Covid wage supports have proven to be worth their weight in gold

Now that pandemic restrictions have been lifted, the Irish economy is seeing a rapid recovery in domestic demand across almost every sector, while the Irish labour market is experiencing a strong jobs recovery. The resilience of our business model has again shone through.

Yet this road to recovery would have been significantly more challenging to navigate had it not been for the deployment, in the early weeks of the Covid battle in 2020, of the Temporary Wage Subsidy Scheme (TWSS) and its successor the Employment Wage Subsidy Scheme (EWSS).

As we work towards the winding-up of EWSS supports, it is only right to review what worked well in the operation of this emergency support and to reflect on lessons for future policy. Businesses in the worst-impacted sectors endured significant financial losses during this time, even with the aid of Government support, and many will fail to recover. Yet the EWSS means that the majority of companies will be preserved, and livelihoods protected.

As companies adapted to the changing conditions catalysed by Covid, some of the EWSS-recipient organisations managed to retain profitability as they benefited from the strong demand buoyancy experienced in tandem with the gradual reopening of society. It was of course never a requirement for eligibility for the scheme that firms would be loss-making over a financial year; it sought to support those firms with substantial turnover declines as a result of the restrictions.

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Dividend payments

The emerging debate regarding the sharing of dividend payments from participating companies of the EWSS is misleading and fails to recognise various governance and financial management complexities. Some companies may be required through their own constitutions to pay dividends to certain shareholders when they are in profit and these requirements will be timebound. Returns to capital are as important as returns to labour. The payment of wages, interest, dividends and retained earnings are all important disbursements for business to continue to operate and retain the confidence of shareholders during a downturn.

The initial emergence of Covid in Ireland brought into sharp focus a national social insurance system that was not fit for purpose. For the second time in just over a decade, Ireland faced the prospect of weathering a major economic crisis without a fully functioning social insurance model. Unlike the Great Recession, however, which was underpinned by collapses in demand, the challenges posed by Covid were defined by health restrictions and subsequent supply constraints.

When it became clear that Covid would be an uncompromising threat to the economy, the Government responded by introducing two main income supports: the Pandemic Unemployment Payment (PUP) and an employer-based wage subsidy scheme. Despite having pre-existing income support schemes such as Jobseeker’s Benefit, Jobseeker’s Allowance and a poorly utilised Short-Time Work Support scheme, it was appropriate to implement additional income protection schemes for workers, at more generous rates, in response to the crisis.

The employment-based wage subsidy scheme was created in the Labour Employer Economic Forum by Government, trade unions and business representatives working together. Keeping as many workers connected to their employers was the critical aim given the profound uncertainty of the economic impact of the pandemic in the early months of 2020.

Exceptional

This response was exceptional in its scale (€48 billion, over three years) and, given the global nature of the pandemic, Government was able to provide such supports. It is irrefutable that the EWSS has been a success. Without these policies, estimates suggest that pandemic-related unemployment would have resulted in an average drop in disposable income of 7 per cent, and as a result it is estimated that average income loss due to Covid-related job losses was more than halved, to 3 per cent. This has helped ensure that the long-term narrative of the labour market that defines this period will be closer to a V-shaped phenomenon rather than a more extended recession as was evident in the years following 2008.

However, despite much of the Irish economy being incredibly robust to the challenge posed by Covid, concentrated industries have suffered intense, devastating economic costs as a result of restrictions enforced under Covid, most notably those in retail and the experience economy. Businesses in these sectors have played a vital role in supporting the suppression of the virus, yet such compliance with Covid measures has resulted in reduced trading capacity, and in many cases induced closures.

Future use of wage subsidy schemes by employers in other periods of crisis induced by reduced demand will not be aided by retrospective pillorying of those companies that acted in both the letter and the spirit of the EWSS. It will be important to maintain an employment wage subsidy scheme in the State’s arsenal for future shocks.

Danny McCoy is the chief executive of Ibec