Department of Finance publishes analysis of replacement rates for unemployed people

Posted on Sunday, 6 December 2009

Return to work patterns are often a function of more than financial rewards and 

include such considerations as work availability, family commitments, travel to work 

time and the type of available employment. However, financial incentives are 

important and these depend on the balance between the individual/family’s disposable 

income when employed and when unemployed. 

The replacement rate for given income levels measures the proportion of out-of-work 

benefits received when unemployed against take home pay if in work. While there is 

no pre-determined level of replacement rate which would influence every individual’s 

decision to work, clearly the higher the replacement rate, the lower the incentive to 

work. A replacement rate in excess of 70% is considered to be excessive. 

High replacement rates are usually considered to be unsustainable in the absence of 

relevant and timely labour activation such as appropriate education, training or job 

placement measures and where sanctions are imposed where such are not availed of. 

Replacement rates should however be interpreted with caution as they can vary 

significantly depending on what is included in in-work and out-of-work income, the 

family types chosen, level of in-work income, the timing and duration of 

unemployment etc. In drawing conclusions it is therefore important to be aware of the 

implications of the assumptions behind the analysis and to look beyond the headline 

replacement rate figure.