Is Ireland’s Welfare System Excessively Generous?
Posted on September 17, 2015 by Micheál Collins
Earlier this week, the OECD launched their new Economic Survey of Ireland and noted both progress and challenges for the economy since their last assessment in 2013.
The report notes the significant role played by the redistribution system (taxes and in particular transfers) in reducing the underlying level of market income inequality. It also points towards some challenges for households on low incomes who, in situations where they are in receipt of payments like rent supplement, face limited monetary gains when taking up work (often in low paid sectors of the labour market). To quote the report and its suggested policy implications:
…highly targeted benefits including housing benefit result in high replacement rates and marginal effective tax rates for some households at the low end of the income distribution, discouraging work. The solution is to intensify activation policies to get people into jobs, improve training and enforce obligations on benefit recipients to seek a job or take training.
Although the document itself does not point towards the Irish welfare system as being ‘generous’, some media reports have suggested it does. However, it is worth examining any such claim on the basis of the data available to us.
Indicator 5.5 of the latest NERI Quarterly Economics Facts (QEF) document uses OECD data to compare the generosity of unemployment benefits. It does so using the OECD’s measure of replacement rates which compare income prior to unemployment with income from welfare after unemployment.
Across the OECD these rates range from 20% (UK single person) to 96% (Slovenia two-earner married couple). Given the variation in individual country replacement rates, reflecting the nature and composition of welfare entitlements in these countries, the data shows the futility of making simple cross country comparisons based on one particular type of individual/household.
As the data in the indicator shows, the Republic of Ireland possesses the sixth lowest replacement rate for single unemployed people with no children within the OECD (50%), only the UK, Australia, New Zealand, Greece and Poland possess lower rates. Of the six household types examined by the OECD (see table and chart in Indicator 5.5) four ROI types record replacement rates below the OECD and EU median values and two above these median values.
Despite measurement challenges, relative to other OECD and EU countries, the data does not suggest that Irish welfare benefits are generous.