Jim Power: Covid will leave its mark on employment for years to come

Strong wage subsidy support suggests many businesses will struggle to maintain employment levels in the absence of the state financial supports
Jim Power: Covid will leave its mark on employment for years to come

Minister for Finance Paschal Donohoe: For policymakers, labour market interventions at the sectoral level will be really important over the next couple of years. Picture: Julien Behal Photography

One of the more surprising outcomes over the past 16 months has been the manner in which the taxation side of the exchequer balance sheet has held up. 

Total tax receipts in the first six months were up almost €2.6bn, with revenues from labour taxes running particularly strongly.

The strength of income tax receipts tells us that lower-paid workers who account for a relatively small portion of income tax are those who have suffered the most during the pandemic. 

Higher-skilled and higher-paid employment has been relatively unscathed, and the very progressive nature of the income tax system is a significant factor behind the buoyant income tax receipts. 

Good news

Given what has happened this is overall good news, unless of course one happens to be involved in those segments of the economy that have been really hit hard by the pandemic.

Although large swathes of the economy have re-opened, government still has little appetite to ease restrictions on activities such as indoor hospitality and that is costing a lot of money. 

The pandemic unemployment payments (PUP) cost the exchequer €65.4m in the first week of July, not to mention the cost of the other employment support schemes.

The two main schemes utilised during the pandemic to support employees and employment have been the PUP and the Employment Wage Subsidy Scheme (EWSS) which replaced the Temporary Wage Subsidy Scheme. 

Data for late June show there were 171,699 people on the Live Register; 221,088 on the PUP, and more than 320,000 on the EWSS — meaning that the wage-subsidy scheme is now significantly larger than the PUP scheme.  

This suggests that the real health of the labour market and the overall economy is being masked by the EWSS in particular; the ongoing cost to the exchequer is frightening, and government doesn’t seem to care too much as its ability to borrow cheaply is not a constraint on behaviour.  

Massive consequences

But this will change and will have massive consequences for the exchequer finances, expenditure on public services and the future tax burden, while income and labour market inequality is getting even wider. It is a serious situation. 

Last week recruitment firm, Sigmar published research suggesting the jobs market for professionals is at its most buoyant in two decades. 

This research seems consistent with what can be observed happening out there in the labour market at the moment: It is very clear from income tax data, PUP payment data, and strong anecdotal evidence that significant segments of the economy and its workforce have been largely unaffected by the pandemic. 

On the other hand, sectors and their workers that have been subject to very significant restrictions since March 2020, have really suffered, and some of them continue to suffer given the very conservative approach being adopted in Ireland towards opening up certain activities. 

Such sectors include all types of hospitality, personal services, the airline industry, and arts and entertainment. 

In the first week of July, 40% of people receiving the PUP were in retail and the hospitality sector, which tells us all we need to know about the real pressure points. 

Incomes inequality

What all of this means in effect is that incomes inequality is growing. 

The strong EWSS support suggests many businesses will struggle to maintain employment levels in the absence of the state financial supports. 

As the various supports start to wind down from September, the real situation will become more apparent.

For policymakers, labour market interventions at the sectoral level will be really important over the next couple of years.

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