The impact of social transfers on labour productivity

P

Purple

Registered User
Messages
14,493
Can anybody point me to a study on the impact of social transfers, specifically direct income supports, on labour productivity?

In a recent report from the Economic Innovation Group (a US think tank) called https://www.askaboutmoney.com/file:///C%3A/Users/wag/Downloads/Great-Transfermation.pdf (The Great Transfer-Mation) on how income is derived in the US makes for a very interesting read.

Two lines stand out for me;
“Across huge swaths of the American map, ageing has pushed transfers higher while local economic struggles have suppressed growth in other earnings,”
“The result is a reshaping of how communities derive their livelihood — and a fading importance of work and productive activity in generating local incomes.”
 
Purple said:
In a recent report from the Economic Innovation Group (a US think tank) called https://www.askaboutmoney.com/file:///C%3A/Users/wag/Downloads/Great-Transfermation.pdf (The Great Transfer-Mation)
Click to expand...
Your link doesn't work so this might help...
eig.org

The Great Transfer-mation - Economic Innovation Group

Explore your community’s reliance on government transfers through EIG’s Great Transfer-mation Project.
eig.org eig.org
 
I haven't read the report (though I will) but the extract you quote doesn't suggest that the transfers are affecting labour productivity.

The transfers are happening because of demographic change — a growing proportion of the community is elderly, and therefore non-working. Unless they are to starve, the amount of wealth transferred to them from the still-working proportion of the community must grow commensurately. Individual labour productivity is unaffected but the combination of unchanging productivity and higher transfers means that the standard of living the still-working proporation of the community must fall. The only way this can be avoided is if there are transfers into the community from outside, so that the non-working proportion of the community can be supported by those transfers rather than by transfers from the still-working proportion.

If, because of an aging population and a low birthrate/immigration rate, the still-working proprtion of the population falls from (say) 60% to 55%, obivously the total productivity of the community has fallen — there are fewer workers. But this happens independently of, and before, any transfers within the community, from outside the community to inside the community. It's not caused by the transfers. In fact, the transfers are a response to the productivity issue, not a cause of it.
 
Fortune said:
Unless, of course, they have prudently provided for their own retirement income.
Click to expand...
That still involves transfers from the still-workers. The retired sow not; neither do they reap, so the food crops they eat are grown and prepared by others, and then given to them. Same goes for all the other goods and services they consume.

A social security system, or a system of funded retirement savings invested in bonds and equities are alternative mechanisms for effecting this transfer, but it's the same transfer going on in both cases. And if the dependency ratio changes to that there are relatively more retirees and relatively fewer workers, the same stresses will be experienced. (They may play out differently, though, depending on what transfer system or systems you have in place.)
 
Fortune said:
Unless, of course, they have prudently provided for their own retirement income.
Click to expand...
As Tom points out, the income/value of such provision depends entirely on the sweat of those still working. It's not like Apple stock will hold up if its entire workforce retires in the morning.

On top of that, prudent provision for oneself in the US works perfectly only if (a) you can afford it and (b) you don't get seriously sick or injured. Very few people can both afford to make their own provision for retirement and avoid illness and accident for their entire lives- i know a couple of people who've left successful careers in the US to return to Ireland when they witnessed the consequences of injury or illness in the US.
 
Depending on how you count them, there are two or three mechanisms for transferring wealth from workers to retirees so that retirees don't have to starve in the gutter:

- A social security system, in which workers are taxed and the taxes are used to provide income for retirees

- A funded pension system. Pension funds invest in shares and bonds. Workers are taxed, and the tax is used to pay interest on the bonds, which goes to the pension funds. Similarly workers produce goods and services for their employers, who sell the goods for more than they pay the workers, and use the profits to pay dividends to the pension fund shareholders. The pension funds use the interest and dividends they receive to provide income for retirees. The whole system in incentivised/supported by tax reliefs/deferrals and othe regulatory measures.

- Private savings. A lot like the funded pension system, except with the tax incentives that pension funds get.

Each of these three mechanisms has its pros and cons. For that reason most modern enconomies rely on some combination of the three mechanisms, rather than on one of them exclusively; this is generally considered to provide a more resilient retirement income environment. This is referred to as the three-pillar system, with social security being the first pillar, pension funds being the second pillar and general savings the third pilllar.
 
The other issue is trump tarriffs and the transfer of wealth from us multinationals as corporate taxation. That also distorts the productivity figure for Irish work force as that also reflects the revenue flows of us multinationals siphoning money through Ireland. That bounty also allows the government to transfer way more money through social transfers to the population. That effect makes work less attractive as taxes on workers are relatively high versus welfare so the actual productivity of the domestic sector goes down. It's harder to get guys onto building sites etc when the government is distorting the labour market and housing market through those social transfers financed in large parts due to corporate tax bonanza
 
Social transfers might affect the decision to work, or the decision about how many hours to work.



But this query seems to be about productivity, which is output-per-worker (per hour).

I can't see how social transfers affect hourly productivity?
 
joe sod said:
That effect makes work less attractive as taxes on workers are relatively high versus welfare so the actual productivity of the domestic sector goes down. It's harder to get guys onto building sites etc when the government is distorting the labour market and housing market through those social transfers financed in large parts due to corporate tax bonanza
Click to expand...
This is the nub of the issue for Ireland. A welfare system should be exactly that not a way of living. If we look specifically at housing which is very topical at the moment. The private purchaser is expected to subsidise the Part V requirements within planning. The bizarre idea is that this is being taken to the extreme where you have properties worth anywhere up to €700k going to social housing (under its various guises).

Yes by all means we collectively have a responsibility to offer support for housing our population but at what actual cost! Try put yourself in a person's shoes who their wildest dreams will never afford to live in a property like the above as they are over the income threshold to be eligible for the above.

What some people fail to understand is that a welfare payment of €100 does not cost the State just the €100 it actually cost the State the €100 plus the lost income tax/corporation tax/PRSI/USC etc of the non productive member of society.

Effectively we as a State have been spending money we did not earn (Corporation tax's) and we may now end up paying the price for not invested the surplus's wisely.
 
The Horseman said:
What some people fail to understand is that a welfare payment of €100 does not cost the State just the €100 it actually cost the State the €100 plus the lost income tax/corporation tax/PRSI/USC etc of the non productive member of society.
Click to expand...
This is only true if all welfare payments result in people not working who would otherwise work.

But you only have to say that out loud to see how silly it is, since large amounts of welfare are paid to people who cannot work, or cannot find work. The OP specifically asks about the impacts of welfare in an aging population — i.e., retirement pensions. It's probably true that if we provided no retirement pensions then some people who currently retire at 65 would work beyond that, but we can hardly imagine that they would all work until they died.
 
TomEdison said:
This is only true if all welfare payments result in people not working who would otherwise work
Click to expand...
It is not though an example may explain. A working person on benefits I believe you can work 20 hrs per week and not loose your benefits.

This person can work but chooses not to work for any more than 20 hrs otherwise they loose their benefits. So we have lost income tax, prsi etc on any hours over 20 the person can work but chooses not to.

Logic would suggest the person feels better off not working more than the 20 hrs. If they were worse off they would work.

This is the reason we are where we are. Working should always be preferable to welfare but in some cases it's not. Why?

The lost income tax could be used as a fund for future state pensions thereby reducing our dependency on current taxation to fund pensuins when the ratio of workers to pensioner reduces.
 
OK, but your intial claim was expressed in terms of the welfare system and welfare payments in general. If you're only talking about disablity benefits, that's only about 5% of the total of all social welfare payments. And some of that — probably quite a large chunk of it — is paid to people who do not work at all, or work much less than 20hrs/week, because that is all their disability will allow.

To identify the cases in which people are actually discouraged from working more than 20 hrs per week would require more data than we have — you'd need to know how many recipients were working 20 hours a week, and you'd have to identify, or at least make an assumption about, how many of those could work more than 20 hours, and would have the opportunity to do so. And to calculate the lost income tax, PRSI, etc, you'd have to know what hourly rate their labour attracts.

But, given the small proportion of the social welfare bill that is represented by disability payments, it would be absurd to present this as a characteristic of the social welfare system as a whole. It's a point of detail that relates to a particular, relatively minor, class of benefits. It might possibly justify further examination to try to quantify the actual impact of the disincentive to work in excess of 20hrs/week for this group of claimants, and to see if the benefit could be better targetted or the design altered to reduce the disincentive effect.

(To be honest, if you're looking for a disincentive to work, the retirement pension would be a much, much bigger issue, since huge numbers of people receive it and many of them are perfectly fit to continue working for several, and perhaps many, more years and presumably they would, if they had no other income. If you don't see that as a problem that needs tacking, it looks almost cruel to focus on the much, muchs smaller disincentive effect of the disability benefit.)
 
TomEdison said:
(To be honest, if you're looking for a disincentive to work, the retirement pension would be a much, much bigger issue, since huge numbers of people receive it and many of them are perfectly fit to continue working for several, and perhaps many, more years and presumably they would, if they had no other income. If you don't see that as a problem that needs tacking, it looks almost cruel to focus on the much, muchs smaller disincentive effect of the disability benefit.)
Click to expand...
well yes the state pension also acts as a disincentive to work after retirement but only the non contributory pension is welfare, the contributory pension is a social insurance that you pay for during your working life through prsi contributions, if you don't contribute for the full 40 years of work you won't receive a full pension. I know its not at the total contributions base yet but will be fully in a decade, so that also acts as an incentive to work since you have to work in order to build up your contributions base.
I know some left wing voices are always going on about means testing state pension but that would undermine the whole social security system since why would you continue to contribute to an insurance where you don't receive any benefit for those payments? It would also be a huge disincentive to work
 
You have HAP and other housing benefits. Any welfare payment that is means tested acts as a disincentive to work.

Why better yourself if it makes you worse off either financially or quality of life.

How can we justify people on welfare for years and years or intergenerational families on welfare? This in itself suggests our welfare system is either to generous or to lenient or both.

This is going to change because of Trump and his tariffs.
 
joe sod said:
well yes the state pension also acts as a disincentive to work after retirement but only the non contributory pension is welfare, the contributory pension is a social insurance that you pay for during your working life through prsi contributions,
Click to expand...
They're both "welfare" in any meaningful sense of the word. More to the point, so far as this thread is concerned, they're both transfers of wealth from those who are working to those who aren't. So if transfers of this kind do impact labour productivity then they will both do that.
joe sod said:
that also acts as an incentive to work since you have to work in order to build up your contributions base.
Click to expand...
I'm not convinced. People would work anyway because they need an income to live on. Plus, if there were no social insurance system, they would have higher take-home pay, so the immediate incentive to work would be greater.

And there's no doubt that once you get to age 66 it is a major disincentive to work. Why work when you have an index-linked income anyway? I'm sure if we look at CSO workforce data we'll find that workforce participation drops off a cliff at at 65/66. That's not because people suddenly become too frail or too ill to work at that age; it's because they don't want to work (in other contexts we call taht "workshy" ;)) and because the economic imperative to do so is removed by a massive transfer of wealth from the still-working members of society.
The Horseman said:
This is going to change because of Trump and his tariffs.
Click to expand...
I seriously doubt that. Whatever the problem here is, it's not that tariffs are too low or that the US is too stable or too democratic..
 
TomEdison said:
That still involves transfers from the still-workers. The retired sow not; neither do they reap, so the food crops they eat are grown and prepared by others, and then given to them. Same goes for all the other goods and services they consume.
Click to expand...
thats also the fundamental of the monetary system, yes you can save money and spend it later in life but only the minority can do that at any time since you always need workers producing goods and services for everyone therefore transferring money and benefits to too many people then acts as a disincentive which makes everyone poorer. This is because there are less people producing goods and services which drives up the price of those. Of course some goods can be imported but everything can't.That is essentially what has happened to irish economy , the government has transferred alot of the corporation tax bonanza in benefits but also in highly paid public jobs and ngos etc that are not in the productive domestic sector.

"They're both "welfare" in any meaningful sense of the word"
No they are not, as I have explained in detail above, one you contribute to the other you do not, it a social insurance payment. Of course there seems to be a campaign to lump them all together. If the government were to means test it they would have to then convert the prsi contributions to an individual superannuation fund like in Australia where your contributions are then in your own personal fund.
 
Last edited:
You must log in or register to reply here.
Back
Top