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.