Workers better off in employment than on Covid supports, ESRI study finds

The 'Covid-19 and the Irish Welfare System' report found young workers were in particular need of the Covid-specific supports, as they would likely not have qualified for existing supports for unemployed people.
Workers better off in employment than on Covid supports, ESRI study finds

Muireann Duffy

The majority of people in Ireland are financially better off working despite some households experiencing an increased income due to pandemic-related supports, according to new report from the Economic and Social Research Institute (ESRI).

An estimated 1.18 million workers, nearly one quarter of the Irish population or half of all workers, were in receipt of either the Pandemic Unemployment Payment (PUP) or a wage subsidy, or were on the Live Register in April last year, figures from the Central Statistics Office (CSO) show.

While the impact of Covid-19 has led to widespread job cuts and reduced earnings for businesses across many sectors, the ESRI report (Covid-19 and the Irish Welfare System) estimates that if income supports, such as the PUP and Employment Wages Subsidy Scheme (EWSS) were not brought in, "pandemic-related unemployment would have decreased household income by 7 per cent".

Because of the measures, the Institute states actual decreases in household incomes was approximately 3 per cent, with the greatest impact being felt by higher earners.

Income gains

Breaking households into five groups, or quintiles based on income, the report adds: "Families in the lowest income quintile actually experienced small income gains compared to the Pre-Covid scenario as a result of the more generous rate of PUP."

Over one quarter of people (26 per cent) in the third quintile saw their income fall due to the pandemic, 20 per cent of whom noted a drop of more than one fifth of their income.

Those in Q4 were the second most impacted cohort, with 19 per cent being negatively affected, 15 per cent of whom took a 20 per cent or greater hit.

Taking into account two measures used to assess whether workers would be financially better off by remaining on the income supports or returning to employment, the ESRI found this is the case for only a small percentage of the population.

Analysing the Replacement Rate (RR), which gives a person's out-of-work income as a percentage of their in-work income (a higher percentage meaning they have less of an incentive to come off the support payments in favour of work), "approximately 5 per cent of individuals have an RR greater than 100 per cent once the PUP is introduced –i.e. no financial incentive to work," the report states.

While approximately a further 15 per cent are reported to have a 'high' RR rate of over 75 per cent, the ESRI highlights: "Financial incentives are not the only types of work incentives and that a substantial number of people who would be better off financially not working choose to do so anyway."

The report adds: "The availability of the PUP, while strengthening income supports for those in the middle and upper parts of the income distribution, weakens financial incentives to work.

"Despite this, 85 per cent of those we simulate to have lost their job due to the pandemic have an RR of 75 per cent or less, meaning there are still financial gains to be made from working."

Young people

The research pays particular attention to the impact Covid supports have had for young people, as many younger workers would not have been entitled to existing income supports, Jobseeker's Allowance (JSA) and Jobseekers Benefit (JSB), due to lack of PRSI contributions.

Full-time students are also not eligible for JSA or JSB, with the report stating: "34 per cent of PUP recipients aged under 25 (or 8 per cent of total PUP recipients) were registered as full-time students".

While the research shows unemployment in younger cohorts is much higher than among the overall population, rising to nearly 64 per cent in April 2020 and remaining close to 60 per cent in recent months, the lack of means-testing and consideration of previous social insurance contributions allowed younger workers with "short and unstable employment records" to avail of supports.

Analysing decreases in income based on age, 20 per cent of the 25-34 cohort faced reduced incomes, 72 per cent of which saw a fall of more than one fifth.

The Great Recession has shown us that certain groups, particularly the young, can feel the effects of unemployment for many years.

The overall number impacted by income cuts was slightly lower for those aged 18-24 (19 per cent), however, a massive 91 per cent of these workers saw a reduction of over 20 per cent.

The ESRI notes that despite the easing of restrictions allowing many employees to return to work, "it is anticipated that unemployment will remain elevated in 2021 and into 2022".

"The Great Recession has shown us that certain groups, particularly the young, can feel the effects of unemployment for many years," the report adds, highlighting the need for greater supports for younger workers.

The report concludes that although some groups may appear slightly better off due to the supports, the incentives to return to work remain strong and will further increase again when the pandemic supports are phased out at the end of the year.

The report also highlights that it may take time for incomes and working hours to return to pre-pandemic levels, and assistance may be required for those in part-time of low-paid work to ensure a maintained standard of living while also incentivising the return to employment.

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