Responding to the Jobs Crisis: Brian Nolan on Social Welfare, Employment and Unemployment

Brian Nolan addresses interactions between the benefits system and unemployment in the fourth part of the Irish Times Jobs Crisis series (article here).   Among the topics: unemployment traps due to high overall replacement rates; the relative importance of labour demand and supply factors in the rise in unemployment; the (limited) need to adjust social welfare benefits in line with changes in other incomes; and the importance of providing meaningful work opportunties as part of soical employment/benefit conditionality schemes.

24 thoughts on “Responding to the Jobs Crisis: Brian Nolan on Social Welfare, Employment and Unemployment”

  1. Hope all gets better in Ireland soon, bad enough in New Zeland but we have only 6.4% unemployment. My cousins in Cork, nr Mallow are farmers, I assume they are doing ok?
    Are jobs being created yet or is Ireland still in contraction mode.

  2. A well balanced article particularly the central premise.

    “Cutting jobless benefits will not incentivise people to find jobs that don’t exist”.

    The article lacks specifics and understates employment traps particularly the effect of rent allowance. I have come across this myself in a situation where there were just two weeks of work available. The individuals concerned would have lost rent allowance and would have had to reapply. It did not make economic sense to take the work.

    The number of jobs proposed (10,000) should be increased substantially and spread by having an on off system in place. As somebody who has been out of work during my working life, the social and confidence value of work, particularly at a young age should not be underestimated.

    A stricter overtime restriction regime or even better enforcement of the 48 hour week and its extension to all public service organizations could make substantial additional jobs demand.

  3. @ Kiwi Peter

    We could learn a few things from New Zealand, an advanced country with a similar population level to Ireland’s

    Your Fonterra is the world’s leading exporter of dairy products and accounts for more than a third of international dairy trade

    Our farmers are welfare dependents of Brussels.

    As regards Prof. Nolan’s article, we have discussed during the week that it is foolish to expect that the people who are currently in charge of training/upskilling, can manage worthwhile schemes for the unemployed.

    Irish Jobs Crisis: Better data reports and higher emigration; Market demand remains the key

  4. I agree with the article but one issue that need to be addressed and that is central to all of this is the cost of living and in particular the cost of accomodation or housing. There is no doublt that incoms rose etc including socail welfare but they only folowed cost of living increase and in particular accomodation/housing. Surely this relates back to the debt issue because whilst cost of goods such as food or manufactured items can come down, mortgages do not and as such rents (although they can) will be much slower to come down and even if they do then the debt associated with landlords mortgages does not. I cannot remember which post I read here recently where the phrase used was pretend and extend and to me that sums it all up. Unfortunately it is not only the banks and the govt who are pretending and extending but anyone with skin in the game (to borrow another phrase oft used here) When the money runs out as it surely will there will be nowhere to hide.

  5. @ Kiwi Peter, Michael Hennigan

    When I was a young fella in Cork there was a pub called the Phoenix. Being the late 1970s times were tough but maybe not so bad as now. Hanging from the ceiling in the Phoenix was a plough. If you asked the publican what is the story about the plough he replied: It is there to remind you young people of your agricultural past and your probable agricultural future. If we are to go from Tiger to Phoenix then maybe we should take down the plough and start using all of our underutilised and in many case poorly farmed land to become a leading producer of food products. This is one sector with long-term growth potential – just see what China, the US and India are doing to acquire the resources for future food security and food production.

  6. @ Noel

    Ultimately everything comes back to debt and the enormous damage done by a housing market that was allowed to get out of control with devastating consequences that have touched virtually everyone in the jurisdiction.

  7. I confess I found the article surprisingly vague. Also, the justifications for not reducing social welfare also come across as weak in the extreme.

    I mean, why should Social Welfare rates not come down just because Public Sector pay is being maintained by the Croke Park agreement? Social Welfare rates are an important discussion, but their connection to public sector pay rates is not logically a fixed relationship.

    Then, phrases like “Elimination of the most severe unemployment traps would be a good thing in itself, but will be very difficult to achieve in current circumstances” are just copping out. Welfare traps should not be allowed to persist. They’re both a manifest injustice and socially and economically bad.

    Finally, the approach to job creation seems fanciful. “The priority should be providing meaningful work to as many of these people as possible, within the very real constraints of public finances.” While public works can be a good idea, the money needs to come from somewhere and we’re currently cutting back – so if we want to create public works schemes we need to cut back more somewhere else so that there’s money to be spent on the public works.

    Simply saying “the priority should be providing meaningful work” is again a cop out unless you take the next step and make some real suggestions on where they money should come from.

  8. @Hugh Sheehy. I cannot agree with your view
    “That Social Welfare rates are an important discussion, but their connection to public sector pay rates is not logically a fixed relationship.”

    Personally I regard Cowen’s salary as the biggest monthly social welfare cheque in the country.
    Both catagories are State funded and both are State dependents, ie both dependent on the solvency and will of the State to decide their earnings.
    Just because unions are more interested in and more able to bargain for their working members does not mean that under-represented state dependents should be first to feel the weight of the axe.

  9. Our Fabian mandarins and their political puppets have developed our version of Nordic Socialism and choked the economy in a vice like death grip

    Jobs will only come when the capital and savings (that we have in abundance) are freed from the predations of these Socialist thieves.

    Jobs come when entrepreneurs seeking to satisfy the most urgent needs of the consumers, coordinate the factors necessary to meet this end. In an economy such as ours there must be latitude for lower paid work to be taken up by those with low marketable skills. At present our laws thwart this necessary process.

    Slave wages tend not to exist in a free market as people simply vote with their feet and seek better pay elsewhere. Entrepreneurs depending on exploitative low wages will not be able to realize their ends in these circumstances. A free market in labour will generate more decent jobs.

    The Socialistic programs supported by the state only serve to hobble the economy. What is needed is a laissez-faire approach.

    The key step to full employment are the following;
    a: remove VAT altogether
    b: eliminate income and corporate taxes (tax revenue to derive from property only ie. land and buildings … 1.5 to 2% p.a. of current mark to market value perhaps)
    c: remove taxes on employment
    d: eliminate the minimum wage
    e: dismantle the machinery of the Social Welfare state and all its spin-offs.

    Revenues from property taxes the state derives will go toward the protection of the citizen from criminals and other threats and for the assistance of the needy (the destitute, orphans and abandoned elderly). Thats it!

    Able bodied people, young and middle aged, should be able to find the necessary work, education, and other resources in a free market economy to allow for them to reach their goals.

    Charity, not the coercive altruism of the socialists, will provide many of the resources necessary to protect those that are vulnerable. As is the case now, but with the support of a population living and working in a healthy economy.

    The economy will take off like a rocket if these measures are adopted.

    This approach will also eliminate our public borrowings and thereby allow us to do a much better deal with our creditors. We are over a barrel at the moment and they know it. Reverse the situation and the Germans and others will be only too happy to reschedule our debts.

    The combination of crazy socialist policies and the socialization of the vast private debt of our reckless banking community have brought the country to its knees. The unintended yet inescapable outcome of that fateful decision is the demise of the Social Welfare State. I for one wish people would grasp this opportunity and go the whole way and throw over this mischievous Marxian philosophical dead-end and finally escape the depredations of an historic aberration.

    The other inescapable outcome might be the end of the fractional reserve deposit theft by our banks. But , perhaps I wish for too much…. for the moment.

  10. @ Tom Ronayne

    If you asked the publican what is the story about the plough he replied: It is there to remind you young people of your agricultural past and your probable agricultural future.

    Who would have thought that Irish farmers would be supplying milk to a gin producer, to provide the ingredient of a global brand?

    Nestlé has over 5,00 in R&D developing food & drink for different markets and tastes.

    Our armchair policymakers are awaiting eureka moments from university labs and the sale of young companies with potential to bigger American companies with an early payout for the promoters.

    We have the strength in food and drink if we could exploit it and in 2008 when German f&d exports grew 15%, Irish exports fell 6%.

    We have a Eurozone market with no currency risk on our doorstep but it remains unexploited.

    It has a greater potential payback than armchair solutions such as putting Mandarin on the school curriculum.

  11. @MH. re
    We have the strength in food and drink if we could exploit it and in 2008 when German f&d exports grew 15%, Irish exports fell 6%.
    Surprised but not too surprised.
    The SFP (Single Farm Payment) can get you a lot of money. You don’t have to get out of bed. Medium sized farmers benefit to about €25,000 annually. Top people get close to €500,000 pa.
    Why bother with the need to develop F&D exports when on a bonanza like that. Still it only lasts until 2013!

  12. @Joseph Ryan
    You might be right that Cowen should be regarded as a recipient of Social Welfare, particularly if you feel that he is not particularly good at his job.

    However, the general point still remains. Pay rates for jobs in the public service do not have a necessary logical connection to unemployment benefit, single parent allowance, etc.

    It is possible to postulate the existence of a competent Taoiseach and that person’s salary need not be rigidly connected to social welfare rates.

  13. @ Mokabaybob

    You paint a picture of America 1930.

    At that time the International Apple Shippers Association, faced with a surplus of apples, decided to sell them on credit to jobless men for resale at a nickel each. Overnight there were shivering apple sellers everywhere.

    Asked about them, President Hoover replied, “Many people have left their jobs for the more profitable one of selling apples.”

    Historian William Manchester said reporters were caustic, and the President was stung. By now he was beginning to show signs of the most ominous trait of embattled Presidents; as his secretary Theodore Joslin was to note in his memoirs, Hoover was beginning to regard some criticism “as unpatriotic.”

    Nevertheless, he persevered, pondering new ways of waging psychological warfare. “What this country needs,” he told Christopher Morley, “is a great poem.” To singer Rudy Vallée, he said in the Spring of 1932, “If you can write a song that will make people forget the Depression, I will give you a medal.”

    Rudy Vallée recorded “Brother, Can You Spare a Dime?”

  14. Why can’t contributors engage with the substance of Brian Nolan’s argument i.e. that many of the rationales’ commonly proposed for cutting benefits in Ireland are just not valid. The commonly held view that our benefit levels are the most generous in Europe doesn’t stand up to scrutiny – if I lost my job in Germany the benefit system pays me 70 per cent of my former income for a lengthy period. The link between our benefit levels and unemployment traps is also weak – Germany has generous benefit levels and low unemployment the situation in Spain is the opposite. Eliminating unemployment traps is expensive – in the UK Ian Duncan Smith plans to introduce a range of reforms intended to reduce unemployment traps and he admits that this will cost a fortune. The inability of the Irish state to meet its benefits bill is another rationale for cutting benefits which is more convincing in my view. But is this is why we are planning to cut benefits, let’s be honest about this and drop the rubbish about replacement rates, rates in other countries etc

  15. @ TR: “This is one sector with long-term growth potential – just see what China, the US and India are doing to acquire the resources for future food security and food production.”

    Thanks Tom. Funny how many folk miss the obvious.

    @ HS: “Pay rates for jobs in the public service do not have a necessary logical connection to …”

    I fancy I might be able to argue that they SHOULD be connected. Basic living costs – necessaries, are pretty similar I guess. Also, prestige and job perks should be counted. I suppose its as long as that piece of string!

    Unemployment is like fog. Its an exudate from swampy, low lying ground. Collects in said spaces. However, if I am on the top of the hill – well its sunshine all the way!

    The inhabitants of those foggy bottoms? Just merely my fellow citizens, human beings who are unlucky to have either been born there, or strayed there. The answer is to drain the f*****g swamp! Sorry, but I get very vexed about this issue. The problem can be reduced to a significant extent – just need courageous and honorable folk making the decisions.

    Brian P

  16. @Michelle

    The major OECD report last year by David Grubb and others on activation measures in Ireland concluded the following about Ireland’s benefits system:

    The OECD’s Reassessed Jobs Strategy (OECD, 2006a; and 2006b) documented that, according to the majority of studies, benefit generosity has quite a strong impact on the level and persistence of unemployment. It emphasised the need for unemployment benefits to be set at moderate levels and, especially where they are relatively generous, be made conditional on work-availability criteria and “activation” measures. In the early 2000s, unemployment benefits in Ireland were in line with the Jobs Strategy recommendations. However (as already mentioned in the Overview above) there has been a sharp increase in benefit levels since then which raises the risk of persistent high unemployment unless administration becomes more effective.

    This raises more of an alarm about the level and conditions of benefits than you suggest. I would be very interested in your reaction.

  17. @JH. The OEDC report you mention is very comprehensive and reflects the complexity of this issue. I don’t agree with all of their analysis but do agree with a significant proportion.

    For the majority of Irish households benefit replacement rates in Ireland are not generous when compared to employment earnings especially compared to many other Northern European countries where benefits are set at a (generally high) percentage of former employment income. Therefore for those with reasonable earning potential benefits do not create an unemployment trap. For lower earners our flat rate benefits system is generous, and especially the steep withdrawal rates of rent supplement are taken into account does create an unemployment trap particularly in urban areas where rents are high. However, in relation to these lower earners, I question the extent to which this unemployment trap analysis is relevant in the current context where they are very few jobs available.

    The OECD report does mention that Irish activation policies are very poorly designed when compared to countries with more generous benefit rates (and therefore stronger unemployment traps) such as Sweden and Germany and not strictly applied (no compulsory participation in training for instance). This is despite the fact that that we spend a lot on activation measures (unfortunately via Fas) so this issue should be addressed without doubt.

    This report also contains a fascinating analysis of Lone Parents Allowance and Disability Allowances. Claimants of these benefits make up a much higher % of benefit claimants in Ireland than in the rest of Europe and Ireland is the only EU country where LPA is available until dependent children reach 18 (age 7 or less is the norm). According to the OECD if LPA and DA claimants were categorised as unemployed, Irish unemployment rates would have remained at EU average levels during the boom. So activation measures should definitely include claimants of these types of benefits and there is a strong argument for revising the qualification terms.

  18. @Michael Hennigan

    I paint a picture of what Ireland might do to restore economic sovereignty. How closely we may soon resemble America of 1930 depends on how long more we continue this madness. Free our economy from the ravages of Socialism and we will restore our fortunes. Thats it. No point in dragging up that poor fool Hoover. Is he supposed to be indicative of the abysmal record of our current leadership or are you having a swipe at Capitalism?

    @Joseph Ryan

    Blow it out your arbe.

    @Highway61

    America 1930 read Ireland 2013.

  19. @All

    Direction we are heading, this is a very useful series of articles. The know-how and expertise to come up with viable policy is available – the political will to implement such policy is yet another matter.

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