Employment

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Dismal Job Numbers Expose Government Spin

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Question: why has employment growth collapsed in the first half of the year after recent claims by the Government that 60,000 jobs per year were being created?

The answer lies in statistical misunderstanding, Government spin and the failure of many commentators to read the numbers correctly. For the fact is that the 60,000 job-creation number was never real and the recovery in the labour market is sluggish at best. This post may get a bit involved but stay with me – for this is as much a story about how the recovery is being contrived as it is about bald numbers.

Last year, employment growth suddenly took off. In 2012 employment actually fell by 11,000 – and this was after a loss of nearly 300,000 since the start of the crisis. However, in 2013 everything changed. Employment grew on a full-year basis by 43,000 (this is consistent with claims by the Government who were using quarter-to-quarter figures).

This was quite a turnaround. The Government claimed their policies were working. For many commentators this was proof that recovery had returned. But there were a couple of problems.

  • First, this employment growth took place while the economy remained in a domestic demand recession. Given that employment is sensitive to domestic demand, this didn’t make sense.
  • Second, the usual pattern of an economy coming out of a recession is that employment growth lags. This is because if there increases in business output, the first beneficiaries are those already in employment; they get an increase in hours which had previously been cut.
  • Third, the actual job numbers were throwing up some strange happenings. Self-employment (own-account workers) grew by over 10 percent and made up over half of the total employment growth. At one stage, self-employment was growing by nearly four times the rate of growth during the boom. This didn’t make sense – not with domestic demand stagnation. Agriculture employment showed a similar pattern.

These concerns were dismissed. Government policies were working and critics were just nit-picking. However, the CSO published warnings throughout all last year – warning people against interpreting growth trends. Why? Because they were re-aligning their sample base with the recent Census (don’t forget, the Quarterly National Household Survey is not a comprehensive head-count, just a sample; like a poll). This happens after every Census.

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What 5 Cents on a Big Mac Would Mean for Hospitality Workers

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Yesterday was International Fast Food Day.  It started in the US where workers in the fast-food industry are staging protests nationwide, seeking a $15 per hour wage (the Federal minimum wage is $7.25 but President Obama is seeking an increase to $10.10 per hour while states and local governments have a higher minimum levels).

The protest has spread internationally and is expected to take place in 80 cities in more than 30 countries, from Dublin to Venice to Casablanca to Seoul to Panama City.

Fast-food workers are some of the lowest paid workers in the Irish economy with poor working conditions.  Average weekly earnings in the Accommodation and Food sector (we don’t have official data for the fast-food sector) were a mere €321 per week in the final quarter of last year.

Unite, using EU data, showed that our hospitality workers are some of the worst paid in the advanced European economies (see Table on Page 18 here).

Their conditions have deteriorated since the start of the recession.  Average weekly earnings in the whole economy fell by 4.6 percent since 2008; in the Accommodation and Food sector, they fell by 7.7 percent.  The low-paid are even more so.

With the minimum wage frozen since 2007, the revamped Joint Labour Committees having less powers than previous (e.g. they can’t negotiate Sunday premiums) and the cost of living, especially rents, rising, hospitality workers are under increasing pressure.

It is often said that since the hospitality sector is so labour-intense, wage increases would have a major impact on costs but this is over-stated.  It is true that wages (and for the purposes of this post I will use Accommodation and Food sector data unless stated otherwise) make up a high proportion of turnover.  They make up approximately a third of total turnover which is high.

However, a wage increase for the lowest paid in this sector would have only a minimal impact on prices but would have a major benefit to the workers, to businesses reliant upon their spending, the economy as a whole and the Exchequer.  Let’s do out some numbers – and this is a very approximate estimation based on one sector.

The CSO data suggests that if every hospitality employee (and this would include managers and professionals in the sector) were to receive a €1 per hour pay increase, it would cost the sector €160 million in personnel costs.  Sounds like a lot but it makes up only 2 percent of turnover.

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Another Crisis? Blame the Workers!

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We have a housing crisis.  90,000 on the social housing waiting list of which 60 percent have been waiting for two years or longer.  The private rental sector is not fit for purpose for many household types (and, in any event, is a highly fragmented, mom-and-pop operation).  There are over 100,000 in arrears and that doesn’t count buy-to-let mortgages.  The planning system is unreformed and we are stuck with inefficient and costly suburban sprawl.  And there is a major supply problem in the main urban areas, especially Dublin, where rents are experiencing double-digit inflation.

So what’s the answer?  Blame the workers, of course.

Prime Time had a feature on the housing crisis followed by a panel discussion.  And what comes up?  The alleged high cost of labour in the construction sector.  There were two parts of these assertions.

Hubert Fitzpatrick of the CIF claimed:

House prices today are approximately 50 percent of where they were seven years ago but the cost of actually building those houses has not fallen by the same extent.  

Economist Ronan Lyons stated:

The Government needs to be very forensic in saying if we have labour costs in construction that are 25 percent higher than in West Germany, why?  Is there a reason for that?  Can we get our labour costs in line with Eurozone partners? 

We have had a spectacular roller-coaster ride in the property market, fuelled by speculation, non-regulation, massive capital inflows and, then, outflows – and we come back to ‘wages are too high’.  You really would weep.

How valid are these assertions?  Not very when you look up some basic facts.

First, it is true that property prices have fallen substantially.  It is also true that building costs haven’t fallen by the same extent.  But during the boom period house prices rose at an exponential rate compared to building costs.

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Between 1994 and 2007, new house prices more than quadrupled.  Construction costs didn’t even double.  If house prices were to fall back in line with the cost of building a house, they’d have to fall even further, by more than a third.   If there are problems in investment returns or margins, it’s not coming from the cost of building a house – of which wages are a significant component.

What about the claim that construction labour costs are 25 percent higher than West Germany?  Here is the latest data from the European Labour Force Survey which measures labour costs per hour.

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The Case of the Elusive Paid Job

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I’ve heard a great deal recently about economic recovery and job creation. Ireland’s unemployed should be optimistic, and if we’re not, well, who’d want to hire us with that attitude? All we need to do is ride it out, keep a positive outlook and before we know it we’ll all be upstanding citizens again, able to pay our bills without the weekly humiliation of social welfare. I’d like to believe that, but I don’t see any evidence of it: all I see in the jobs pages are some high-tech, highly specific positions in large multinational companies, jobs that require qualifications and languages that very few Irish people possess, and an enormous, unshakable, mass of Job Bridge Internships.

Yesterday I looked up one of the main recruitment sites and put “Cork” and “admin/PA/secretarial” into the search engine. I got five results for paid jobs (not Jobs Bridge), four of which were: “Finnish Customer Service Associate”, “Polish Accounts Assistant”, “Logistics Administrator with Turkish or Hebrew” and “German SAP Rep”. The outlook is similar whenever I search for vacancies. I’m under no illusion, I fully understand the requirements of EU free movement of workers, and I don’t deny the right of any person to take up work in another EU member state, but I cannot see how these jobs are going to filter through to the vast majority of unemployed people.

The system implies it’s our own fault; Irish people didn’t learn the right skills, we should have been able to predict the future. We’re told that we’re living in a globalised world now, and it’s up to us to stay “relevant” to ever-evolving labour market requirements, requirements that now, seemingly, we are surplus to. We are in over-supply: cheap, expendable and easily substitutable.

The Irish unemployed, it has transpired, must be happy to do Job Bridge Internships. After all, we are the great unemployable, why wouldn’t we be satisfied to work a full week for our dole? We deserve it for not learning obscure languages or qualifying in high-tech areas that didn’t exist five years ago. Every second job advertised, that doesn’t require unreachable and prohibitive levels of experience – from cleaner and meat-counter assistant to teacher, solicitor and scientist – is a Job Bridge Internship.

When I was in university it was common for students to work in retail or as waiters or waitresses part-time to fund their studies. Now almost every low-paid casual job is a Job-Bridge that requires the lucky participants to be on the Live Register for three months, so I can’t see how students could possibly hope to work. It’s not just students: so many people I know in their late twenties and early thirties, people with post-graduate qualifications and years of work experience, have not only done Job Bridges but have had to compete with other similarly qualified people to get them. When I hear of a friend getting an actual, paid job, it’s like a miracle, and even then it usually comes down to personal contacts.

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In Ireland, the Jobs River Flows Uphill

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There’s a lot of confusion out there.  IBEC found the recent fall in consumer spending ‘puzzling ‘ – what with all the increase in employment.  Others have found it strange, too – strong employment growth but falling consumer demand.  Shouldn’t the big increase in employment translate into higher consumer spending and domestic demand?  What’s going on here?

Well, it’s only puzzling if you accept that employment grew by 60,000 over the last year.  However, once you lift the lid on the numbers and find that the 60,000-growth number in the CSO’s Quarterly National Household Survey (QNHS) is a statistical quirk, then it starts to make sense.

First, let’s note the CSO’s warning about interpreting trends in employment growth during the period they are realigning their sampling base with the 2011 census.  This realignment ensures that their Quarterly National Household survey sample is aligned with the population.  They do this after each census.

‘After each Census of Population the sample of households for the QNHS is updated to ensure the sample remains representative. The new sample based on the 2011 Census of Population has been introduced incrementally from Q4 2012 to Q4 2013. This change in sample can lead to some level of variability in estimates, particularly at more detailed levels and some caution is warranted in the interpretation of trends over the period of its introduction.’

Now let’s look at the employment numbers.  Between the 4th quarter in 2012 and 2013, employment grew by 60,900 – or 3.3 percent (not seasonally adjusted).  However, self-employment grew by 33,400, or 11.5 percent.  So, self-employment made up 55 percent of all employment growth.  Is this realistic?  No.

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From Youth Guarantee to Mandatory Labour

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The Youth Guarantee programme is potentially a positive development.  To prevent long-term youth unemployment, the Government launched a programme that would guarantee young people either a place in education, training or a job.

However, a couple of developments put in question the operation and effect of this guarantee – and both revolve around our old friend, JobBridge.  First, as part of the Youth Guarantee Implementation Plan, JobBridge will now become mandatory:

In the case of young people, failures to engage that will give rise to sanctions will include:

  • Failure to apply for or accept an opportunity on the national internship scheme (JobBridge)

This suggests two things:  first, young unemployment must now pro-actively apply for JobBridge – something that wasn’t required before.  Second, it seems the Department will pro-actively create new JobBridge opportunities (that is, contacting employers to participate in the scheme) and then offering them to young unemployed; previously, JobBridge opportunities were generated by businesses alone.  This indicates a substantial increase in the scheme.

And the sanctions will be pretty harsh.  Young people could see their Jobseeker payment cut by up to 25 percent.

The second development is the news that one company – Advance Pitstop – has taken on 28 interns.  This company employs 200 people nationwide so the interns, whose labour is essentially free, make up 14 percent of their payroll.  Unsurprisingly, this made national news and not a little bit of criticism (this company is not the only one that has been featured in the media).

Should a scheme that provides labour to employers for free be mandatory?  Clearly, there are areas of social protection which are already mandatory.  For instance, a Jobseekers’ recipient must show they are available for, and actively seeking, work.  Past practice also requires recipients to meet with Department officials as part of the evaluation process, take up a ‘legitimate’ offer of training / job or attend an accepted training / education course (of course, there’s a number of issues with ‘legitimate’).

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Ireland Needs A Wage Increase

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2014 should become the year of the wage increase.  Lord knows, workers need one.  Falling incomes, rising prices, increased taxation, cuts in income supports and public services – all have contributed to a toxic situation where living standards are falling, especially under the continuing burden of household debt.  So, yes, a wage increase is not only desirable but necessary.

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In the last five years weekly earnings have fallen by three percent, with the low-paid sectors (marked with an asterisk) of recreation and hospitality, along with the public sector, taking the biggest hits.

We should remember the compositional effect on these numbers.  For instance, if you have three people earning €5, €10 and €15 respectively, these three would average €10.  However, if the lowest paid loses their job, the average of the other two increases to €12.50.  Yet, those two didn’t experience a wage increase; it’s just that the composition has changed.  So, we might find in many sectors, the actual fall in weekly earnings for many/most workers is more (and vice-versa).

No doubt, arguments about ‘wage competitiveness’ and ‘wage inflation’ will be raised (isn’t it odd we never hear about ‘profit competitiveness’ and ‘profit inflation’, or ‘poverty competitiveness and inflation’?).  These are arguments we will return to later.  Hear I want to outline another issue – one which will impact on the kind of economy and society that is being created for us.

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Quick Notes on the CSO’s Employment Numbers – Some Commentators Should Look Harder

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Relief throughout the nation – employment rising, joblessness falling; the new CSO release should give us something to cheer about.  Some quick notes on what the numbers are telling us:

Employment has risen by 58,000 – or 3.2 percent.  This is good but puzzling – how does this square with an economy that is still stagnating?

Agriculture employment – an area where the CSO has warned we should tread carefully – has risen by 25,000, or 29.4 percent.  Self-employment (without paid employees) rose by 28,400 or 14.4 percent.   This makes up a substantial amount of the employment rise.  Does this skewer the overall results?  Some say no – the overall figure of a 58,000 increase stands, it’s just a problem in the distribution of gains in different economic sectors (e.g. agriculture, industry, retail, etc.).

This may be so.  However, the CSO Quarterly National Household Survey registers an increase in the number of employees at 27,200, or 1.8 percent.  The CSO’s Earning and Labour Costs, also released yesterday, showed a similar number of non-agriculture employees rising by 21,900 or 1.4 percent (the Earnings and Labour Costs only measures firms with three employees or more which may account for the small difference).  So the CSO’s warnings seem valid – agriculture and self-employment numbers are artificially inflating the job numbers.

Nonetheless, the rise in employees is the biggest since the crisis started.  What were the biggest growth categories?  The Hospitality sector grew by 15,900 – or 72 percent of the total increase.    This is the lowest paid, lowest value-added sector of the market economy.   Other categories to gain were manufacturing and professional & scientific – which provides some balance.  Only 3 out of the remaining categories (12) saw employment increases.  So the employment rise is not spread out.

Big question:  is this increase the bounce after years of recession?  How much higher will this bounce go?  And when will it settle down?  The Government and the ESRI predict that the rise in employment will be lower in 2014 than this year.  Again, this may be due to the statistical bump the CSO has warned about this year.

Unemployment has thankfully fallen – by 18,000.  But to what extent is this due to the rise in the number of employees and the number of people emigrating?  We should expect more than 60,000 people emigrating this year in the key age category of 15-24 years.

Tentative conclusions – the employment rise looks to be settled in but it is not spread throughout most categories; it is concentrated primarily in the low-paid hospitality sector with small gains in the manufacturing and professional & scientific sections.  The statistical problems will go away in the final quarter of this year so it won’t be until next year until we get a sense of the real trend.  Employment will increase but key questions remain:  where will it increase, what kind of jobs will be created, what value-added will be produced and what wage levels will be paid?

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Purging Ourselves of Our Young – A Follow-Up

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Oh, the trouble one gets into by pointing out the obvious.  There have been comments on the post, Purging Ourselves of Our Young, claiming that my factual reporting of the population fall in the youth age category of 15-24 was, to quote one commentator, ‘awful’ because I implied it was down to emigration.  I didn’t, and I didn’t mean to.  But I can see how it was read that way.  So let’s clarify.  Because no matter how you turn this thing upside down or right-side up, the extent and tragedy of youth emigration stares us in the face.

Basic numbers:  the previous post charted the rise of emigration in the 15-24 year age group.  This year, to April, it was 34,000. The post went on to show that there was a substantial fall in the age category of 15-29 – 224,000 or 21 percent.  I should have tied-off the post by relating the emigration with the demographic fall because that is where the confusion arose.

Eurostat gives a more relevant age breakdown but only goes up to 2011 so we’ll have to extrapolate for the last two years.  From the CSO we can assume that 48.3 percent of emigration since 2007 was recession-related for the age-group 15-29 (this is ascertained by comparing the percentage difference between emigration in the last five year with the previous five years for the age group 15-24)).  Using the Eurostat data we can find the following.

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Between 2008 and 2013, there was, according to Eurostat, with some extrapolation based on CSO:

  • a population decline of 207,900 in the age cohort of 15-29 years
  • In this same period, 281,800 in this age group emigrated
  • If we assume that 48.3 percent of this emigration was recession-related, then the recession-related emigration figure is 136,100

So nearly two-thirds (65.5 percent) of the decline in the key age cohort is due to recession-related emigration.

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The War on Youth (2): Those Lazy, Lazy Kids

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Cuts in Child Benefit, Youth Programmes, school capitation grants, higher education, student grants, youth unemployment payments – the economic war on youth has run into hundreds of millions and cost the life-chances of hundreds of thousands: emigration, unemployment, falling wages. At the start of this crisis who would have imagined this war would have run for so long and been so destructive?

The first rule in an economic war is to discredit the victim.   One of the most malicious comments during this crisis was aimed at youth (though attacks on public sector workers were equally outrageous) and came from a Labour Minister:

‘What we are getting at the moment is people who come into the (social protection) system straight after school as a lifestyle choice. This is not acceptable, everyone should be expected to contribute and work.’

Yes, there are so many jobs available but our lazy, lazy kids choose to hang around the house in their underwater drinking Red Bull and watching DVDs all day.  We have to incentivise their indolent backsides.  And cutting youth unemployment payments is one of those ways.

It’s bad enough to suffer cuts – in public services, income supports, job, wages.  But then to be told that you are to blame . . . And then to be told that you are lazy, too . . .

This may make for some popularity among the Sunday Independent, populist, socially-vindictive set.  But it is wrong, terribly wrong, demonstrably wrong.  And it diverts attention from the real issues, as scapegoating is intended to do.

It has been pointed out by many commentators that there are approximately 32 unemployed for every job vacancy.  This is a national average.  It is likely to be higher for younger people who are disadvantaged in the labour market (e.g. less job experience) unless they possess skills in labour shortage areas.  This alone tells us a lot.  But there’s another way to approach this issue.

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A Few Referenda Ideas that Just Might Succeed

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As the Government does its post-mortem on the Seanad referendum, Switzerland is gearing up for a vote in November on a referendum that is truly reforming.  It’s called the 1:12 initiative. It proposes that monthly senior executive salaries cannot exceed 12 times the pay of the lowest paid in a firm.  And it proposes that this be put into law.  This is pretty heavy in a country which is home to major financial institutions and multi-nationals.

Imagine the impact here.  In the Bank of Ireland, the CEO Richie Boucher has a salary of €843,000 (no, that’s not a typo).  A bank clerk on starting pay is approximately €22,000.  Under this law one of two things would have to happen:  either Richie’s salary would have to fall by three-quarters – to €264,000 a year. Or the starting pay would have to rise to €70,250.  I leave you to decide which is more likely to happen, if either.

But there is more going on in Switzerland than just a pay ratio debate.  Earlier this year, the people voted on a referendum that put controls on executive pay and gave shareholders’ more rights over executive compensation.  There has been growing anger over excessive salaries and the bonus culture among Swiss companies.  The referendum passed overwhelmingly despite the fact that opposing business lobbies outspent the ‘yes’ side by 40-1.

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How Many Thousands of Jobs Will Be Destroyed in Budget 2014?

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In the run-up to the budget all the talk is of how many jobs will be destroyed as a result of Government measures.  Well, not really.  But it should be.  Ministers and Government backbenchers are fond of quoting one measurement of employment that suggests 30,000 jobs were created in the last year.  Never mind that this comes with so many caveats and represents ‘data-dredging’ (searching for one or two stats that puts you in a good light regardless of the context).  What they never, ever mention is that their austerity measures are actually destroying thousands of jobs.

No one doubts that spending cuts and tax increases lowers economic growth; this in turn lowers employment.  The only question is how many jobs are being lost.  I will summarise the estimates from the ESRI and NERI, based on an adjustment of €1 billion (e.g. a €1 billion cut in social protection payments, a €1 billion increase in property tax, etc.).

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Not surprising, all measures destroy jobs.  The biggest culprit is reducing public sector numbers (this helps explain why cutting public sector numbers actually increases the debt).  The second biggest negative impact is investment.  The two adjustments that have the least impact on employment are carbon and property tax.  There are a few points to bear in mind:

First, the projection for investment is an under-estimate.  The ESRI does not include the ‘supply-side’ impact (that is, the loss in employment from not using the asset created by the investment – a road, building, telecommunication network, etc.).  According to the ESRI, this under-estimate is ‘significant’.

Second, income tax has the third most negative impact.  These estimates are an average of the impact over six years. The impact varies over time.  For instance, increasing income tax has only a negligible impact in the first year it is introduced (reduces employment by 1,860).   However, the deflationary impact accelerates over the years so that by the fifth year the impact is nearly five times that amount.  I have used the average.

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Take-Home Deprivation

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There is a common assumption that deprivation is a condition associated with unemployment.  But if you get a job, you can work your way out of poverty and deprivation.  That is the theory, anyway.  However, there are huge swathes of households where income from work is not enough.  We have high, and growing, levels of deprivation among in-work households.  Welcome to the new way of working – take-home pay with take-home deprivation.

The CSO sets out a menu of deprivation indicators in the EU Survey of Income and Living Conditions.  If an individual suffers two or more of these conditions, they are included in the deprivation rate.

Without heating at some stage in the last year • Unable to afford a morning, afternoon or evening out in the last fortnight • Unable to afford two pairs of strong shoes •  Unable to afford a roast once a week • Unable to afford a meal with meat, chicken or fish every second day • Unable to afford new (not second-hand) clothes • Unable to afford a warm waterproof coat • Unable to afford to keep the home adequately warm • Unable to afford to replace any worn out furniture • Unable to afford to have family or friends for a drink or meal once a month • Unable to afford to buy presents for family or friends at least once a year

Deprivation throughout Ireland is on the rise.  In 2008, the first year of the recession, 13.8 percent of all individuals were officially categorised as deprived.  In the last year we have data for, 2011, deprivation increased to 24.5 percent.  Over 1.1 million Irish people now suffer multiple deprivation experiences.  This is grim.

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The loss of employment, combined with cuts in social protection income, has been a major contributor to the growth in deprivation.  However, another major contributor – and one which is rarely referred to – is the rising levels of deprivation among those in work.

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Disincentive to Work? What Work?

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Are you getting tired of unsubstantiated claims that social protection payments are a disincentive to taking up a job?  Me, too.  These assertions pass for informed commentary on the unemployment crisis, using crude calculations and even cruder assumptions about social behaviour.  Let’s throw some light on this dismal debate.

It is claimed that welfare payments make up too high a proportion of take-home pay from work, and that this is stopping people from taking up work.  This, in turn, is helping to maintain high unemployment.  This is called the ‘replacement rate’.  If you earn €100 and social protection payments are €60, the replacement rate is 60 percent.   If the replacement rate is too high, you get disincentives.  When this happens, you have to do something (this usually means cutting social protection payments) in order to reduce the replacement ratio.

Let’s examine the replacement rates from two years – 2012 and 2007.  With the help of the Citizens Information Board’s budget summaries and the TaxCalc calculator I will focus on a two-adult household with three children since the main complaints re: welfare disincentives usually focus on large households.  We will compare them with the household take-home pay on the minimum wage, along with average take-home pay in the retail sector and the overall economy (one work-income earner).

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The replacement rates were higher in 2007 than they were in 2012.  With average earnings, social protection payments made up 66 percent of take-home pay in 2007; in 2012 they made up 63 percent.  There were similar falls in the replacement rate for average retail earnings and the minimum wage.

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