Warning for linking unemployment benefits to previous income

Warning for linking unemployment benefits to previous income

Linking unemployment benefits to previous incomes would give rise to weaker economic incentives for work if they are not limited or time-limited, research has found.

The Institute of Economic and Social Research (ESRI) said there was a “coherent economic argument” for such a move, set out in the government program.

However, it warned that the reform would give rise to a non-trivial cost and weaker economic incentives for work if it is not limited or time-limited.

The results were published as part of ESRI’s annual Budget Perspectives Conference.

Ireland is one of the few countries in the European Union without a strong link between the payment of unemployment benefits and the applicant’s previous level of income.

Last year, Social Welfare Minister Heather Humphreys confirmed that an interim payment for the unemployed linked to previous PRSI benefits would not be introduced until 2023.

The proposal would entitle people who were in long-term employment to a higher benefit than the current standard payment, to receive a percentage of their salary for a certain period of time after they become unemployed.

When the interim period expires, they would then receive the standard payment.

ESRI research concludes that while such a link can provide short-term relief for those who lose their jobs – giving them time to adjust spending – such benefits must be weighed against the non-trivial costs and weaker economic incentives for work that would arise. from adopting such a system.

ESRI said it would cost an estimated € 280 million more per year to set the jobseeker’s benefit level equal to 60% of previous income, with the maximum weekly payout at € 350 per week, equivalent to the level of the pandemic unemployment benefit. .

The median benefit rate – an estimate of how much earned income is reimbursed with unemployed income – would increase by 11%.

The benefits of such a reform are evenly distributed across all income groups, it is said.

Maintaining a 60% income tax rate but raising the maximum weekly payment to 60% of the average weekly income, an effective ceiling of € 460 per week, would cost an estimated € 590 million per year.

In this case, the median compensation rate would increase by 22%.

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ESRI said that under this reform scenario, individuals with higher incomes would benefit the most, and see the largest increase in the benefit rate.

The report emphasized that there are at least as strong arguments for making parental benefit and sickness benefit salary-related.

International evidence suggests that linking maternity benefits to previous incomes could help reduce the gender pay gap, while a similar reform of sickness benefits could generate public health benefits by encouraging employees to stay home in case of infectious diseases.

Theano Kakoulidou, one of the authors of the ESRI report, said: “The link between unemployment benefits and previous incomes can provide greater insurance for those who lose their jobs but require non-trivial extra expenses and worsen the financial incentives to work.

“Maximum payment ceilings are needed to distribute the benefits of the reform in a more equitable way.”

Another of the report’s authors, Michael Doolan, said: “There are strong arguments for linking maternity benefits and sickness benefits to previous incomes, with international evidence suggesting closer links between the two would reduce the gender pay gap and provide public health benefits.”

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