In this blog, NERI Co-director Dr. Tom McDonnell discusses how income adequacy is a fundamental component of any decent society.
Income adequacy is a fundamental component of any decent society and fundamental to economic security. For a variety of reasons, the market economy and labour market dynamics will never in themselves generate adequate incomes for everyone. It could be because individuals have caring responsibilities, it could be due to age or be linked to a disability. There may be skills mismatch in the economy and failures in the education system or issues with take-up of education and education opportunities. It may simply be that there are not enough jobs to meet labour supply, or even that jobs are badly paid and don't meet a minimum adequacy standard.
In other words, direct income support from the state will always be necessary and a fundamental component of public policy. Income adequacy is ultimately an empirical matter. Unfortunately, Ireland fails to benchmark and index welfare rates. Instead, we add x euro to welfare payments each year as some act of munificence or paternalistic kindness from government. These increases don't seem to have an obvious empirical basis linked to the actual consumption patterns and needs of the relevant groups.
The NERI's view (which is in line with that of the Commission on Taxation and Welfare) is that Ireland should move to a system of benchmarking the various payments and thresholds to agreed percentages of median earnings. Appropriate benchmarks would be based on defined adequacy thresholds for different cohorts which are themselves determined using data on consumption patterns and the cost of living. This is the best way to minimise deprivation rates. By linking payments to median earnings, the payments will be indirectly linked to fiscal capacity (higher wages generating higher tax receipts) and will be linked to developments in the labour market.
You can read the NERI's Opening Statement to the Select Committee on Budgetary Oversight here.