Mythbusters 201: Are Social Welfare Rates in Ireland high compared to elsewhere?

Slí Eile16/07/2009

Slí Eile: A popular view that finds its way into pub conversations, page 4 of the ‘tabloids’, agonising phone-in shows, Dáil debates and elsewhere is that Irish social welfare rates are very high and cannot be ‘afforded’ (OK the claim that they were ‘the highest in Europe’ has been killed even if some people still pursue that untruth). Never let the data get in the way of a good story line. So apologies to anyone concerned if I am going to deflate the argument somewhat.

The sources are chiefly published OECD and EU Commission/Eurostat data on the web. There are a number of ways of approaching this question. The simplest is to examine typical welfare benefits using OECD tax-benefit models to compare net incomes of different family types. This can be further refined to contrast the results within each country with some cut-off levels used to measure income poverty (e.g. 40, 50 and 60% of median household income).

Benefits average to below average in Ireland

Taking unemployment benefits, first, and focussing on single persons Michael Taft has shown that out of EU15 (15 member states of the EU prior to the accession of 10 and 2 additional states in 2004 and later), unemployment benefit (excluding housing benefits) for a single person was €8,622 in 2006. This was ahead of the UK (€4,437) and Greece (€3,951). However, the average for the 14 States other than Ireland was €12,053. It could be argued that it makes sense to compare Ireland to the EU15 rather than EU27, since levels of income and publicly taxable production are higher in the former.

Looking at pensions (OECD Pensions at a Glance) and ranking on the value of ‘Net replacement rates by individual earnings level, mandatory pension programmes’ for men, we can see that Ireland comes in the bottom 4 OECD countries for which data are available. This measure shows individual pension entitlement ‘net of taxes and contributions as a percentage of individual pre-retirement earnings net of taxes and contributions’. In regard to individuals with half of average earnings, the Net Replacement Rate is close to 66% for Ireland compared to 133% in Denmark and 50% in Mexico. Furthermore, as Michael Taft has pointed out, ‘In Ireland, an average income earner can expect 38 percent of their pre-retirement income as a pension; the OECD average is 70%’

Relative poverty of social welfare recipients

The latest OECD data show ‘Net incomes of social assistance recipients in percent equivalent of median household income’ up to the year 2005. For a couple with two children and without housing benefit, the data show a welfare income of nearly 45% of ‘Median Household Income’ in 2005 – compared to 33% across 26 OECD countries for which comparisons were made. This placed Ireland in fifth place on this measure. With housing benefits the proportion rises to 58% compared to an OECD-26 average of 40%. On this measure as well as others, there has been a marked improvement in the relative position of various family types (single, lone parent, couple with children/without) – relative that is to the OECD average as well as median household income. This is a good outcome.

Relative poverty of those on minimum wage

Another way of looking at relative income poverty, here, is to compare on ‘Net incomes at statutory minimum wages, in percent equivalent of median household income’. Comparing on 18 countries for 2005, couples with 2 children and with housing benefit in Ireland are at 60% of the statutory minimum wage compared to 50% on average across OECD-18. Again a positive outcome.

Net Replacement Rates

Another way of comparing welfare across countries is to contrast the ‘Net Replacement Rate’ for various families (reference year is 2007). There is much debate about the supposed disincentive effects of welfare benefits and the claimed need to lower benefits according to wages (note that moral hazard concerns apply here, unlike in banking). The Net Replacement Rate is the ratio of income while at work to income while out of work. Income is calculated as a % of Average Worker (AW) earnings (average wages of manual production workers in the case of Ireland).
For most family types and different benchmark points (67, 100 and 150% of AW) Irish net replacement rates are below the average for 21 OECD countries for which data are shown. For example, for a couple both earning, with two children and on the average wage, the Net Replacement Rate is 66% of earnings compared to a 21-country OECD average of 73% for this family type. That places Ireland in 16th place out of 21 countries reported. (The corresponding figures for 2001 given by OECD are similar: 66% in Ireland compared to 76% for an OECD 28-country average). This is not a good outcome.

Turning to a family with two earners and two children on 67% AW, the net replacement rate for Ireland is 78% compared to an OECD 21-country average of 82% (Ireland is in 17th position).
(The United Kingdom is at the bottom for comparisons on most family types.). The only exceptions for Ireland are: single earning couples or single earning persons on 67% of AW where the NRP is a bit higher than the OECD 21-country average.

If you are still reading this it's gets too boring – the story goes on and on. To round things off have a look at Population and Social Conditions published recently by Eurostat

It shows that expenditure on social protection is 18.2% of GDP in Ireland and 27.5% for EU15 and 26.9% for EU27. Interestingly, expenditure on social protection per capita at constant prices showed an annual growth of 8.7% over 2000-2006 compared to 1.5% for EU15. In other words, we had begun to start catching up with the rest of Europe – when times were good and social partnership had something good for everyone in the audience. When comparing on the % breakdown across all social benefits by function type (Table 3) Ireland’s ‘old-age and survivors’ category loses out both as % of total social benefits (reflecting in part age-structure) and as % of GDP.

Posted in: EuropeWelfare

Tagged with: eusocial welfare


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