News

Monday 28 July 2014

Why families are better off staying on social welfare

Charlie Weston

Published 11/06/2014|02:30

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A family on the dole can receive €19,364 a year plus other allowances
A family on the dole can receive €19,364 a year plus other allowances

ONE in three families receiving dole payments are better off staying out of the workforce.

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This is mainly because families with children will lose out on the valuable rent supplement if they give up welfare to take a job, a new report from the Economic and Social Research Institute (ESRI) has concluded.

Out-of-work people who have children also benefit from extra dole payments for their dependants.

Childcare and transport costs mean that up to 45,000 workers who are currently out of the workforce would not see any financial benefit from taking a job.

Of this number, around 22,000 people would actually lose money every week if they entered employment.

When compared with the UK, there is a greater financial incentive for workers that have families here to stay on the dole.

However, the report found that the majority of those who are out of work are single, and do not have children.

The latest ESRI report comes two years after the then research professor at the ESRI, Richard Tol, found that four out of 10 working parents would be better off on welfare thanks to the sheer cost of child-minding and other work-related expenses.

The ESRI subsequently took his working paper, re-examined it, and concluded that Prof Tol had over-estimated the problem.

However, in March the influential Organisation for Economic Co-operation and Development (OECD) found that childcare was so expensive here it was keeping people from considering going back to work.

It estimated that a family with two children spends 40pc of the average wage to meet childcare costs. This was because Ireland has the most expensive childcare costs in the world, along with the US.

Now the ESRI, in a study entitled 'Welfare Targeting and Work Incentives', has concluded that many jobless families are better off staying out of the workforce.

It singles out the rent supplement as an important factor. Once tenants are employed for 30 hours a week, the Department of Social Protection terminates the supplement.

The Government has committed to changing to a new scheme where long-term recipients will be moved to a housing assistance payment.

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If they take up work they will continue to qualify for a reduced payment, while their contribution to the rent will increase in line with income.

The ESRI study also refers to replacement rates – the amount of income required to make it worthwhile to take up a job. The higher the rate, the less economically viable it is to take a job.

Authors Professor Tim Callan and four others write: "Close to one-third of the 'with children' group of unemployed face replacement rates of more than 100pc – this translates into some 22,000 of the overall unemployed population."

The ESRI report also found that many in low-paid work would be better off on the dole, but many still take up employment for reasons including the status of being employed, the structure work puts on a person's day, and the ability to interact with others at work.

Irish Independent

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