Supporting wage cuts will be full of risks

Think back to the beginning of the pandemic and the focus was all on getting life support equipment.

Amidst the massive demand, there was a shortage of ventilators globally and they were badly needed to keep the sickest patients with Covid alive.

In the business world here, various types of life support devices were also needed, as companies whose turnover had collapsed needed an urgent cash infusion to survive and keep their employees.

The Temporary Wage Support Scheme (TWSS) and its subsequent successor, the Employment Wage Support Scheme (EWSS), were quickly introduced as a vital mechanism for maintaining the relationship between once weak but viable firms, and their employees intact.

Without these schemes, hundreds of thousands of additional workers would have been laid off, and they would have joined hundreds of thousands more who were receiving Pandemic Unemployment Payments (PUP).

By offering wage subsidies, communications between tens of thousands of employers and their employees did not break, leaving them in a better position to recover when it finally started.

In all, over the 16 months of its existence, EWSS has been withdrawn by 51,500 employers and used to pay a total of 670,800 employees.

During the last full month of September, 27,200 companies were still using the system, and 309,900 workers benefited from it.

The cost of the scheme was huge though. €5.087 billion was the bill so far, plus another €804 million in PRSI.

Given that it is borrowed money, it is clear that it cannot continue indefinitely.

So the government explained in Tuesday’s budget when and how the EWSS will retire, in a phased manner that avoids the so-called brink.

The scheme will be extended until the end of April and will continue at current rates for October and November, but will be reduced to a two rate structure during December, January and February.

In March and April, it will be reduced to a flat rate support of €100 and no new entrants will be able to join after January 1.

The estimated cost of the extension from November to the end of April is around €1.26 billion.

The structure provides a clear and certain sliding path for the EWSS, providing employers with a view of what’s ahead.

However, this is unlikely to make the disappearance of the system for many companies or their employees easier.

According to an analysis of job seekers’ forecasts conducted by the Department of Public Expenditure and Reform which has been completed and published as part of 2022 budgetOn average, up to 220,000 employees will continue to be supported by the EWSS until it stops in April.

This is a large number of employees who, if the recovery doesn’t go well now and then for their employer, are likely to find themselves out of work in the spring when the plug is pulled.

The partition analysis is not clear about the implications – nor can it be.

The LR [Live Register] The implications of closing the EWSS are uncertain, as these effects will be contingent on the overall financial health of the unknown enterprise base.”

But it nonetheless predicts that even if a quarter of those 220,000 employees lose their jobs and end up on the direct record (remember the PUP disappeared in February), the additional cost to the welfare budget would be €385 million if they remained in service. until the end of 2022.

If the number halves, the cost associated with it will be 771 million euros.

The author, Niall Hickey, acknowledges that this illustration is simple because it seems unlikely that this many EWSS employees will move to the Live Register when the program closes, particularly at one time.

“In addition, the assumption that this population will remain in LR, and will not benefit from the expected improvement in the labor market in 2022, seems unlikely,” he writes.

However, it does illustrate the huge potential impact that termination of EWSS can have on the workers whose jobs depend on it.

However, the analysis does not extend to looking at the impact on the companies themselves.

But there is widespread fear among politicians, officials, economists and business leaders, that the end of early warning and forbearance and a parallel reduction in creditor tolerance as the economy recovers, could spell the end of many businesses as well.

So far, the level of business failure that has occurred during the pandemic has been remarkably low.

On Monday, Deloitte reported a 36% decrease in corporate bankruptcies for the year so far, compared to the same period in 2020.

However, there are initial signs that the trend may be changing, as Deloitte found that during the third quarter of the year, the number of insolvencies rose 88% to 109 compared to the second quarter.

« While there was a significant increase in insolvency activity between the second and third quarters, it is clear that the full impact of Covid-19 restrictions on the Irish economy has yet to materialize in terms of the total number of corporate bankruptcies, » the advisory said. .

According to Deloitte, “With the expected removal of government subsidies after the end of the year and beyond, the first half of 2022 may begin to reveal the real economic impact on the SME sector.”

The latest revenue numbers on EWSS receivers provide some insight into where the storm could be worse.

Not surprisingly, 19% of all EWSS employers are in the accommodation and food services sector, followed by 14% in wholesale and retail trade and 11% in construction.

But when you look at the numbers of employees who rely on the EWSS system, 35% of them work in accommodation and food services.

Geographically, outside of the roughly one-third of Dublin-based employers and employees, the rest is well spread across the country.

In other words, when the EWSS ends, the impact will likely be felt by every county.

All this is additional food for thought as the government prepares to decide whether or not to lift restrictions entirely on Friday.

Businesses that are able to trade normally over the coming months will have a better fighting chance when the EWSS is removed next April.

But if they are operating with one hand tied behind their back for additional weeks or months, they will still be weak and perhaps less willing to stand on their own two feet.

Many people have difficult choices.

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