ISME has launched a report to examine how state policies are affecting the decision-making of low skills workers with regard to work. ISME’s ‘Job Kill Zone’ report examines how the interaction of policies on tax and other deductions for workers in the income range from €18k to €30k per annum have made working unattractive for many in this income zone.
The report finds that workers with lower market skills, such as early school leavers, could be expected to react to this Jobs Kill Zone by either dropping out of the labour market or adjusting their work practices to minimise taxation. ISME has long argued both in its pre-budget submissions as well as its submissions on the national minimum wage, that driving up the statutory minimum wage is simply not a solution to the problem of low wages in the economy.
In 2020, exchequer income tax receipts only fell by just 1% when compared to 2019, exceeding the expectations of the Department of Finance. This was despite the massive disruption of COVID-19 to employment in a number of industries – in particular the retail and hospitality sectors.
Neil McDonnell, CEO of ISME said: “The policy failure that has allowed the ‘Job Kill Zone’ to develop is underpinned by a lack of understanding about the private sector labour market. There is compelling evidence that suggests policy-makers, senior civil servants, politicians and policy advisors lack understanding of the situation of low-income workers and have allowed the complex interaction of state policies to develop in a way that has created a Jobs Kill Zone affecting low-income workers. As this report shows, workers in the €18k to €30k income zone have concerns not just with their earnings, but with payment for medical costs and access to Local Authority housing.”
Based on the report findings, ISME has outlined four policy changes required to eliminate the Jobs Kill Zone and significantly improve the incentive to work among low-skill workers.
- Adjusting PRSI to eliminate the very high marginal rate on additional income in the PRSI Transition Zone from €18,304 to €22,048 per annum.
- Setting the basic rate for qualifying for the medical card at more than 30% above the comparable Jobseeker’s assistance rate.
- Replacing the child element in Jobseeker’s payments and all other welfare schemes by doubling Child Benefit, phasing out Working Family Benefit, and at the same time making the Child Benefit taxable
- Significantly increasing the income thresholds for access to social housing. Reform or remove the link between income and local authority rent.
Neil McDonnell added: “These four policy changes taken together would eliminate the Jobs Kill Zone and significantly improve the incentive to work among low-skill workers. We believe that there are strong economic, social and moral arguments in favour of changing the policies which have created the Jobs Kill Zone. We believe that our conclusions and recommendations are evidence-based and would transform the position of low-income workers. We hope that the newly established Commission on Taxation and Welfare will endorse our findings, and that the Government will commit to addressing these issues in Budget 2022.”
The report examined the situations of a single person working at, or just above, the minimum wage and a worker with an adult dependent and 3 children, again working at or just above the minimum wage. All figures are for the year 2020.
Find out more about ISME’s Job Kill Zone report here.