31 July 2014

Tol's dole report: the details

09:31, Fearghal O'Connor

The main finding of Professor Richard Tol’s controversial report is that the additional costs of working in Ireland compared to being on social welfare are highly significant at nearly €7000 per year without children.

This increases to nearly €9000 per year with one child under the age of five, the report said. Tol earlier [today defended](http://www.businesspost.ie/#!story/Home/News/Professor+stands+over+controversial+dole+study/id/19410615-5218-4fd8-4278-d49e60179980) his working report, which the ESRI has withdrawn from its website.

“This is important for policy as it substantially affects the incentives to work,” said the paper. “A comparison of take home pay shows that it does not pay to work for 1 per cent of the population. However, a comparison of take home pay plus extra expenditures shows that 15% of the people without children, and 44% of people with children, are better off not working.”

These substantial additional costs "seriously hamper work incentives as it is shown that there is a 25-fold increase (without young children) in the number of individuals who have a higher income when unemployed than when in employment with the inclusion of these additional costs of working,” the report said.

Previous literature on the costs of working largely ignores these extra costs in estimations of the return to work, it said. “This paper thus extends the literature,” it said.

“The evidence presented in this paper suggests that the costs of working are high,” it said. “Expenditure is higher for those in work than out of work. For an employed person without children the additional costs of working sum to some €140 per week, or almost €7000 a year. This increases to €9000 when there are young children in the household!”

The employed may have a higher disposable income but they spend more on clothing, transport, childcare and eating out, said the paper. There is no significant impact of employment on heating and lighting expenditure, it said, but employed people incur 5 times the costs of an unemployed person.

The paper is particularly hard hitting on the high cost of childcare in Ireland.

“Despite the well-known benefits of affordable and good-quality childcare, Ireland remains one of the most expensive countries in Europe to avail of these services,” it said. It refers to a previous study that shows Irish net childcare costs are highest out of several European countries.

“As an example the fees charged per month by childcare centres, per two-year old, for various European countries are displayed below for the year 2001 or latest year available,” said Tol’s report. “Ireland is seen to have very expensive childcare with 30 per cent of a monthly wage being spent on childcare services. This figure is for the private sector, however; the figure for the public sector is lower with childcare costing 25 per cent of a monthly wage but which is still above the average in Europe.”

In the paper, Tol does recognise that there are other reasons to work other than monetary ones.

“There are non-financial incentives to work as well; some individuals may choose to work on principle, or to set an example for their children, even if the financial incentive to do so is quite weak,” the working paper said. “In such cases, expenditure on something like childcare may not be a work-related cost. In the following we correct for several factors (including sex, education and age, amongst others) in an attempt to isolate work-related expenditure on items such childcare and transport,” it said.

The report has been removed from the ESRI website but is now available [here](http://www.sussex.ac.uk/Users/rt220/WP436.pdf) on the University of Sussex website.

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