Budget Perspectives 2015 Conference

The 17th Budget Perspectives Conference, taking place Wednesday 11 June 2014, examines budget-related policy issues from both macroeconomic and microeconomic standpoints. Please find below short summaries of two of the presentations to be given at the conference, and a full conference programme. A third paper also being presented at the conference has been released in advance, full text and press release are available here.Conference presentation slides will be available to download from our website on the day of the event. Members of the Media are invited to attend the Conference. "Welfare Targeting and Work Incentives” Michael Savage, Tim Callan, Claire Keane, Elish Kelly and John R. Walsh New research confirms that work pays more than welfare for close to 6 out of 7 unemployed people –even when in-work costs like childcare and travel to work are taken into account. Among those people in employment or unemployed facing a situation where work pays less than welfare, more than 7 out of 10 choose work rather than welfare. Policy initiatives to improve the reward from work are worthwhile, but will have only a limited impact on overall unemployment. More substantial reductions in unemployment will require a revival of international and national demand, and activation measures providing skills and training in areas where new jobs will arise. Most of those who receive Jobseeker payments are single and do not have children. Work, even at the minimum wage, pays more than welfare for these groups. For those with families, extra payments for dependent children and in respect of a non-working spouse can mean that the net rewards from work are reduced. But even those who, on a “snapshot” basis, would be “better off on the dole” tend to choose work. The reasons for this include:

• the fact that prolonged unemployment tends to reduce future wages,
• being in employment provides opportunities for wages to grow.
• there are non-financial  benefits to being in work, including social and psychological benefits
• there are also compliance costs associated with welfare payments – such as requirements to attend training and to search for work – and penalties associated with non-compliance.

Research at ESRI identifies Rent Supplement as an aspect of policy which tends to reduce the reward from work, because it is not payable to those in full-time employment. The new Housing Assistance Payment is designed to replace Rent Supplement for many recipients, and to improve the net reward from employment by allowing for a housing-related payment for those in full-time work. Speaking at the conference, Professor Tim Callan said “Policy initiatives to improve the reward from work are welcome, but they cannot be expected to have a major impact on overall unemployment.”    

Notes: (1) The analysis is based on SWITCH, the ESRI tax-benefit model, which provides a nationally representative picture of the financial incentive to work faced by unemployed people and by employees. The underlying data come from the CSO’s Survey on Income and Living Conditions, 2010, with technical adjustments to ensure better representation of the 2014 situation. (2) The methods used to incorporate travel to work and childcare costs are described in an earlier paper, here. For example, the average childcare costs associated with taking up a job are estimated as between €94 and €135 per week for a family with a child aged under 5, using the Survey of Income and Living Conditions 2010. Average travel to work costs are estimate at between €15 and €25 per week, using the National Travel Survey 2009 and the Household Budget Survey 2009-2010.

"Can We Measure Who Loses Most From Public Service Spending Cuts?" Cormac O’Dea (Institute for Fiscal Studies, London) The fiscal tightening currently under way in Ireland and elsewhere involves changes to taxes and benefits (i.e. charges and payments to the public in cash) and changes to spending on public services (i.e. transfers to the public in kind). It is possible (and common) to assess how much households with different levels of income are losing from increases to taxes and cuts to benefits. It is much harder, and less common, for researchers to quantify the impact across the income distribution of cuts to spending on public services. As a result while there is evidence on how much increases in income tax and cuts to Jobseeker’s Allowance, for example, have affected households, there is much less evidence on how cuts to spending on public services such as health and education have affected them. The reason for this is that doing so involves tackling questions such as (taking spending on education as an example):

• • How much do households value the provision of education?
  •  How much does the quality of education change when the education budget is cut?
  • How much do households value such a change in quality?

Answering these questions is difficult and often controversial. Not tackling such questions, however, will mean that the impact of a large part of the fiscal consolidation on households will be missed. A paper released today as part of the ESRI Budget Perspectives conference discusses these issues in detail, and outlines some strategies that have been used by researchers internationally to investigate the impact on households of changes to spending on public services. The paper concludes that such research can, in certain cases, be extremely valuable. However any results from such research must be treated with a much greater caution than the output of models that assess the distributional impact of changes to taxes and benefits.