Work Incentives, Poverty and Welfare in Ireland

There have been large increases in Unemployment Benefit and Unemployment Assistance payments in recent years – faster than growth in net earnings. In the past, there has been concern that this could discourage some unemployed persons from taking up employment. But unemployment has remained low, and employment has continued to grow. How can this be explained? A new study finds that:

• The financial incentive to work facing unemployed persons, has become weaker. However a combination of policies giving unemployed persons access to effective supports for re-employment, and requiring from them active engagement in training and job seeking has counterbalanced this, and helped to keep unemployment low.

• The strength of labour demand has also played a key role; the ability of new structures to deal with a serious cyclical downturn in Ireland are as yet untested.

• The OECD’s current Jobs Strategy recognises that this approach has been effective in achieving good labour market outcomes in Scandinavian countries, the Netherlands and in Ireland.

• The prospect of losing a medical card or rent supplement could be a strong disincentive to taking up employment. In recent years, policies have been changed to try to deal with this – including special transitional arrangements for those moving into employment, the introduction of the “doctor only” medical card, and the Rental Accommodation Scheme which provides for a less sharp withdrawal of housing subsidies. However, the impact of these changes needs to be monitored closely.

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