Department of Finance has published (unnoticed by most) its estimates of the replacement rates for Irish Social Welfare system. Per DofF, any replacement rate in excess of 70% is problematic, as it creates significant disincentive for the recipients to seek reentry into the labour force. Well, yes. I agree.
However, what DofF fails to recognize in its estimates is the fact that welfare recipients avail themselves of free healthcare (medical cards) and subsidized drugs scheme, plus, having no jobs to attend to, they do not have to spend a penny on childcare.
I have updated the DofF own estimates to reflect these costs wherever they apply and this is reflected in the table below which also reproduces DofF own estimates.
Effective wage in my estimates refers to the earnings that must be attained in the workplace in order to supply the same level of real income as provided by social welfare. My estimate is based on DofF replacement rate estimates, plus additional benefits as outlined in the footnote.
Telling picture. For a country with average income of ca €25,000 per capita, we are talking about virtually all groups of welfare recipients, case-studied by DofF, getting more on welfare than in average employment.
Red-bold cases are clear welfare traps with replacement income in excess of 70% relative to reference group.