This document discusses several economic concepts related to unemployment including replacement ratio, poverty trap, unemployment trap, cyclical unemployment, structural unemployment, tax wedge, and centralized wage bargaining. It provides definitions and explanations of each term. For example, it explains that replacement ratio refers to the percentage of after-tax income replaced by unemployment benefits and is calculated based on disposable income when working versus when unemployed. It also discusses how a high replacement ratio can disincentivize taking a job offer.

1. Unemployment
Replacement Ratio
Poverty Trap
Unemployment Trap
Cyclical Unemployment
Structural Unemployment
Tax Wedge
Centralised Wage Bargaining

2. Replacement ratio
• Percentage of After-tax income that is replaced by
unemployment benefits.
• Calculated as follows.
• 100 x In work family disposable income/Out of work family
disposable income
http://www.finance.gov.ie/documents/publications/reports/2009/rrunemploy.pdf
• Pension systems
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• Measure Poverty and unemployment traps.

3. • Financial incentives
• depend on the balance between the individual/family’s disposable
income when employed and when unemployed.
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http://www.investopedia.com/terms/r/replacement-rate.asp

4. •
•
•
•
•
Low incomes
Increase of gross income - Reduction in net income
Higher tax bracket
Withdrawal of social benefits
Disincentives to work for higher earnings or work for
increased hours
• Replacement rates can highlight poverty trap issues.
tp://www.finance.gov.ie/docuhtments/publications/reports/2009/rrunemploy.pdf
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Poverty Trap

5. Unemployment Trap
• The higher the replacement rate the greater the disincentive
to take up offers of employment.
http://www.finance.gov.ie/documents/publications/reports/2009/rrunemploy.pdf
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• A person’s out-of-work family disposable income compares
favorably with his/her in-work family disposable income,
thereby resulting in disincentives to work.

6. Cyclical Unemployment
• When business cycles are at their peak
• When the business cycles are at a low
http://www.investopedia.com/terms/c/cyclicalunemployment.asp
• USA, Australia
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• Factor of overall unemployment
• Trends in growth and production that occur within the
business cycle.

7. • Resulting from changes in the structure of
industry.
• Recession or technological advances.
• late 1970s and early 1980s structural
unemployment resulted from the
complete disappearance of the car
assembly and paper milling industries in
Ireland.
http://www.eurofound.europa.eu/emire/IRELAND/UNEMPLOYMENT-IR.htm
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Structural Unemployment

8. • Measures the difference between the total labour costs to the
employer. (wages + employers PRSI) and the corresponding
net take-home pay for an employee (gross wages - all income
taxes and PRSI). It is generally reported as a percentage of
total labour costs. http://www.nerinstitute.net/blog/2013/05/15/ireland-hasthe-lowest-tax-wedge-in-europe/
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Tax Wedge

9. OECD
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Organization for Economic Co-operation and Development Organization for
developed countries that accept the principles of representative democracy and a
free market economy.
http://www.mapsofworld.com/oecd-member-countries.htm

10. • Ireland has the lowest tax wedge in Ireland
• 25.9% of total labour costs
• 10% below the OECD average of 35.6%.
• components of the Irish tax wedge are:
• income taxes (13.4%) + employee PRSI (2.9%) + employer PRSI
(9.7%). http://www.nerinstitute.net/blog/2013/05/15/ireland-has-the-lowest-tax-wedge-in-europe/
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• the Irish tax wedge equals:

11. Centralised Wage Bargaining
• Employers in a sector get together and bargain with one or
more unions representing the employees of those employers.
• Collective bargaining in Ireland is a voluntary process in that
there is no obligation on either party to enter into
negotiations
• Concept of "free" collective bargaining
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http://www.westerncape.gov.za/text/2004/4/know_your_lra_chap5.pdf

12. Ladies and
Gentlemen

13. References
http://www.finance.gov.ie/documents/publications/reports/2009/rrunemploy.pdf
http://www.investopedia.com/terms/r/replacement-rate.asp
tp://www.finance.gov.ie/docuhtments/publications/reports/2009/rrunemploy.pdf
http://www.eurofound.europa.eu/emire/IRELAND/UNEMPLOYMENT-IR.htm
http://www.nerinstitute.net/blog/2013/05/15/ireland-has-the-lowest-tax-wedge-ineurope/
http://www.mapsofworld.com/oecd-member-countries.htm
http://www.nerinstitute.net/blog/2013/05/15/ireland-has-the-lowest-tax-wedge-ineurope/
http://www.westerncape.gov.za/text/2004/4/know_your_lra_chap5.pdf
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tp://www.finance.gov.ie/docuhtments/publications/reports/2009/rrunemploy.phttp://w
ww.investopedia.com/terms/c/cyclicalunemployment.asp