OECD warns of risk of high long-term unemployment

There is a risk of high long-term unemployment in Ireland unless more urgent steps are taken to help those who have lost their jobs, according to a major new study published today.

The Paris based Organisation for Economic Cooperation and Development's Economic Survey of Ireland 2009says that more effective polices towards the unemployed must be introduced which includes cutting dole payments and the establishment of a single organisation to deal with unemployment benefits and managing back-to-work programmes and training.

The report, which was published this morning, also calls for the tax base to be broadened, the public sector modernised, further regulation of financial institutions and a review of the minimum wage level.

Ireland's gross domestic product (GDP) may shrink 7.5 per cent this year and 2.4 per cent in 2010, the OECD said in its report. It forecast a budget deficit of 12.2 per cent of GDP for this year and 11.3 per cent next year.

The report warns that further recapitalisation of the banks may be necessary as assets to be purchased under the National Asset Management Agency (Nama) will be below book value. However, it adds that while the Government should not rule out temporarily nationalising the banks, there would be major drawbacks in doing so.

The OECD said that while the Irish labour market is flexible in terms of regulation and is currently witnessing a "remarkable" reduction in wage levels, there is a risk that a high rate of unemployment could be sustained due to a weakness in back-to-work initiatives and high benefits.

It called for a reduction in social benefits that are in line with falling prices and also suggested that benefits be further reduced for long-term claimants to encourage them to return to the workforce at the earliest opportunity.

New incentives to help lone parents, women and those with disabilities to enter the workforce should be introduced.

The OECD also calls for a strengthening of approaches to help unemployed people find work which includes forcing long-term claimants onto work programmes. It said Ireland is unsual in having such a large number of agencies involved with helping the unemployed and recommended the establishment of a single organisation to deal with the unemployed.

Elsewhere, the economic survey suggests that more can be done to promote sustainable long-term growth in Ireland through measures such as the removal of barriers to competition in a number of sectors. It calls for the tax base to be broadened, saying that there is "an extensive and inefficient system" of tax reliefs that allow many people to pay little or no income tax at all.

It also recommends a reduction in the public sector pay bill, a strengthening of banking regulation and supervision and the introduction of more effective macro-prudential policies.