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Examining Unemployment Traps in the Republic of Ireland

Posted on July 29, 2014 by Micheál Collins

As individuals transition from unemployment to employment they experience losses of welfare payments and entitlements, gains in earned gross income and they begin to pay income taxes and social insurance contributions on their earned income.

To assess this impact it is possible to calculate a ‘participation tax rate’. It attempts to measure the collective impact of these experiences by estimating by how much changes to taxes and benefits reduce the financial gain of moving into work. A participation tax rate of 50% implies that half of the gains in earnings from commencing work are lost through changes to taxes and benefits.

The latest edition of the NERI's Quarterly Economic Facts includes a new indicator (indicator 5.6) which examines this issue for the Republic of Ireland using OECD data. Looking at six family types, it finds that rates vary from a low of 15% (New Zealand two earner married couple) to 93% (Slovenia two-earner married couple). From country to country these rates differ given differences in the interaction of the welfare and taxation systems.

The Republic of Ireland possesses the eight lowest replacement rate for single unemployed people with no children within the OECD (56%). Of the six household types examined by the OECD (see table and chart in the indicator) five ROI types record replacement rates below the OECD and EU median values.

The analysis also complements the recent work on a Living Wage for Ireland (www.livingwage.ie) which highlighted that the role of factors such as accommodation costs, transport costs and childcare costs as the main drivers of challenges for households with children who wish to enter employment.

The latest edition of the NERI's Quarterly Economic Facts is available here.

Posted in: IncomeJobsLiving wageTaxationWages

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