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Novel welfare state responses in times of crises

Working Paper 2021-573

Abstract

This paper looks at the social policy responses to the Great Recession and the COVID-19 crisis and assesses their impact on preserving living standards in Ireland. The former crisis was in an environment pressured to balance budgets with a greater focus on cost reduction. In contrast, during the COVID-19 crisis, there was a greater focus on mitigating the impact on household incomes largely funded by debt. Another innovation in the current crisis were the joint public and private responses through social partnership. Using the microsimulation methodology, we find a stronger social policy response during the COVID-19 crisis than during the financial crisis. However, as the impact of the COVID-19 crisis was deeper and quicker, family support was not as strong as there were more individuals out of work. The contribution of the private support based on social partnership, however, was stronger. As a result, those on lower incomes ended up with higher disposable incomes at the onset of the COVID-19 crisis, albeit with policy learning, this fell over the first wave of the pandemic. We conclude by reporting a positive impact on trust in public institutions during the COVID-19 crisis as opposed to a decline during the financial crisis.

Authors: Cathal O’Donoghue, Denisa M. Sologon, Iryna Kyzyma.

Keywords: COVID-19 crisis, Great Recession, social policy responses, income losses, living standards, microsimulation.
JEL: D31, H12, H23, I38, J38