Sometimes when people write about economics, it is easy to forget that behind every economic statistic is a personal story.
Each sanitised economic figure when shorn of its personal testimony rarely reveals much. That is the point of aggregated data: it serves to dehumanise. But this process misses the central political point, which is that each economic data publication should move us to think about the society we live in because each figure is a father, mother, husband, wife, daughter, brother or sister.
Behind this antiseptic world of economic data are the human stories, perhaps most poignant when we are talking about people who have no work.
In recent weeks I have been getting a lot of emails from people who feel that our welfare system is acting as a disincentive to work. I have been getting emails from people in work and people out of work. I believe this to be a fascinating spot where the welfare system meets the wage structure.
If, as most of the letters suggest, the system is acting as a disincentive to either go back to work or for those in work to work harder, then we have a major problem.
At the same time, I also realise that nothing should more anger someone stuck on benefits through no fault of their own, than a reasonably well-off economist who writes in the paper, complaining about welfare rates. So you are not going to get that here.
Instead, I am going to relate a story, which came in to me from the north-west from an unemployed middle-aged man with children.
Dear David,
I am a 54-year-old sales & marketing executive who has now been out of work for just over four years. I have worked for both multinationals and indigenous firms alike. I have been on benefits for the last four years. My wife works part-time and brings home c €250/wk. (c €13,000 p/a). I am getting the jobseekers allowance for me €173/week and FIS (family income supplement) of €168/week.
I have three teenage kids who have medical cards and we get a bin waiver of around €200/year. One of my daughters is at university and she gets her fees (and registration) paid and has a maintenance grant of some €2,500/yr. Without this, we could not have afforded to send her to university.
My younger son hopes to attend university. I will also claim the grant and same maintenance support for him.
Regarding my mortgage, I have an arrangement with my bank to pay €100/wk off my mortgage until my financial situation improves. At an interest rate of 4.4pc, those payments just about cover the interest and reduce my remaining mortage balance of €89,000 by about €1,200/year.
Now here is the rub – if I were to return to work or take any paying placement job, the family would lose all the university support, all our medical cards, the bin charge waiver, the dole and the FIS. I’ve provided this box calculating what I would lose.
Then of course the bank would demand full monthly payments on the mortgage of about €1,400/month or about €16,800 a year.
So David, I calculate that the cost of returning to work is €45,552 and this is the cash value. In order to earn this amount of disposable income, I would require a salary of between €68,000 – €69,000 and subtract my wife’s €13,000 P/A.
I want to work and I want a job but why would I take a job that ends up with me having less income than I have now and not being able to provide for my family?
The minimum wage is roughly equal to my jobseekers allowance & FIS and I’d prefer to work, but the loss of benefits (third-level grants and medical cards) is the killer.
The system doesn’t work!
We are stuck in a rut with no way out, bar the black economy. There are ways around this impasse, but why should I have to revert to subterfuge, the black market and deceit instead of the Government getting its act together and sorting this mess out?
Yours
Can you hear the frustration in this father’s voice? Can you sense the gradual realisation that he is in a financial cul de sac? If he tried to go straight and get a job, he loses so much that he would have to get a very well-paid job for all the sums to add up
And as he remains out of work, he knows that the chances of getting a very well-paid job begin to decrease because people want to employ people who are already in jobs.
On the other hand, he knows that he could do a few ‘nixers’ to supplement his income.
This means working in the black-market, but why should he break the law simply to do the right thing by himself and his family?
Some may argue that this is an isolated case and doesn’t imply a general problem. But that is not what the people who actually run this country – the Department of Finance – actually think.
In 2011, the boffins in Merrion Street did some calculations on this problem.
They divided the gross income when unemployed by the net after-tax income when a person is employed. This is called the replacement ratio. They suggested that anything above 70pc would be a serious disincentive to looking for a job.
Department of Finance figures reveal that – particularly for a couple with children – you would have to earn a massive salary for there to be a clear incentive to drop benefits and go back to work. Indeed, even at twice the average national wage, most people are still in a position where going back to work isn’t that attractive. These figures would tend to back up the suggestion from the letter writer.
I realise there are different interpretations put on these figures, but the letter from a father after four years out of work is indicative of a major problem at the core of our system.
If we choose to carry on as things are, why should he try for a job unless it pays him extremely well? And – another way of looking at things – why would an employer pay these high wages if what is driving up the wages isn’t potential employer productivity but the necessary cushion needed above benefits to make the job attractive?
We can put our heads in the sand because the answers are too awkward but that’s hardly a strategy.
David McWilliams writes daily on international economics and finance at www.globalmacro360.com
Subscribe to receive my news and articles direct to your inbox
Subscribe.
When a person is better off running a “charity” than running a business, we have a problem. When a person is better off becomming a canvasser for a political party, than becomming an engineer, we have a problem. When a person is beter off as a retired politician, than as an active participant in the workforce, we have a problem. When a person is better off being a garda who keeps their mouth shut to funny goings on, than telling the truth, we have a problem. When a person does less work, employed by the HSE, than if they were… Read more »
Excellent letter to David, Deco comments spot on
The guy should take work in the black market if he can get it.
Who cares about “the law”?
The laws of this country are drafted to keep the parasitic elite in situ.
Break the damn law! Laws are there to be broken.
Corrupt politicians break the law every day and never give it a second thought.
The government screws its citizens constantly.
Screw them back until they collapse.
An eye for an eye.
The man should take a job in the so-called black economy.
Live outside their perverted so-called society and don’t lose a minute’s sleep over it.
We are not required to request permission to live from some makey-up ‘government’ of a half-baked fake construct called a ‘nation’.
In addition, even if earning Euro69000, he’d have to add in the costs of commuting, the costs of feeding himself at or near the office (higher than at home), the costs of getting “respectable clothing”, etc. And that’s before we count the fact that he’d also be spending all day away from home and probably incur a bunch of other costs that he could avoid if he was at home. He’d work hard and have NO net benefit at a salary of euro 69k/year. Never mind doing nixers, if he stayed home he could take up a sport or a… Read more »
OK 2 things. One, the gentleman in question does have a point, but the implied solution is that the government is paying him too much, and raising the issue may result in the “Benefits” he is legitimately entitled to being reduced or removed. The fact that a person on benefits can pull down an effective worth that someone on ~E69,000, which is probably up in the top 15% earning capacity in the state of a single earner (that is admittedly an educated guess, but I was recently a job hunter in the Irish employment market) is ridiculous. The system/state should… Read more »
You’re right, I don’t know the specific letter writers case, and maybe it is wholly untenable in his case, however DavidMc did present his case as an example of a greater problem with the system and there are many other people in this situation. But there are solutions, I returned from Australia recently after 12 years, it is not unusual for students there to wear the cost of being university educated, sometimes well into their 30s (HECs loans and all that). It is noble to want to put your kids through college by yourself, but it is not the only… Read more »
Also, this is not a new discussion.
See March 2011, with numbers.
http://www.irisheconomy.ie/index.php/2011/03/22/behaving-like-teenagers/#comment-134103
Or a discussion of the same issue in January 2011. http://www.irisheconomy.ie/index.php/2011/01/24/welfare-and-incentives/#comment-119800
I am in full time employment for the last 10 years (mid 30’s) and feel equally frustrated. I recently got a €2000 per annum wage increase, which in the current environment for employers who need to source their income from the real economy of people who want to buy things other people create (in a company with about 100 employees) is a pretty large increase. Before tax, this is about €167, after tax, it’s about €77. My wage is reasonably above the national average, so I qualify for almost no benefits. I looked into getting a mortgage at the end… Read more »
A depressing and sobering read this morning & Deco & Adam on the money as usual. It’s a sad reality that as David has mentioned before, we have completely wasted a good crisis, and 6 years into this whole sorry mess, it makes more sense for someone to stay on the dole than to take paid work. And what is the answer to all of this, I dunno… Deco couldn’t have put it any better, it isn’t just when someone who is on the dole, is very considerably better off than someone who is working, I’d add to that list,… Read more »
What I find strange here is that there doesn’t seem to be any moral standpoint in that guy’s thinking. I know of many people who have never ever taken state benefits because the only reason they were implemented historically was for the needy. Everybody can fall on hard times so even those people might put out their hand in the worst case situation but that man should realize that getting money for nothing can never ever be equated with working. The economic equation does not make sense unless you factor morality into the equation. The social contract is that you… Read more »
It’s quite simple really. Just stop looking at these anomalous cases in isolation. For every guy on benefits complaining that it’s not worth his while returning to work, there’s someone else complaining that it’s not worth their while staying in work. If enough of the latter emigrate or otherwise stop working, then the former will find that their problem is quite simply solved — there won’t be enough in the kitty to pay them any more, and they will have to either work or starve. (Although, that’s a bit of hyperbole, since someone with all student fees and medical expenses… Read more »
Wasn’t there a time when kids used to work in the summer to pay for college? Is it so bad that his kid might have to spend a summer working some crap job.
In the 80 and early 90s there were no jobs in Ireland so we all went t’Ingland or to the States or to Germany. There are lots of jobs for anybody who can be arsed looking.
Its lazy to say people don’t want to work as they are better off on the dole. Too many people looking for too few jobs.
Healthcare: Most of the doctors/nurses/cleaners in Dublin hospitals are non-EU. No jobs here.
Retail: few Irish hired in chain stores
Civil Service is not hiring.
Cleaning jobs (do they pay minimum wage?)
Teaching jobs – are not hiring, only occasionally
Quangos- you need pull to get in there
Why does nobody mention the above?
I was talking about students, there are tonnes of jobs for anybody willing to travel. I know this because I live in a country that has hundreds of thousands of unfilled vacancies.
Can’t quite believe what I’m reading. I earn considerably less than this man ever did or effectively lives on now, I have 3 kids and still the Irish sense of ‘entitlement’ staggers me. Yes I’m from abroad. And yes the Irish state handed me a lot more when I was made redundant than when I lived in the U.K. I was grateful. And the back-to-work scheme got me on my feet again. It’s way more than I would’ve got over the water. Particularly as when I couldn’t work (due to injury as a self-employed worker) in England, where after paying… Read more »
Hi David,
You chickend out at the end. Do we cut the benefits or don’t we? You included before but omitted on this occasion to mention the enormous BENEFITS being handed to the BANKS AFTER they fu*k&d up royally.
You also forgot to mention the cost of living and the real inflation rate which I feel are necessary to create a more balanced context.
Ireland is like Cuba David. Our country depends on transfers from abroad.The private GDP is something to be controlled so it dosent get out from under the control of the politbureau.
“The minimum wage is roughly equal to my jobseekers allowance & FIS and I’d prefer to work, but the loss of benefits (third-level grants and medical cards) is the killer.” With all due respect to the gentleman involved, is this correct? By my (admittedly rough) calculations he could get a minimum wage job (€8.65 X40 X52 = €17992 Gross, weekly net income approx €329 similar as he says to his current benefit payments) and he would still qualify for a small amount of FIS which would mean that his overall weekly net income would be the same or a bit… Read more »
Personally never taken welfare….. even though I’ve spent time out of work and can’t understand how anyone can say it’s a valid choice over working. What’s never discussed is the money the letter writer is receiving and has been receiving from the exchequer, some of it, and at one stage up to 40% of it was borrowed money. This man in the letter…… this scumbag thinks it’s ok to choose to stay on welfare taking borrowed money, instead of going out to work. Some people just don’t get it, welfare is not a lifestyle choice, it’s there as a safety… Read more »
In Ireland you are either the scammer or the scammed.
And the PAYE private sector bod getting fleeced for over 50% of his/her income for doing a 40 plus hour week is the biggest “mark” there is.
We badly need a Taxpayers’ Union.
I have never been out of work, but I would say the best solution is to pay the ordinary and low paid workers more by reducing the wages of the very high paid and get rid of their corporate welfare schemes.
Social welfare is not the problem, corporate welfare is the big problem
Get rid of the fat cats.
David,its the case of “benefit creep meets wage shrink” A pity Ireland did not heed your warnings on the bubble housing market.A pity now that world leaders -especially the US, FED,and GB- and economists, did not heed the Bill Still documentary of 1996 WARNING of the fall of the rotten international financial system.I agree with Colin that there is never a shortage of money.War and natural disasters like our floods, can magic up millions (no money though for carers,disabled or homeless)but this is not debt free money.This money is borrowed with interest and more borrowed to pay the interest and… Read more »
I wonder if we are all missing a very nice example of the Economics of incentives and Government policy at play here… I know it’s a different way of looking at the “problem” the article is putting forward for discussion, but until now, I at least had never considered that a Government introduction of College fees, could have the effect of causing a rise in the society’s long-term unemployed. Let me explain… the man perceives that being unemployed has a value of ((Registration-fees + Maintenance=grant) * children ); alternatively, that there is an equal “cost” to return to work. Now,… Read more »
Mod-ER-ator / David MCWilliams…( Mr Adam Byrne – I hold you to be the fairest commentator on this blog across many years – I would value your reading time and your response to the following below. It is about unfair censorship on the site. Or Deco, or RR6 for that matter. Or Tony Brogan for that matter Mr Earnest Goldbug himself ) David McWilliams – I have to call you out for your disingenuity ( or that of your moderator ) once more. Me apart, I think this is a serious one for any fair minded guest commentator who frequents… Read more »
It isn’t a censor – it’s just not working properly.
I went to work…when I was 14 Paid taxes..p.r.s.i…U.S.C D.I.R.T STAMP DUTY.CAPITAL GAINS.V.A.T DEATH TAXES INHERITANCE TAXES…% OF D.I.R.T NOE P.R.S.I ETC ETC became self-employed at 26 & remained so till I was 41 Contributed to society..created jobs were people who worked for me had GAINFUL employment..could get a mortgage,buy a Car..had a proper wage ETC ETC ETC I got into financial difficulties… Protected those working for me..i.e their jobs were saved or I got them employment else where… Paid the banks back just under 5 million at the expense of my family… Anyone receiving the “dole” or unemployment benefit… Read more »
This says it all Barry. All the best of luck. Thanks
Thank you Bamboo.
be sure to have a great Sunday for you & yours…
A great thing to do is make a list if the Top Ten Advantages of worrying…..!!! ;-)
Barry
http://www.slate.com/articles/health_and_science/new_scientist/2012/12/antifragile_book_interview_nassim_nicholas_taleb_on_how_chaos_and_disaster.single.html LG: Are you saying that capitalism is good but that 21st-century capitalism has gone too far? NNT: What we do today has nothing to do with capitalism or socialism. It is a crony type of system that transfers money to the coffers of bureaucrats. The largest “fragilizer” of society is a lack of skin in the game. If you are mayor of a small town, you are penalized for your mistakes because you are made accountable when you go to church. But we are witnessing the rise of a new class of inverse heroes—bureaucrats, bankers, and academics with too… Read more »