UnemploymentReplacement Ratio

Poverty Trap Unemployment Trap

Cyclical Unemployment Structural Unemployment

Tax Wedge Centralised Wage Bargaining

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Replacement ratio• Percentage of After-tax income that is replaced by

unemployment benefits.

• Measure Poverty and unemployment traps.

• Calculated as follows.

• 100 x In work family disposable income/Out of work family disposable income

http://www.finance.gov.ie/documents/publications/reports/2009/rrunemploy.pdf

• Pension systems

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• Financial incentives• depend on the balance between the individual/family’s disposable

income when employed and when unemployed. http://www.investopedia.com/terms/r/replacement-rate.asp

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Poverty Trap• Low incomes• Increase of gross income - Reduction in net income• Higher tax bracket• Withdrawal of social benefits• Disincentives to work for higher earnings or work for

increased hours • Replacement rates can highlight poverty trap issues. tp://

www.finance.gov.ie/docuhtments/publications/reports/2009/rrunemploy.pdf

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Unemployment Trap• A person’s out-of-work family disposable income compares

favorably with his/her in-work family disposable income, thereby resulting in disincentives to work.

• The higher the replacement rate the greater the disincentive to take up offers of employment. http://www.finance.gov.ie/documents/publications/reports/2009/rrunemploy.pdf

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Cyclical Unemployment• Factor of overall unemployment • Trends in growth and production that occur within the

business cycle.

• When business cycles are at their peak

• When the business cycles are at a low http://www.investopedia.com/terms/c/cyclicalunemployment.asp

• USA, Australia

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Structural Unemployment

• Resulting from changes in the structure of industry.• Recession or technological advances.• late 1970s and early 1980s structural

unemployment resulted from the complete disappearance of the car assembly and paper milling industries in Ireland. http://www.eurofound.europa.eu/emire/IRELAND/UNEMPLOYMENT-IR.htm

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Tax Wedge

• Measures the difference between the total labour costs to the employer. (wages + employers PRSI) and the corresponding net take-home pay for an employee (gross wages - all income taxes and PRSI). It is generally reported as a percentage of total labour costs. http://www.nerinstitute.net/blog/2013/05/15/ireland-has-the-lowest-tax-wedge-in-europe/

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OECD

Organization for Economic Co-operation and Development Organization for developed countries that accept the principles of representative democracy and a

free market economy.

http://www.mapsofworld.com/oecd-member-countries.htm

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• Ireland has the lowest tax wedge in Ireland

• the Irish tax wedge equals:

• 25.9% of total labour costs

• 10% below the OECD average of 35.6%.

• components of the Irish tax wedge are:

• income taxes (13.4%) + employee PRSI (2.9%) + employer PRSI (9.7%). http://www.nerinstitute.net/blog/2013/05/15/ireland-has-the-lowest-tax-wedge-in-europe/

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Centralised Wage Bargaining • Employers in a sector get together and bargain with one or

more unions representing the employees of those employers. http://www.westerncape.gov.za/text/2004/4/know_your_lra_chap5.pdf

• Collective bargaining in Ireland is a voluntary process in that there is no obligation on either party to enter into negotiations

• Concept of "free" collective bargaining

Ladies and Gentlemen

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Referenceshttp://www.finance.gov.ie/documents/publications/reports/2009/rrunemploy.pdfhttp://www.investopedia.com/terms/r/replacement-rate.asptp://www.finance.gov.ie/docuhtments/publications/reports/2009/rrunemploy.pdf

tp://www.finance.gov.ie/docuhtments/publications/reports/2009/rrunemploy.phttp://www.investopedia.com/terms/c/cyclicalunemployment.asp

http://www.eurofound.europa.eu/emire/IRELAND/UNEMPLOYMENT-IR.htm

http://www.nerinstitute.net/blog/2013/05/15/ireland-has-the-lowest-tax-wedge-in-europe/

http://www.mapsofworld.com/oecd-member-countries.htm

http://www.nerinstitute.net/blog/2013/05/15/ireland-has-the-lowest-tax-wedge-in-europe/http://www.westerncape.gov.za/text/2004/4/know_your_lra_chap5.pdf