Wednesday, 13 June 2012

The Costs of Working in Ireland

Nat O'Connor: The ESRI withdrew a working paper today. The Irish Times reported that this was "unprecedented". However, another ESRI report (on waste incineration) was being "re-examined" by the ESRI last year, so it is not completely unheard of.

Working in a think-tank that also publishes discussion papers that are the author's sole responsibility, I have a certain sympathy for the ESRI's position. The whole point about working papers - and the Cost of Working piece was just that, not a 'report' as The Irish Times claims - is that they are open for discussion and debate, and there is an opportunity for new information and new analysis to influence the author's thinking before a final version is produced. Taken to a logical extreme, it is always possible that working papers in the social sciences are simply wrong. The margin of error in statistical analysis always allows for a few lemons. But this is not always obvious and we need the publication of more, and more diverse, analysis in Ireland, not less.

The pity about this brief storm is that the withdrawal of the paper will focus more attention on its uncertain conclusions than if it was quietly ignored. It's worth noting a couple of things about the paper. (I found a copy here:

First of all, the data is from the 2004/05 Household Budget Survey, at a time when we had practically full employment in Ireland. While the 'incentives' might seem to have made moving from welfare to work unattractive, the fact was that practically everyone was actually working and many people left welfare to take up employment. This somewhat deflates the central argument of the paper.

The paper rightly points out the fact that childcare costs are extremely high and that they - and other costs - are a barrier to people entering work. There is no doubt that there is a weight of evidence that people, especially women, are put off from entering the labour market because of the costs of childcare. People parenting alone are particularly affected by this.

But the paper does not examine other costs, and factors that offset these costs. For example, housing costs are a major factor. People who gain employment will lose Rent Supplement, whereas people living in local authority social housing can maintain their lower-than-average 'differential rent' when they gain employment. (Differential rent is not a bad thing, as cheaper rent makes it possible for some people to take lower paid employment). In other words, there are lots of major variables not examined in the paper that change the incentives about working.

Moreover, are economists better placed than psychologists to explain why people go to work? During the boom period, some people went to work for marginal benefit, when costs like childcare are factored in. However, people work in order to maintain social networks, for a sense of personal independence and for lots of other reasons. Looking only at a set of short-term cash 'incentives' won't tell the whole story.

Finally, there are other important factors to be examined. NERI point out that the ratio of people unemployed to job vacancies in Ireland is the second worse in the EU. In other words, there are far more people looking for work than there are jobs, and no amount of changing incentives is going to improve that. The real focus should be on boosting demand in the economy to generate more employment opportunities.


Paul Hunt said...

@Nat O'Connor,

Well done for posting on Tol-dole-gate. I'm just waiting to see if any of the representatives of Official Ireland over on (or on are equally as willing. You may be surprised, but I broadly agree with your take. Just two observations:
1. I'm afraid I have no sympathy for the ESRI. It should have been left out there as a working paper. If it deserves to be torn to shreds, let it be so torn. The whole purpose of working papers of this nature is to expose them to scutiny so that the analysis and findings are demolished, or revised, or strengthened. It will then be in a better shape for subsequent more forensic peer-review - or it might even be totally recast or withdrawn. For me, this suppression by the ESRI demonstrates the extent to which our so-called 'public intellectuals' are captured, constrained, conflicted or compromised.

2. The paper and the subsequent controversy obscures consideration of the real issus: why is the cost of living in Ireland so high that unemployment payments at these levels are required? Apart from some egregious feather-bedding at the top of the tree, I remain adamantly opposed to any reductions in social welfare rates or in public and semi-state pay levels until the glaring structural, financing and process inefficiencies and monopoly profit gouging and rent-seeking across the private, public and sheltered sectors are tackled. Tackling these will boost disposable incomes and consumer demand - leading to increased private investment.

Anonymous said...

Its interesting that RTE calls the ESRI "the Government think tank". There is no doubt that it has changed its direction in its forecasts to support the Government on its austerity programme. The mass of the Irish people are opposed to this programme and it is clearly not working, but the ESRI is entitled to its position.A little more consistency and self criticism in the light of "events dear chap" would not go astray however.

Nat O`Connor said...

@ Paul Hunt

You note "The extent to which our so-called 'public intellectuals' are captured, constrained, conflicted or compromised.". Ironically, the media can constrain academic freedom by failing to acknowledge that it exists in these cases.

It makes a more exciting headline if "an ESRI report" says something, rather than a working paper by three researchers, only one of whom actually worked for the ESRI at the time.

I have sympathy for the ESRI in so far as it is being blamed for the content of a single unreviewed working paper. But I agree that the paper should not be withdrawn from public circulation or academic criticism.

Paul Hunt said...

@Nat O'Connor,

I still don't understand your sympathy for the ESRI - and certainly not your implicit criticism of our 'fourth estate'. All the ESRI had to do was re-state what is written at the bottom of the first page of this working paper:
"ESRI working papers represent un-refereed work-in-progress by researchers who are solely responsible for the content and any views expressed therein. Any comments on these papers will be welcome and should be sent to the author(s) by email. Papers may be downloaded for personal use only."

Our wonderful 'fourth estate' produces no shortage of nonsense - or, even worse, fails to produce what it should in the public interest, but on this occasion I have no problem with them treating the ESRI as the 'Government's think-tank'. He who pays the piper calls the tune - and the ESRI has consistently demonstrated its willingness to play the desired tune. This in no way should be interpreted as impugning the professionalism or integretity of the ESRI staff. We are privileged to have such a dedicated cadre of economic and social researchers. But in many instances quite a few are forced to perform intellectual contortions and verbal gymnastics so that they can produce something meaningful and useful, but that doesn't upset their paymasters - who, in many instances are guangos or semi-states.

This is precisely the point Richard Tol made as he was leaving last year.

Bert McCann said...

Usually when it is found that people are better off on the dole it can be concluded that it is because wages are set at too low a level. Or in this country is it because people on social welfare are expected to live on a pittance which is insufficient for other than very basic needs? Either reason might be read as critical of the government's policy and actions thus the paper had to be pulled.

Anonymous said...

Meanwhile, over on the Irish Economy blog –