This essay was written as part of final year studies in University College Cork.
Class: EC 3127 Economies and the Labour Market
Grade: 1st Class Honours
In September 2015, the OECD published an overview of its report on Ireland titled OECD Economic Surveys: Ireland overview It suggests “getting more people back to work is the best way to spread the gains from the recovery….. Some important policy levers for achieving this are: well-designed tax and welfare system; efficient activation policy;…..” (OECD 2015: 29)
· You have been hired by the Irish government as an Independent Economic Consultantpolicy levers have been used to assist in achieving the goal of getting people back to work.
Introduction
As Steve Jobs once said: "Your work is going to fill a large part of your life, and the only way to be truly satisfied is to do what you believe is great work." Beyond the need to work to receive an income and survive, for many work defines who we are and our ability to be happy. This ability and getting more people back to work is vital. In Ireland like most countries, the government plays a huge role in creating an environment in which people can find employment. In this assignment, I will be focusing on the September 2015 OECD Economic Report as well as other sources in determining if the tax and welfare system policy levers have been successful in achieving their goal of "getting people back to work". I will examine the tax and welfare system policy levers recommendations in the OCED September 2015 report in detail and then use the 2016 and 2017 budget speeches as a reference point to see if the government has taken the recommendations on board. Only these budgets speeches will be examined. The 2017 - 2018 Global Competitiveness Report from the World Economic Forum will be used as well to see if Ireland has progressed on an international scale. All of this information will try and answer the question "are government policies getting Irish people back to work?” I am going to focus on innovation, upskilling of people changing the PRSI tax rates and make work pay.
Innovation
"Large companies account for only a small number of the total number of businesses in Ireland but employ almost a third of the population, a new study finds." (Irish Times 2017) Despite this, according to the OCED September 2015 report "in comparison with other countries, Ireland has fewer young patenting firms, less public spending on R&D, and less industry-financed public R&D" This is a huge issue as it means the country is reliant on MNCs to provide employment and innovation. It is common knowledge that businesses need to innovate to grow into new markets or to even to survive in the long run. The country needs to improve its internal innovation as this will help Irish companies grow and create long-term employment. It would also help in combating high levels of emigration in the country of recent college graduates. In his 2016 Budget Speech, Michael Noonan introduced a corporation tax of 6.25%. "This relief applies to income from qualifying patents, computer programmes and, for smaller companies, certain other certified intellectual property" (Revenue 2017). While this will help, it is clear that the government will need to do more. According to the 2017-2018 Global Competitiveness report, out of 137 countries, Ireland is ranked 88th in capacity to innovate, 94th in University-industry collaboration in R&D, and 84th in PTC patents. Another major problem for small companies is travel costs. For example, a return train ticket from Cork to Dublin costs more than €80 return, crippling many small firms. I would recommend that the government should introduce free rail travel to Irish entrepreneurs for small businesses/startup within three years of their founding date. I similar idea is currently banded around in the United Kingdom by Social Chain CEO Steven Bartlett with his "Start-Up Railway Card" petition. Without burdens of travel cost, small companies could hire more people, innovate faster, invest more in R&D and grow at a much faster rate.
Changing of PRSI Tax Rates and Make Work Pay
The 2016 Budget told us that the "PRSI system, as currently structured resulted in a situation where an employee could receive a pay increase but find themselves with less money." This is a clear disincentive to people to look for promotions, more work hours, or to even work at all. While work can improve people's self-esteem, nobody will work more if it puts them in the worst position financially. In response in the government introduced a "tapered PRSI credit with a maximum level of €12 per week" (2016 Budget) This prevents many people on lower wages entering a higher tax bracket, therefore protecting their salaries. This adjustment is a positive change. Similar changes, budget allowing would be seen in good light for getting low earning people back to work, and equally important keep others working.
Upskilling
The OECD Survey of Adult Skills (PIAAC) shows is that despite more people attending University in Ireland than ever before, the 45-54 and 55-65 age brackets have relatively low levels of educational attainment. (OCED 2015). These groups need to be targeted for two apparent reasons. First, all these groups suffer from long-term unemployment. In fact, in q4 2014, Ireland was the 5th worst for this issue in the OCED. (figure 11) The report also shows that Ireland has one of the highest replacement rates in the OCED. (Fig 9) Finally, the report indicates that marginal effects for low-income families are the second highest in the OCED after the UK. This means is that low-income Irish families could easily have both the hypothetical and the literal rug ripped from under their feet should there be a tax or welfare change in the country. In other words, the country has very high replacement rates. This gives people who can only demand a low wage little to no incentive to work. While tax changes are the most straightforward way of fixing this issue I believe upskilling lower wage earners in vital to help them demand better-paying jobs and the ability to save for their futures. It was recently reported that "about 28% of people of working age in Ireland have problems with basic tasks involving reading and interpreting information - that equates to 800,000 people." (Examinier 2017) While on the other hand it was reported in September 2017 that "Irish workers are the most overqualified in the European Union for the jobs they are working, according to the latest research." (Irish Times 2017) This has resulted in high emigration levels as already mentioned. I would recommend that the government puts less money into 3rd level education as the country is only paying students to take their skills elsewhere and instead put that money into programs upskilling the countries least skilled and employable people. This will reduce the burden on the state regarding helping unskilled labourers, as well as help, reduce the need for education should the government and market continue to fail to provide enough opportunities for graduates.
In summary, the government has done a good job of getting people back to work. Since September 2015, the unemployment rate has continued to fall. It is even more impressive when we realise that since 2012 the unemployment rate has fallen from roughly 16% to 6% today. (Trading Economics) On the other hand, the country is still losing thousands of talented recent graduates every year to emigration. Losing between 17,000 and 24,000 each year for the last seven years. This further strengthens the claim that the government needs to put more resources into helping less skilled labourers improve their skills and helping them and recent graduates alike find employment in Ireland. The government also needs to continue its efforts towards reducing replacement rates and encourage employment.
References:
World Economic Forum, Global Competitiveness Report 2017-2018 http://www3.weforum.org/docs/GCR2017-2018/05FullReport/TheGlobalCompetitivenessReport2017–2018.pdf
2017 Budget
Irish Times 2017 https://www.irishtimes.com/business/economy/smes-generating-almost-half-of-all-revenues-in-ireland-1.3295582
Revenue 2017 https://www.revenue.ie/en/companies-and-charities/reliefs-and-exemptions/knowledge-development-box-kdb/index.aspx
Examinier 2017 https://www.irishexaminer.com/ireland/800000-people-have-literacy-and-numeracy-problems-458640.html
Irish Times 2017 https://www.irishtimes.com/news/education/irish-workers-are-most-overqualified-in-europe-1.3229608
Graphs:
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