COVID-19 pandemic highlights potential for reforms in social welfare provision
The widespread job losses induced by the COVID-19 pandemic have had a substantial negative impact on household income in Ireland. 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 two new pandemic-related measures - the Pandemic Unemployment Payment (PUP) and the Employment Wage Subsidy Scheme (EWSS).
In the absence of the PUP and EWSS, we estimate that pandemic related unemployment would have decreased household income by an average of 7 per cent. Losses would be largest for those in higher income groups as the pre-existing welfare system offers better relative income protection for those on lower incomes. As a result of the introduction of the PUP and EWSS, the estimated average income loss was more than halved, to 3 per cent. 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.
This research considers why additional measures were deemed necessary by policymakers to support household income during the pandemic. 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. We estimate that the PUP reduces financial work incentives for the newly unemployed, but over 95 per cent are still financially better off at work. 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.
We highlight groups who may face large income losses when the PUP and EWSS are withdrawn if employment prospects take time to recover. A substantial proportion of younger people, including students, may face sharp reductions in income when these schemes are removed. Students have no entitlement to pre-existing unemployment supports and young adults who are not in education are eligible for a Jobseekers Allowance rate that is 45 per cent lower than other groups. Increasing the youth rate of Jobseekers Allowance and grants to those in education could help these groups.
Working age adults may also experience income losses in the absence of the PUP and EWSS if the economy is slow to recover. More in-work supports may be needed to support family incomes as employment hours may not immediately return to their pre-pandemic level. Extending the Working Family Payment to low-income earners without children could provide such support as could a strengthened short-term work scheme.
Dora Tuda, an author of the report and a Postdoctoral Research Fellow at the ESRI, said: “This study shows the extent to which the social welfare system, including the introduction of the PUP and wage subsidies, supported the incomes of those whose employment was affected by the pandemic. This research estimates that the PUP and EWSS halved the magnitude of household income losses.”
Tuda added: “While concerns have been raised that PUP disincentivises employment the vast majority of PUP recipients would be financially better off in employment”.
Claire Keane, an author of the report and a Senior Research Officer at the ESRI, said: “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.”
Keane added: “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”.