Winding down PUP raises fundamental issues on unemployment payments

The usual unemployment social protection system (job seekers benefit and jobseekers allowance) was correctly deemed to be inadequate to deal with the new situation.

The existing system would have been incapable of quickly processing hundreds of thousands of new applicants. It also worked on the basis of the recipient being available for work and being active in seeking work.

The Covid unemployment was different as people had jobs and were expected to return to them when lockdown ended.

The solution, for which the Government deserves great credit, was an easily administered, and easily applied for, new unemployment payment, the PUP.

The Department of Social Protection also deserves great credit for its efficient and speedy administration of the new system which by the end of March 2020 had 394,000 recipients and by early May 2020 had 602,000 recipients.

The initial PUP payment was a single weekly rate of €350 regardless of previous earnings or employment situation, unlike the usual unemployment income support which depends on the number of dependents and previous income. The €350 was generous compared to the usual weekly unemployment payment of €203 for an individual who had previously earned €300 or more.

It can be readily seen that some PUP recipients received more than or close to their previous incomes while some would have received more on jobseeker benefit subject to eligibility.

The overall generosity of the PUP can be justified by the very large numbers of people affected by the pandemic restrictions.

Minimal or no income support would have alienated many people, fractured social cohesion, and reduced the effectiveness of the anti-Covid measures.

However, the fact that many claimants received more than their previous earnings and that previously employed people who were now full-time students received the PUP generated criticism.

But many full-time students would have continued to work part-time if there was no lockdown.

The generosity of the PUP relative to previous income has been gradually reduced through changes in June and September 2020 and further reductions are planned for September, November, and February. 

These changes reduced the rate of payment, and related it to previous incomes and removed low-income categories from the PUP to jobseeker terms.

Including the September changes those on previous weekly incomes of less than €200 will move to the standard jobseeker system and the PUP rates will be €203 (incomes between €200 and €299.99), €250 (incomes €300 to €399.99) and €300 (incomes of €400 and above).

From November, the lower income group will move to standard jobseeker arrangements and the other two rates will drop to €203 and €250.

These changes largely bring unemployment payments back into the usual social protection system and rates of payment. In February all remaining PUP claimants will move to the jobseeker system.

The eligibility of full-time students to receive PUP is being ended on September 7.

The original PUP payment would have been a significant disincentive to take up employment on a part-time and low wage basis in a normally functioning economy. 

For example, why would a person earning €200 from a part-time job take up work and lose the €350 PUP unless administratively required to do so? Of course, as many sectors were closed this would not arise as an issue until the economy reopened.

The changes in PUP since June 2020 have reduced but not eliminated the disincentive effect.

From September 14, those with a previous income of €200 will get a PUP of €203, those on an income of €300 would receive a PUP of €250.

Of course, the higher the income the weaker is the attraction of the PUP payment. These post-September PUP payments are higher than jobseeker benefit rates without dependents.

As of August 31, 44.2% of PUP recipients had previous weekly incomes of €400 or more, 16.8% had previous incomes of €300-€399, 16.6% had previous incomes of €200 to €299, and 18.5% had previous incomes of less than €200.

The low previous income of PUP recipients is illustrated by 55.8% of them having previous weekly incomes of less than €400.

The PUP payment level has not prevented a substantial drop in the number of recipients from a 2021 maximum of 481.3k in early February to the latest August 31 level of 143.6k.

Currently, hospitality is the sector with the largest number of PUP recipients at 28,441. This compares with 111.9k in February.

Some sectors are particularly dependent on part-timers and are characterised by relatively low earnings per part-time person. These would have difficulty persuading potential part-timers to give up the PUP and return to work.

The part-time share of total national employment was 20.9% in 2019. The hospitality sector of restaurants, hotels, and public houses is much more part-time intensive with a part-time share of 41.8%.

This measure is a substantial boost for sectors such as hospitality which employ students on a part-time basis to a significant extent and were having difficulty in attracting this source of labour.

Within hospitality, 50.7% of part-time workers were in part-time employment because of school, education, and training at the end of 2019.

The original PUP design and level of payment met the needs of the occasion.

In a normally functioning economy, the original PUP would have significantly discouraged part-time and low-income workers from taking up employment in the labour force. 

But, of course, the economy was largely closed and so the disincentive effect was not put to the test on a widespread basis.

The several actual and planned changes to PUP since its introduction have reduced the original disincentive effect by lowering rates of payment, moving some claimants to the usual jobseeker system and ending the eligibility of full-time students for PUP.

Overall, it is desirable to bring the usual social protection system and PUP together but this raises a more fundamental issue of the appropriate size of the usual unemployment payment.