How much does working cost?
Posted on June 27, 2012 by Micheál Collins
Being in work, or taking up work, incurs additional costs on households and individuals. Depending on circumstances, additional needs arise regarding travel, fuel, personal costs and childcare among others. While the existence of these additional costs is regularly cited, it is rarely quantified and incorporated into assessments of employment activation or the adequacy of earnings; in particular for low income individuals.
A recent paper in the NERI working paper series has attempted to estimate the nature and scale of these additional costs of work using results from a year-long research project which has established the cost of a minimum standard of living for a variety of Irish family types. A minimum essential standard of living is defined as one which meets a person's physical, psychological and social needs. To establish this figure, the research adopts a consensual budgets standards approach whereby representative focus groups established budgets on the basis of a households minimum needs, rather than wants. These budgets, spanning over 2,000 goods, were developed for sixteen areas of expenditure. The analysis distinguishes between the expenditure for urban and rural households and between those whose members are unemployed or work (part-time/full-time).
The existence and composition of the additional work related costs highlighted in this research points towards a number of policy issues and considerations relevant for all households decisions around engagement with the labour market and in particular the decisions of households on low-incomes. For all households with children, the additional costs associated with childcare represent the largest additional household cost associated with taking up either part-time or full-time employment. Such costs are real for employees, and must clearly feature in their decision making calculations around taking up, increasing or indeed leaving work. However, from a policy perspective these tend to be latent costs with little consideration of the actual impact they may carry. Their scale and impact, relative to a household's additional income potential, raises questions regarding the integration of affordable childcare provision into the formation of labour market policy.
In rural areas, aside from childcare, the costs associated with additional transport needs are noticeable from the results. The limited rural transport infrastructure, and its lack of alignment with work hour frequencies and requirements, necessitates car travel and the associated cost of owning and running a motor vehicle. Again, such costs are probably invisible to policy makers focused on implementing policies for additional labour participation, but are likely to be real and influential in an individual or households decision to take up work.
A full copy of the paper is available here.