Making Work Pay More: Recent Initiatives

Transcription

1 Making Work Pay More: Recent Initiatives M. Savage, B. Colgan, T. Callan, J.R. Walsh Budget Perspectives 2016

2 Introduction To understand how taxes and benefits might affect labour supply choices, we need to measure the effective work incentives implicit in the tax and benefit system Blundell (2011)

3 Introduction We focus on unemployed people in receipt of Jobseeker s Benefit/Allowance Separate studies needed for one-parent families and potential second earners in couples Earlier findings (Budget Perspectives papers 2011, 2012, 2014) Work does pay for a large majority of Ireland s unemployed jobseekers Including childcare costs has little impact for unemployed jobseekers May have greater impact for others, e.g., one-parent families, potential second earners

4 New Questions to be Answered Update earlier findings to 2015 Impact of recent initiatives to make work pay more Back to Work Family Dividend Housing Assistance Payment (HAP) Examine the potential impact of loss of a Medical Card/GP Visit Card

5 Measuring the Financial Incentive to Work Replacement Rate measures how much of inwork income is replaced when out-of-work RR 100* Out of Work Family Disposable Income In Work Family Disposable Income

6 Measuring the Financial Incentive to Work Replacement Rate measures how much of inwork income is replaced when out-of-work RR 100* Out of Work Family Disposable Income In Work Family Disposable Income In-work income 500, Out-of-work income 250, Replacement Rate = 50%

7 Employment Rate* by Replacement Rate Category, 2015 Empl t Rate (%) Employment Rate by Rep Rate Category Overall Employment Rate *Employment Rate defined as EE/(EE+UE) Replacement Rate

8 Distribution of Replacement Rates, Ireland 2015 Rep Rate Category Unemployed on JA/JB Employees % % > > > > Est. Pop. 163,000 1,581,000

9 Unemployed Recipients of Jobseekers Benefit/Assistance With and Without Children, Ireland 2015 Rep Rate Category With Without Children Children % % > > > > Est. Pop. 59, ,400

10 Recent Policy Initiatives New policy initiatives have been introduced to provide support to individuals or families Back to Work Family Dividend Targeted at unemployed with children Housing Assistance Payment

11 Back to Work Family Dividend Unemployed jobseekers with children most at risk of facing high replacement rates BTWFD targets this group BTWFD allows unemployed jobseekers with children to keep approx 30 per qualified child per week Examine here the short-run impact of BTWFD BTWFD paid in full in first year of employment Half-rate paid in second year Withdrawn from third year

12 Impact of the BTWFD on Replacement Rates of Unemployed Recipients of Jobseeker s Benefit /Assistance with children first year in employment Replacement Rate Category Unemployed on JA/JB with Children 2015 No BTWFD 2015 With BTWFD > > > >

13 The Housing Assistance Payment (HAP) Initial focus of HAP is on those with long-term housing need who qualify for social housing support Recipients of Rent Supplement cannot work more than 29 hours per week Absence of hours-of-work criterion important for work incentives Unlike Rent Supp, recipients can work full-time Requirement of revenue neutrality in move between Rent Supp and HAP

14 Medical Cards and Work Incentives Almost 2 million people, or 43 per cent of the population, were covered by a Medical Card or GP Visit Card in 2013 Medical Card entitles holders to free (or almost free) medical services GP Visit Card has higher income limits Means-tested nature means Medical Card can affect incentives to work

15 Modeling Eligibility for, and Value of, Medical Cards in SWITCH Eligibility determined by income and expenditure (e.g. housing costs, childcare costs) Discretionary cards can be awarded due to undue hardship not included in analysis 3% of Medical Cards Valuation more difficult to ascertain Number of valuation approaches developed Usage important when examining work incentives Most common approach based on cost of provision (eg UK Treasury Model, IGOTM) Potential to use usage data in SILC to assign values based on actual usage

16 What is the value of a Medical Card to an individual? Age Group Nights in Hospital Cost of Medicines Cost of General Medical Services ( per week) 0 to to to to ,

17 Impact of the Medical Cards on Replacement Rates of Unemployed Recipients of JA/JB RR Category with Medical Card or GP Visit Card % % > > > >

18 Impact of the Medical Cards or GP Visit Cards on Replacement Rates of Unemployed Recipients of Jobseeker s Benefit /Assistance with and without children RR Category With Children MC and GPV Without Children MC and GPV > > > >

19 What happens to Replacement Rates when we Include the Value of Medical Cards? Majority of unemployed jobseekers see a small increase in their replacement rate due to the inclusion of Medical Cards For those with a replacement rate >70%: 2 out of 3 see their replacement rate increase by less than 2 percentage points Only 1 in 5 see their replacement rate increase by more than 5 percentage points

20 Why not a bigger impact from Medical Cards? Unemployed jobseekers are mainly young and single Almost 80 per cent of JA/JB recipients aged less than per cent of recipients of a jobseekers payment were single claimants Over a quarter of recipients still qualify for a Medical Card or GP Visit Card when in employment The special scheme for retention of medical cards in employment would add substantially to this Average usage vs expected/actual usage For future investigation

21 GP Cards and Under 6s Limited impact on work incentives due to introduction of free GP cards to under 6s Approx. half of unemployed jobseekers eligible for free GP Visit Card would receive it when employed anyway Valuation based on actual usage may find bigger results for affected families

22 Conclusions Income of more than 8 out of 10 unemployed jobseekers would increase by at least 40 per cent upon taking up employment For those individuals who would be financially better off not in work than in work, large majority still chose to work Unemployed Jobseekers with children most at risk of facing high replacement rates Only 1 in 15 would be financially better off not working in cash terms Back to Work Family Dividend scheme makes weak work incentives for this group even less frequent (1 in 20)

23 Conclusions Loss of the Medical or GP Visit Card upon taking up employment does decrease slightly the financial work incentives for most jobseekers In most cases, impact is small Introduction of free GP Visits Cards to under 6s also has little effect on the financial incentives to work Future work will compare incentives in Ireland with those in UK

24 Thank you Questions and Comments Welcome