The Nevin Economic Research Institute (Neri) was responding to the OECD’s Economic Survey of Ireland, published last week.
Neri said the OECD report pointed to challenges for households on low incomes who, in situations where they are in receipt of payments such as rent supplement, face limited monetary gains when taking up work often in low-paid sectors of the labour market.
The OECD report said: “Highly targeted benefits, including housing benefit, result in high replacement rates and marginal effective tax rates for some households at the low end of the income distribution, discouraging work.
“The solution is to intensify activation policies to get people into jobs, improve training, and enforce obligations on benefit recipients to seek a job or take training.”
Neri said “replacement rates” could be used as a method to question the theory that Irish welfare rates were generous.
The replacement rate refers to the level of welfare provided immediately after the person becomes unemployed and calculates that as a proportion of previous after-tax or net income.
Basing the calculation on an individual earning 67% of the average wage in each OECD country before becoming unemployed, it found that the welfare, as a percentage of a previous working wage, can be as low as 20% for a single person with no children in the UK, and up to 96% for a two-earner couple in Slovenia.
In Ireland, the replacement rate for a single person with no children is 50%. That compares to a median of 64% for the OECD countries and an EU average of 65%.
Likewise for a lone parent with two children, the replacement rate in Ireland at 50% is significantly below the 74% median across both the OECD and the EU.
However, other categories of unemployed households are doing well here when compared to their international counterparts. For example, a one-income couple with no children here can expect 80% of their working net income total from welfare immediately after they are made redundant.
Micheál Collins of Neri said that, given the variation in individual country replacement rates, “reflecting the nature and composition of welfare entitlements in these countries, the data shows the futility of making simple cross-country comparisons based on one particular type of individual/household”.
He added: “The Republic of Ireland possesses the sixth lowest replacement rate for single unemployed people with no children within the OECD (50%); only the UK, Australia, New Zealand, Greece, and Poland possess lower rates.
“Of the six household types examined by the OECD, four RoI types record replacement rates below the OECD and EU median values and two above these median values. Despite measurement challenges, relative to other OECD and EU countries, the data does not suggest that Irish welfare benefits are generous.”
© Irish Examiner Ltd. All rights reserved