Welfare reform planned to end unemployment 'traps'

JOBS:THE PLAN envisages a 12 per cent cut in the minimum wage and argues that welfare cuts must ensure there is no disincentive to work.

The minimum wage, which was introduced at a rate of €5.59 in 2000, has increased by 55 per cent while the consumer price index, by the end of this year, will have increased by approximately 28 per cent since 2001.

The Irish minimum wage is second highest in the EU in absolute terms, the plan says. A €1 cut to bring it to €7.65 per hour, or €306 for a 40-hour week, will leave it in the top tier of European minimum wage rates. Most workers on the minimum wage are in the textile area, retailing, hotels, restaurants and bars and personal services sectors, where employment is sensitive to wage rates. They are areas where there have been significant job losses and are important for encouraging youth employment.

Other areas where wages are regulated, through the Registered Employment Agreement and Employment Regulation Order schemes, will be reviewed by Minister for Enterprise, Trade and Employment, Batt O’Keeffe over the coming three months.

The report says while social policy must continue to protect the most vulnerable in society, it must not discourage the unemployed from returning to work.

The reduction in the minimum wage will affect the replacement rate in the labour market, the report says. The replacement rate measures benefits received when out of work against take-home pay if in work.

Persistent high replacement rates “can act as a major disincentive to work. Replacement rates of the order of 70 per cent can be considered to be a barrier to employment”.

The report envisages reform of the welfare system to reduce unemployment traps and the strengthening of measures, such as group interviews for the unemployed and increased training, that militate against long-term unemployment.