Time to bring welfare system into line with other states

ECONOMICS: Even at the height of the boom the numbers claiming unemployment benefit never fell below 150,000

JOBS HAVE been high on the agenda this week. There is – it hardly needs saying – very good reason for this. Most forecasters expect another 20,000–30,000 net job losses this year. This comes on top of the massive 317,000 decline in total employment from its peak in 2007 to the final quarter of last year (the most recent figures available).

With the numbers at work in the economy down by 15 per cent so far in the crisis, Ireland has suffered the worst employment shock of any OECD country, a point made in these pages on a number of occasions.

Some observant readers have queried this, pointing to Spain. That country’s rate of unemployment has risen by 13 percentage points to 21 per cent of the workforce, the highest in the developed world. Ireland’s, by contrast, has risen 10 percentage points to just under 15 per cent.

The larger increase in the rate of joblessness in Spain has happened despite a smaller decline in the net number of job losses (just over one in 10 jobs had been lost there up to the end of last year compared to more than one in seven here). The difference is explained by almost all of those in Spain who lose their jobs becoming unemployed, as opposed to withdrawing from the labour market.

In Ireland, the “participation” rate – the proportion of the working age population that is in the labour force – has fallen by over three percentage points (to just under 61 per cent). In Spain it has actually risen.

This is likely to be, in part, because of a stronger tendency to return to education and training in Ireland.

Another likely explanation for the smaller increase in joblessness in Ireland compared to Spain (despite the bigger fall in jobs) is emigration. The mobility of the Irish labour force is a long established characteristic. Economist Joe Durkan suggested this week a factor that could accelerate outward migration, thus containing the rise in unemployment, was the recent opening of the German and Austrian labour markets to citizens of the 10 countries that joined the EU in 2004.

Given full employment conditions in the smaller of the two German-speaking economies and near full employment in the larger one, those from Poland in particular who are without work in this economy may find it attractive to take advantage of the opening. Being in a booming economy and being closer to home is doubly alluring.

Indeed, it may well be worth the agencies of the State ensuring that those who are considering a move are incentivised to do so. This would be good for everyone: it would help those who want to move to do so, and it would cut the massive welfare bill of a bust country.

As it happens, Spain’s socialist government introduced this as a policy earlier in the recession. Such a policy could be added to the initiatives unveiled by the Government this week designed to boost employment creation.

The measures generally were more focused on the demand side of the labour market than the supply side. This is less than ideal given that measures to increase demand have to be paid for – in this instance by the grabbing of citizens’ savings from pension funds.

Supply side measures cost less, if anything at all. Some obvious measures would be much less radical than taking private savings to boost demand. These include proposals – to be published this morning – by the ESRI.

The institute’s study of employment policy highlights incompetence and neglect. Most policy measures were largely ineffective (see report page 2).

This echoes an even more detailed report undertaken by the State’s in-house think tank – Forfás – and published just over a year ago.

It examined the effectiveness of State training schemes. The conclusions were more than depressing. In many cases a low proportion of those taking particular courses went back to work despite some courses costing the State huge sums.

The very fact that last year’s Forfás report was the very first attempt to evaluate how a training budget of €1 billion was spent is indicative of the unthinking manner in which labour market policy has been formulated and implemented. It, in turn, raises questions as to why greater value for money was not sought for so much taxpayers’ money.

Along with €1 billion on training, still more was spent on unemployment benefit – even at the height of the boom, when massive inflows of workers were taking place, the numbers claiming unemployment benefit never fell below 150,000.

In a State with a long history of high unemployment and underemployment, a period of boom was the ideal time to prepare for future (inevitable) periods of unemployment. Nothing was done.

Today’s ESRI report advocates bringing the welfare system into line with most other countries, where everyone in receipt of benefits is given direct help and advice to find work, with regular monitoring of search efforts by a case officer. This, according to the report’s lead author Philip McConnell, is particularly important.

Also important is the threat of credible sanction if recipients do not make the required search effort or if reasonable job offers are spurned. Before the election, the Labour Party thought this a step too far despite it being the norm in the social democratic-leaning countries of northern Europe. That Labour’s Minister for Social Protection Joan Burton will this morning launch a report that advocates such sanctions may signal a shift.