A Minister Floats An Idea

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90424333Michael Taft

From top: Ministers Richard Bruton, Leo Varadkar, Charlie Flanagan and Simon Harris  at the annual National Day of Commemoration Ceremony; Michael Taft

Minister for Social protection Leo Varadkar’s hope to increase unemployment benefits and reduce uncertainty for people losing their jobs  is a small step in the right direction.

Michael Taft writers:

The Minister for Social Protection, Leo Varadkar, has been floating some ideas. The latest one concerns increased unemployment benefits – along the lines of basic European practice (sort of).

His idea is that workers who become unemployed would receive €215 per week for the first three months; €200 for the second three months; after that, they would receive the current basic rate of €188 per week.

Though this is quite modest it is certainly heading in the right direction. This is about the economics of social security and what is called in the literature ‘uncertainty avoidance’. For people losing their jobs, they are liable to a sudden drop in their income which puts pressure on their living standards.

The economy suffers because of their reduced purchasing power. And this skewers the labour market as many people grab the first job they can regardless of the skill match – thus leading to less than optimal results.

Other European countries get over these problems by providing pay-related unemployment benefit. In its simplest terms, a worker receives a percentage of their previous wage for a set period of time – before falling back to a basic, usually means-tests, payment. This protects living standards, maintains demand, and facilitates optimal job-hunting.

The pay-related benefit can be quite substantial.

graph

Ireland is not the lowest (the UK is, but Council Tax Benefit makes up on average more than twice the level of unemployment benefit) but it is well behind all other EU countries in our peer group. The Minister’s proposal would close some of the gap.

However, there is one big difference with the continental model. The Minister’s proposal is still a flat-rate. In other EU countries, the payment is linked to the previous wage; the higher the wage, the higher benefit. For instance, in Austria, the weekly benefit of €259 is for someone previously on €36,000 (the Irish average wage).

However, for an Austrian previously on €50,000 pay, unemployment benefit would rise to €335. This Minister’s proposal wouldn’t do that.

Also, the length of the payment is minimal compared to other countries where the pay-related benefit can last a year or longer.

The Minister has claimed his proposal would cost approximately €35 million. That is fairly minor cost. We should aim for a fully-blown pay-related payment with a high replacement ratio (unemployment benefit as a percentage of the previous gross wage) that lasts a year. There would be a threshold above which the payment would be frozen. And the payment would last a year.

Take the example of an employee who loses their job. She was earning €30,000. She will now receive 50 percent of her previous wage – €15,000. She will receive this for a year. If she is still unemployed after a year, her benefit will run out and she will switch to Jobseekers’ Allowance (a means-tested payment).

It is difficult to estimate the cost as we don’t have data on duration and previous income. In any event it would be phased in over three years or so.

But a back-of-the-envelope job – based on trebling the increase in the Minister’s proposals and doubling the length of time – would suggest a cost of €200 million (though it could be less depending on the income range of new entrants on to benefit and how long they stay on benefit).

This could be paid for – as it is on the continent – by an enhanced employers’ social insurance (Irish employers’ social insurance is one of the lowest in the EU; it would have to more than double to reach the European average). A fractional 0.25 percent increase would pay for the enhanced benefit – hardly onerous.

But there is benefit for business as well – the increased benefit would result in higher consumer spending. And the Government would benefit from the increased tax revenue – both income tax (unemployment benefit is taxable) and indirect taxes.

And for people the benefit is obvious: when they suffer the loss of employment, at least their income will be maintained for a period while they get back on their feet.

Let’s hope the Minister continues floating these kinds of ideas. Here’s a few more he may wish to let glide:

Pay-related sickness benefit

Pay-related maternity and paternity benefit

Pay-related validity pension and occupational injuries benefit

And, ultimately, a pay-related old age pension

We may yet join the rest of Europe in providing a modern social protection system.

Michael Taft is Research Officer with Unite the Union. His column appears here every Tuesday. He is author of the political economy blog, Unite’s Notes on the Front. Follow Michael on Twitter: @notesonthefront

Rollingnews

72 thoughts on “A Minister Floats An Idea

  1. Disasta

    Tiny step in the right direction. That 25 euro will make feck all difference to someone who was on 50/60 grand who’s paid years of PRSI and loses their job.

    Just saying.

      1. timble

        There is a difference between benefits and allowances in our social protection system. Benefits are paid due to your PRSI contribution record. Allowances are means tested.

        If an 18-25 year old has paid enough PRSI contributions such as from working over 2 years they will get the full 188 a week for 9 months.
        The tapered rate of Jobseekers allowance for those 18-25, (which should be increased in some way) applies to those mostly who have never worked or entitlements to benefit have been used.

        Because we have a flat system people in Ireland never really distinguish between the two types of SW payments

      1. MoyestWithExcitement

        That’s not communism. Jesus. The *amount* of people who hate communism and socialism but don’t actually know what it is, like.

    1. Harry Molloy

      900pm per person? The Dole is already 752 per month and if you get rent allowance on top of that you get a lot more.
      Then there’s also children’s allowance…

      Really, it’s not that bad here, if the housing crisis didn’t exist it would be very possible to live on social welfare. You wouldn’t be rich but why would you be.

      1. fluffybiscuits

        Harry its worse, the amount of landlords who will not take rent allowance is astonishing.

        I would include the extra 150 a month off to take account of a better diet, clothes, some socialising (people cant be hermits)

      2. Fact Checker

        There is no housing crisis in the majority of Ireland by geographical area. You can rent a recently-constructed, three-bedroom, furnished house within walking distance of shops and schools for €700 a month in many parts of Ireland.

        Housing is simply not expensive compared to wages or even welfare rates in many places (obviously not Dublin, Cork city or Galway city).

        1. fluffybiscuits

          Housing however is available in some of the most economically deprived areas hence why they are so cheap

          Donegal has the highest rates of unemployment

          People have to have a qualify of life also

          1. Fact Checker

            Obviously housing prices correlate (roughly) to how much employment there is locally and how well paid it is.

            But housing costs (from rural Roscommon to south city Dublin) vary by a FACTOR of 3 to 4. Wages do not vary this much.

            If you like the place and lifestyle you can be much better housed outside of Dublin than inside.

  2. Harry Molloy

    I wonder how our friends on the extreme left will receive the concept of those who have worked receiving more than those who haven’t?

          1. MoyestWithExcitement

            He trots out crazy right wing tropes like ‘the left (*hard* left, no less) are trying to create a dependency class’. He’s not left leaning. He’s a right winger who thinks calling himself left leaning or centrist will make the far right slogans he chants sound more reasonable. The only question is over whether he’s lying to readers of his posts or himself.

          2. rory

            Hi Moyest,
            I agree with a lot of the things you say.
            I think more people would take your point of view on board if you were less aggressive. Not saying I know you or that you’re not entitled to said aggression; but I think a change of tone would work wonders in getting your points across. It’s a pity otherwise, you come across like a smart dude/duddette.

          3. MoyestWithExcitement

            Ok, buddy. I’ll continue using this website as personal entertainment. You continue using it to solve society’s problems or whatever it is you think you’re doing.

          4. MoyestWithExcitement

            Didn’t know that, Fluffy. Not surprising. It’s a very old trick and generally quite transparent. It’s the dishonesty that grates.

          5. Billy Kremlin

            You are such a moron. The funny thing is, the fact that you think you’re so smart, is what really annoys people on this site.

            Anyways… carry on

    1. pedeyw

      Speaking as one of them, poorly. But not as badly as the concept of linking benefit to the previous wage.

      1. ahjayzis

        What’s wrong with that exactly? Surely that mitigates the wider economic damage unemployment brings. I’m not talking about someone on a million a year, but if someone has a stint of unemployment and finds their income falls from 40k to 12k they immediately stop spending, if that happens to enough people shops close and jobs are lost.

      1. Harry Molloy

        Well that’s really key J, it really is.
        Equality of income should surely be offset by an equality in contribution, or effort to contribute, with certain exceptions from those who are unable.

        I am for the welfare state, I relied on it for almost a year, I have am aunt and uncle who lost everything who will spend out their days in a nice rural council house, and I’m glad that these safety nets exist.

        But to oppose something like what’s in the column has little to do with equality or egalitarianism and more to do with an unwillingness to see anyone with more regardless of contribution.

        I’m sure the hard left are usually well intentioned but they’re working damn hard at creating a culture of dependency amongst the deprived urban demographic, telling them that they are entitled to as much as everyone else and don’t have to pay for anything or do anything and nothing is your fault etc etc.
        It’s quite a damaging rhetoric, kills all aspiration and increases complacency, it’s really damaging to the demographic they represent. IMO.

        1. MoyestWithExcitement

          “I’m sure the hard left are usually well intentioned but they’re working damn hard at creating a culture of dependency amongst the deprived urban demographic, telling them that they are entitled to as much as everyone else and don’t have to pay for anything or do anything and nothing is your fault etc etc.”

          That fantasy only exists in the fervered dreams of yourself and the rest of the delusional far right.

          1. MoyestWithExcitement

            Weird. All you do is spout tired and long disproven far right memes like that insanity above. But you’re left leaning. Sure.

          2. Harry Molloy

            pro choice
            pro gay marriage
            even been bisexual
            pro immigration, with some common sense checks
            pro free education
            pro free healthcare
            pro social mobility
            pro social welfare
            pro social housing
            pro protection of farming
            pro renewable energy

            But I’m a rabid right winger because :
            I believe if the state provides your housing you may not get your ideal home in your ideal location
            I believe in paying for utilities
            I think success should admired

          3. MoyestWithExcitement

            No, it’s because you use decades old right wing phrases like “the hard left” and talking points like “dependency class”, ‘entitlement’, the whole nonsense about the poor thinking, because they’re being told apparently, that they can have everything they want and for free. And that it’s all down to The Left. That’s just offensive. And wrong. Poverty shot up in the UK under Cameron and here under FG. It’s a direct result of the neoliberal economic dance we’ve been doing for our masters since the 70s. Deregulation of industry, privatisation of public services, massive mergers, creative accounting, tax breaks. All of those are the reasons we’ve seen poverty levels rising. Profits are up and wages are down. It’s not hard to work out. So great, you like the welfare state but The Tories used to be alright with it as well. You can’t use really old and well worn right wing tropes about The Left and Poor People and say you’re not right wing.

          4. Sheik Yahbouti

            Dear Moyest, tried to reply earlier on, but mysteriously your ‘Reply’ button failed to appear. You are right in thinking that the most right wing, begrudging, proletariat loathing people often describe theselves asd ‘Centre left’. A complete nonsense, because they are anything but. These haters of socialism know nothing about it, and fail to grasp that (bar Scandinavian/Nordic Countries) socialism has never been tried. If they took the trouble to learn they would realise that the basic tenet of socialism “From each, according to his abiity – to each, according to his need” is NOT a charter for freeloaders and wasters – quite the reverse. No-one can guarantee equality of outcome, given the nature of human being, However, equality of opportunity should be absolutely guaranteed.

        2. rotide

          +1 Harry.

          and yeah, this place makes everyone but the hardcore sound more right than they are!

        3. ahjayzis

          I don’t even see it as a contribution thing. God knows I don’t work harder than a farm labourer or a brickie.

          But a family of 5 on a combined income of 80-100k have more commitments and outgoings than a single person living at home on an income of 18k. A stint of sudden unemployment is utterly devastating for one, deeply unpleasant but manageable for the other on flat rates.

        4. Anne

          “Equality of income should surely be offset by an equality in contribution, ”

          Well now Harold, that would mean that employees of companies would get the majority of the profits the company/business generates.

    2. classter

      Harry, it is an example of pragmatic left thinking.

      It helps ensure that workers who lose their job aren’t forced to the first opportunity presented.
      This helps them avoid moving down the economic chain & in the long-term makes the whole economy more productive.

  3. SB

    How come the northern European countries are always used as example for social welfare and healthcare type of articles? These countries are known to have great benefits, but also heavier taxes. For other types of articles, eg banking, or GDP etc, we’re always lumped in with the PIGS countries. What are the unemployment benefits like in Portugal/Spain/Greece, I wonder?

    1. Fact Checker

      In fairness Michael is proposing paying for this with higher PRSI.

      Social insurance in Ireland is low by comparison with most of Europe.

  4. Jonjo

    They should also match fines with income.

    Think there was a case of a Swedish millionaire fined something like 30k for speeding.

    1. louislefronde

      Swedish Bureaucrats are nuts! And by the way don’t encourage Ireland’s begrudger bureaucrats to copy this bad idea.

      1. Clampers Outside!

        Why is it bad though?

        Shouldn’t the punishment inflict its penalty ( the ‘pain’) on any individual equally? So, fine to earnings ratio would be a good thing. Isn’t bail set according to ability to pay, why not the fine?

        PS – I’ve never looked at this in any detail. It just sounds reasonable off the bat… but I may be wrong, I’m sure there are pitfalls in implementation, special circumstances, etc….

  5. Fact Checker

    It is not a bad idea per se. PRSI is a very bad deal for those on high incomes. They pay a lot of it – especially since the cap was abolished several years ago – yet receive only flat-rated benefits.

    But one wonders if this scheme would amount to very much. The higher payment is only worth an extra €500 over the six months or 10% over what is received now. Most recipients don’t even stay on the Live Register that long.

    Linking benefits to previous wage would have its merits. But don’t forget that our flat-rated system is cheap to run. 5,000 people administer WEEKLY payments to about a MILLION recipients at the moment. Calculating and validating benefits linked to previous wages is HIGHLY labour intensive and would take a lot of time, recruitment and money to put in place. Be careful what you wish for!

    1. Anne

      “It is not a bad idea per se. PRSI is a very bad deal for those on high incomes. They pay a lot of it – especially since the cap was abolished several years ago – yet receive only flat-rated benefits.”

      The ceiling was removed for employers, not employees, from what I recall…

      Everyone pays the same percentage also.. 4% (that’s on income over €352 a week)
      In what sense is that a bad deal?

      1. Anne

        Ceiling was on employee’s too.. Nevermind that. It was 52k in 2009

        But 4%, like everyone else, on income over 352.

  6. DubLoony

    We have Pay Related Social Insurance – why not Pay Related benefits?

    When I was self-employed & work dried up, all tax/PRSI payments counted for nothing as there were no benefits for a self employed person not having a job.

  7. ahjayzis

    The economic arguments are really convincing but what really clinches it is the peace of mind. Imagine all that trauma and pain we could have avoided in Ireland during the bust if we had an indexed continental system.

    Losing your job in bad times is part of life, it shouldn’t still be so terrifying.

      1. ahjayzis

        If we cancelled all social welfare do you think the economy would improve or disimprove?

        People cancel spending as far as possible when their income suddenly drastically reduces – that has a more negative effect on budget numbers than social welfare spending, most of which comes back in consumption taxes. Have we not learned this lesson already?

        Less homeless people and less people unable to service their mortgages would be another bonus.

        1. Anne

          “Have we not learned this lesson already? ”

          Clearly not Andy there.. he thinks the lower paid should pay more in taxes, even though they don’t have it. If it’s the same Andy like.

  8. Sheik Yahbouti

    Friends, on another matter, may I ask why Leo the Mouth is being allowed,on National Media, to associate himself with an Initiative of the league of Credit Unions to eliminate ‘loan sharks’ from the need for ordinary people to access small loans? Neither Leo, nor any of his brethren, have done diddly squat in this area, yet they seek public acclaim for initiatives they would never have supported?? A sick Society indeed.

    1. DubLoony

      The microloan scheme was a Labour initiative, piloted for Christmas last year. It was organised by Dept. of Social Protection & championed by Kevin Humphries and Joan Burton.

      The goal was to find a way of eliminating the use of money lenders. Many people who use them felt that they had no alternatives.

      https://www.welfare.ie/en/pressoffice/Pages/pa261115.aspx

      http://www.independent.ie/business/personal-finance/latest-news/thousands-to-avail-of-lowcost-loans-under-radical-new-scheme-31322407.html

      The pilot was a success & is now being rolled out by Leo nationwide.
      Not that he acknowledges any Labour involvement with it. Its a solid idea and if it rids people of the parasite loan sharks from the poor, a massive step forward.

  9. Tish Mahorey

    Fine Gael, the Irish Tories.

    Hate the Poor!

    Hate the disabled!

    Hate the working class!

    1. Sheik Yahbouti

      Tish, I think I love you. Any chance of a meaningless, go nowhere relationship? ;-)

  10. whut

    So the more you earn, the more benefit you’re entitled to… is that what he’s been working on all this time in office? ways to benefit the wealthier? oh, that and pay rises for councilers. god this really is a V for Vendetta style government.

    1. ahjayzis

      If a single mother earning 40k loses her job, she gets what a 25 year old with no kids living with his parents gets.

      What’s fair about that?

  11. Mulder

    The minister, floats an idea, as the good ship ss titanic does yet another circuit of the small pond as the deck chairs are rearranged once again.

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