Benefit systems and work incentives

the proportion of income from work replaced by unemployment and related welfare benefits as a proxy for benefit generosity in the OECD Jobs Study issued in 1994.. This publication will:

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on 30th September 1961, the Organisation for Economic Co-operation and Development (OECD) shall promotepolicies designed:

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The original Member countries of the OECD are Austria, Belgium, Canada, Denmark, France, Germany,Greece, Iceland, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland,Turkey, the United Kingdom and the United States The following countries became Members subsequentlythrough accession at the dates indicated hereafter: Japan (28th April 1964), Finland (28th January 1969),Australia (7th June 1971), New Zealand (29th May 1973), Mexico (18th May 1994), the Czech Republic(21st December 1995), Hungary (7th May 1996), Poland (22nd November 1996) and Korea (12th Decem-ber 1996) The Commission of the European Communities takes part in the work of the OECD (Article 13 of theOECD Convention)

Publi´e en fran¸cais sous le titre : SYST ` EMES DE PRESTATIONS ET INCITATIONS AU TRAVAIL

´ Edition 1998

 OECD 1998

Permission to reproduce a portion of this work for non-commercial purposes or classroom use should be obtained through the Centre fran¸cais d’exploitation du droit de copie (CFC), 20, rue des Grands-Augustins, 75006 Paris, France, Tel (33-1) 44 07 47 70, Fax (33-1) 46 34 67 19, for every country except the United States In the United States permission should be obtained through the Copyright Clearance Center, Customer Service, (508)750-8400, 222 Rosewood Drive, Danvers, MA 01923 USA, or CCC Online: http://www.copyright.com/ All other applications for permission to reproduce or translate all or part of this book should be made to OECD Publications, 2, rue Andr´e-Pascal, 75775 Paris Cedex 16, France.

In 1997, the OECD published Making Work Pay which explored how tax and benefit systems

may discourage individuals to seek employment It explained how the different elements of the

benefit system can combine to make work unrewarding This compendium builds on that work by

presenting in a systematic way the complicated interactions of tax and benefit systems It includes

analyses of effective tax rates and net incomes in and out of work for a variety of family situations

and shows exactly which elements of the benefit system create the most damage to work-incentives

This volume includes a description of all the different benefits made available to those without

work, the taxes they pay and tables facilitating international comparison of work-incentives It has

been prepared by Mr Marco Doudeijns and Mr Mark Pearson and is published under the

responsibility of the Secretary General of the OECD It is the first of a biannual series on benefits

and work-incentives in the OECD countries The analyses draw on detailed country-by-country

information which is available on the Internet site: http://www.oecd.org/els/socpol/

BenefitsCompendium/index.htm

The comparative tables are based on Secretariat estimates and make use of information which

has been supplied by the delegates to the Working Party on Social Policy The data on income taxes

which were needed for the production of the comparative tables were supplied by the delegates to

the Working Party on Tax Policy Analysis and Tax Statistics of the Directorate for Financial, Fiscal

and Enterprise Affairs

and the taxes paid by, those without work They are available in the language (English andFrench) in which the information was supplied The countries studied are: Australia, Austria,Belgium, Canada, the Czech Republic, Danemark, Finland, France, Germany, Hungary, Iceland,Ireland, Italy, Japan, Luxembourg, the Netherlands, New Zealand, Norway, Poland, Portugal,the Republic of Korea, Spain, Sweden, Switzerland, the United Kingdom and the United States.These descriptions are available for no charge on the Internet:

http://www.oecd.org/els/socpo/BenefitsCompendium/index.htm

A printed version (at a cost of FF 160 – to cover reproduction and postage costs) can beobtained by filling in the following form and mailing it to: OECD/DEELSA, Social Policy Division,Benefits and Incentives Compendium, 2, rue André-Pascal, 75775 Paris Cedex 16, France

✄

-❑ I would like to receive a copy of the country-by-country descriptions (FF 160)

TABLE OF CONTENTS

1 INTRODUCTION 9

2 DESCRIPTION OF KEY FEATURES OF THE TAX AND BENEFIT SYSTEM 13

Introduction 13

An overview of the key benefits in the system 13

Calculation of gross benefits 15

The tax treatment of benefits 25

Part-time and occasional work 25

3 COMPARATIVE TABLES AND CHARTS 29

Introduction 29

Benefit income in the first month of receipt 29

Benefit income in the 60th month 32

Young unemployed 36

Child-care benefits 36

Changes in benefit systems over time: OECD’s unemployment benefit index 38

4 PART-TIME WORK AND TWO-EARNER COUPLES 43

Introduction 43

Explanations of the columns of Tables 4.1 and 4.2 43

5 POLICY DEVELOPMENTS 49

Introduction 49

Major policy trends in OECD countries 49

A NNEX : ASSUMPTIONS AND LIMITATIONS 51

BIBLIOGRAPHY 59

Benefit Systems and Work Incentives

List of tables and charts

Table 2.1 Main elements of the tax and benefit system 14

Table 2.2 UA payment rates and benefit duration 16

Table 2.3 UA payment rates and benefit duration 18

Table 2.4 Benefits for dependent family members 19

Table 2.5 Housing benefit allowances 20

Table 2.6 Child-care benefit systems 22

Table 2.7 Employment-conditional tax credits and benefits 23

Table 2.8 Lone-parent benefit arrangements 24

Table 2.9 Maximum social assistance monthly amounts 26

Table 2.10 The tax treatment of benefits 27

Table 2.11 Casual employment and benefit receipt 28

Table 3.1 Net replacement rates for four family types at two earnings levels after tax 30

Table 3.2 The composition of the net benefit income of an unemployed single in the first month of benefit receipt 31

Table 3.3 The composition of the net benefit income of a one-earner couple with two children in the first month of benefit receipt 32

Table 3.4 Net replacement rates for four family types at two earnings levels after tax 33

Table 3.5 The composition of the net benefit income of a single unemployed person in the 60th month of benefit receipt 34

Table 3.6 The composition of the net benefit income of a one-earner couple with two children in the 60th month of benefit receipt 35

Table 3.7 The unemployment benefit entitlements of young unemployed single people 36

Table 3.8a Child-care costs and benefits, reference earnings at APW level (annualised) 37

Table 3.8b Child-care costs and benefits, reference earnings at 2/3xAPW level 38

Table 3.9 Gross replacement rates for three family types, over a five-year period and two earnings levels 39

Table 4.1 Relative incomes for part-time work and two-earner couples 46

Table 4.2 Average effective tax rates for part-time work and two-earner couples 47

Chart 3.1 Index of benefit entitlements, 1961-1995 40

1 INTRODUCTION

The net incomes of those not working are of interest for social, public finance and labour market

reasons A key aim of social policy is to ensure that households, particularly those with children,

have an adequate standard of living But the higher the benefits paid to families without employment,

the lower the immediate financial incentive to enter paid employment The hypothesis that the

greater the unemployment benefits, the more difficult the transition from unemployment to

employment, is discussed at length in economic literature [for further reference see OECD 1996a].

Policy analysts need evidence for this hypothesis and would therefore want to quantify benefit

generosity

The OECD used an estimate of replacement rates (i.e the proportion of income from work

replaced by unemployment and related welfare benefits) as a proxy for benefit generosity in the

OECD Jobs Study (issued in 1994) These estimates, however, were based on gross (i.e before

taxes) earnings and gross benefits They did not take account of the fact that benefit payment levels

are often supplemented with family and housing benefits The need for more accurate information

has since then led to an integrated approach, whereby replacement rates are calculated taking

account of income taxes and a wide range of social welfare benefits The aim of this report is to

illustrate how net incomes of unemployed people are calculated and to compare these with net

incomes in work

Given the interest in the effects of the tax and benefit system on employment and concerns

about the adequacy of incomes of those without jobs, there is a need for international comparisons

This publication will:

• briefly describe the elements of the tax and benefit system necessary to calculate benefit

entitlements for those without work;

• give example calculations, showing how the different elements of tax and benefit systems

interact in each country;

• present comparative tables of benefit entitlements across OECD countries;

• indicate the operation of means-tests on the incentive to work part-time in two-earner

couples; and

• examine the effects of child-care costs and benefits on the incentives to work of relevant

families

Benefit Systems and Work Incentives

While national comparisons of income in and out of work are common, the complexity of taxand benefit systems has hitherto limited the scope of international comparisons Examples include:

• The broad rules governing benefit entitlement which are given in publications by the UnitedStates Department of Health (1995), by MISSOC (1995) and by the Council of Europe

(Comparative Tables of Social Security Schemes).

• The OECD developed a time series of unemployment benefit entitlements (OECD, 1991),

which subsequently led to a composite index of entitlements, used in the OECD Jobs Study.

However, this index does not take account of taxation (and is therefore based on grossbenefit entitlements), does not include family benefits or supplements to other benefitsreflecting family circumstances, and does not include other benefits often received by thoseout of work, such as housing benefits

• The OECD publishes The Tax Benefit Position of Production Workers annually This calculates

average tax payments and family benefit entitlements for a limited number of family types

It gives no information on net incomes of those without employment or on very low incomes.Recent work both inside and outside the OECD has increased the potential for internationalcomparisons of net incomes of those without work An important aspect of the progress made isthe integration of both the income tax and social benefit system The most important examples ofthis work are as follows:

• A study commissioned by the United Kingdom Department of Social Security and the OECDfrom the Social Policy Research Unit (United Kingdom Department of Social Security, 1996)collected information on typical social assistance rates on a comparable basis across

24 OECD countries

• In order to improve analysis of the effects of the tax system on employment as part of the

OECD Jobs Study, the OECD developed “tax equations” which can calculate tax and social

security contributions, for any level of earnings, for a much broader range of family typesthan previously

• Officials from tax and social policy ministries jointly produced a report Unemployment

Benefits and Social Assistance in Seven European Countries, which brought together many

of the elements of the tax and benefit system which determined the incomes of those withoutwork

• The Netherlands Central Planning Bureau (1996) produced a study financed by the EuropeanCommission which examined the ratios of net incomes in and out of work for EuropeanUnion countries and four states of the United States

• As part of the follow-up to the OECD Jobs Study, the tax and social policy Divisions of the

OECD have co-operated in producing estimates of incomes in and out of work for a variety

of family types for most OECD countries Some of this work has been included in papersconsidered by the G7 Jobs Summit in Lille, in 1996, and the OECD Ministerial meeting, in

1996 and in the Employment Outlook (OECD, 1996a) A full analysis of the outcome of

this project, covering OECD countries, was published in late 1997 (OECD, 1997)

This volume presents comparative information on net incomes for families without employment

and the assumptions used to generate these results Chapter 2 introduces the eight different benefits

that are included in this study and presents their key features Chapter 3 provides comparative

information on the benefit income received by different family types in different employment

circumstances In Chapter 4, the special cases of part-time work and two-earner couples are

considered The annex includes a detailed explanation of the assumptions applied for calculating

net incomes after taxes and benefits

2 DESCRIPTION OF KEY FEATURES OF THE TAX AND

BENEFIT SYSTEM

Introduction

Benefit systems in many countries are a complicated structure of interacting taxes and benefits

This chapter aims to provide a broad overview of the different elements of the benefit system, their

tax treatment and the way in which part-time or casual earnings influence the benefit amounts

An overview of the key benefits in the system

Table 2.1 provides an overview of the benefits that are available in the countries which are

covered in this report Most countries operate a benefit scheme that provides temporary

compensation for lost earnings if certain conditions are met by the claimant (Unemployment

Insurance or UI) As this benefit type is based on insurance principles, the claimant must have

contributed to the insurance fund for a given amount of time to be eligible for receiving the benefit

Claimants must be involuntarily unemployed and are required to search for employment UI benefits

are taxable in most countries but not all, as is shown in Column 3 When the benefit elapses, the

unemployed worker may have to depend on financial support in another form

Financial assistance for those no longer eligible for UI benefits takes two forms, depending on

the country Unemployment Assistance (UA) which exists in a number of countries is often designed

as a follow-up benefit for UI, and one which pays at a lower rate Payment may also be conditional

on employment history and has a limited duration in most cases Those not eligible for either UI or

UA will have to rely on general or Social Assistance (SA) The government acts as a provider of last

resort to secure a minimum standard of living In Austria, France, Germany, Ireland and the United

Kingdom, UA payments are of infinite duration Unemployed workers in these countries, particularly

those with dependent family members, may, in addition, receive SA benefits to supplement their

UA payments In the Czech Republic, Italy and Korea, where SA payments are not available when

benefit payments end, alternative forms of support are available UI or SA benefits do not exist,

either in Australia or New Zealand These countries provide an unemployment benefit with

characteristics of both UA and SA for an unlimited duration Claimants do not need to have an

employment history, but are required to be looking for a job

Households with high rents and low income may qualify for housing benefits to provide financial

support The presence of dependants gives entitlement to so-called family benefits in most countries

14 Benefit Systems and

Table 2.1 Main elements of the tax and benefit system

Unemployment Income tax Unemployment Social Housing Universal Means-tested Lone-parent Employment Child-care Insurance treatment of Assistance 1 Assistance 1 benefits family benefits family benefits benefits conditional benefits

insurance Column 2 Column 3 Column 4 Column 5 Column 6 Column 7 Column 8 Column 9 Column 10 Column 11

Y Indicates that the specific benefit is present in this country, “—” otherwise.

“Taxable” Indicates that beneficiaries have to pay income and/or payroll taxes on benefit income, “*” indicates that unemployment benefit recipients do not pay tax, either because their benefits are not taxable or because the tax system is structured such that full-year recipients do not pay tax.

1 Note that UA and SA can also be taxable but that this is not indicated in the table.

2 Employment conditional benefits may take the form of refundable tax credits.

3 In Australia and New Zealand an assistance type benefit is payable which has characteristics of both UA and SA.

4 In Italy, a tax credit for house rent is available.

Source: OECD.

Other sources of income influence the amounts of means-tested family benefits in Australia, Italy,

New Zealand and the United States In Australia, France, Ireland, Japan, New Zealand and Sweden,

lone parents can rely on a separate benefit scheme

Employment conditional benefits can only be received by people in paid employment Australia,

Ireland, Italy, New Zealand, the United Kingdom and the United States operate such benefits either

to increase financial incentives to work or to keep working families from sliding into poverty

Child-care benefits may help parents who are working or looking for work cover their child-care

centre fees Countries that do not have centrally administered child-care benefit schemes and are

not included in Table 2.1 can have locally based schemes

Calculation of gross benefits

Unemployment Insurance

Table 2.2 examines the calculation process of Unemployment Insurance (UI) benefits The

information included in the table applies to a 40-year-old single worker with a long employment

history, previously earning an average income.1

In order to be eligible, the unemployed worker must have been employed in insured employment

(i.e must have contributed into the insurance fund) during a specific period (Column 2) In some

countries benefit payment does not start immediately upon becoming unemployed but rather after

a short so-called “waiting period” (Column 3) In Iceland, the waiting period is extended for those

who previously had high earnings The maximum duration of benefit payments (Column 9) may

depend on the employment history (Belgium, France, Greece, Hungary, Japan, the Netherlands,

Poland, Spain and Switzerland) and age (Austria, Finland, France, Germany, the Netherlands, Portugal

and Sweden) or is fixed

The level of benefits (Column 4) is generally calculated according to previous earnings (but may

also be influenced by other factors such as employment record, age and family situation), and is

subject to minimum and maximum limits (Columns 5 and 7) In Belgium, the payment rate (which

is expressed as a percentage of previous pre-tax earnings) decreases over time from 60 per cent to

42 per cent for a single person but remains at 60 per cent indefinitely for someone with family

obligations In some other countries too, payment rates decrease over time (Czech Republic, France,

Hungary and Norway) Four countries administer flat-rate benefits (Iceland, Ireland, Poland and

the United Kingdom) US$ equivalents for the minimum and maximum benefit are in Columns 6

and 8

1 An average income is defined to equal the earnings level of Average Production Workers (APW) For more information

refer to OECD (1996a).

Benefit Systems and Work Incentives

Table 2.2 UA payment rates and benefit duration

Employment conditions Waiting Payment Minimum benefit Maximum benefit Duration

period rate (%) 1 (yearly) 2 (yearly) 2 (months)

National US$ National US$

currency currency Column 2 Column 3 Column 4 Column 5 Column 6 Column 7 Column 8 Column 9

-Austria 20 weeks in 1 year or 7 days 57 20 112 1 429 152 496 10 836 12

52 weeks in 2 years if first claim Maximum duration

if 156 weeks in 5 years Belgium 3 312 days in 18 months 0 day 60 252 720 6 712 402 168 10 682 indefinite

rising to 624 days in last

3 years depending on age Canada 20 weeks in 1 year 2 weeks 55 - - 23 296 18 873 12 Czech Republic 12 months in the last 7 days 60 - - 43 920 3 887 6

3 years Denmark 4 26 weeks in 3 years 0 day 90 - - 132 864 15 404 84 Finland 4, 5 26 weeks in 2 years 5 days 80 30 444 5 067 - - 23 France 4 months in the last 8 days 75 50 677 7 653 358 038 54 067 60

8 months Germany 6, 7 360 days in 3 years 0 day 60 - - 56 160 27 181 12 Greece 6 125 days in the last 6 days 40 711 600 3 418 - - 12

14 months Hungary 12 months in the last 0 day 75 103 200 1 509 216 000 3 158 12

4 years Iceland 425 hours in the last year variable flat 566 566 7 156 - - 12 Ireland 39 weeks in 1 year 3 days flat 3 250 5 000 - - 15 Italy 52 weeks in 2 years 7 days 80 - - 18 000 000 11 327 12 Japan 8 6 months in 1 year 7 days 80 - - 2 963 000 16 858 7 Korea 12 months in the last 14 days 50 1 728 900 2 792 12 600 000 20 349 6

18 months Luxembourg 26 weeks in 1 year 0 day 80 - - 1 312 320 32 944 12 Netherlands 26 weeks in 1 year for 0 day 70 - - 52 205 25 119 54

basic benefit, 4 years in

5 for extended benefits

-Norway 4, 9 - 3 days 62 - - 143 987 15 361 43 Poland 180 days of work in the 1 day flat 3 021 2 238 - - 18

last year Portugal 540 days in 2 years 0 day 65 624 000 5 115 1 216 800 9 974 21 Spain 12 months in 6 years - 70 658 350 5 263 1 931 160 15 437 14 Sweden 80 days in the last 5 days 80 63 700 6 389 146 640 14 708 10

5 months Switzerland 6-18 months in 2 years 5 days 70 - - 68 040 33 018 18 United Kingdom - 3 days flat - - 2 415 3 604 12 United States 26 weeks total, regionally: - 50 2 184 2 184 15 236 15 236 6

minimum earnings requirement

Notes:

1 The payment rate is expressed as a percentage of gross earnings, unless indicated “flat” which means a flat rate.

2 Minimum and maximum benefits are recalculated from yearly earnings ceilings if necessary 1995 purchasing parities are used to calculate US$ values (1994 for the Czech Republic).

3 Belgium: the payment rates for single persons is reduced to 42 per cent in the second year.

4 Denmark, Finland and Norway have a voluntary UI scheme.

5 Finland: daily payments: Mk 118 + 42 per cent of earnings below Mk 494, plus 20 per cent of earnings exceeding Mk 494 The benefit

is restricted to 80 per cent of previous earnings.

6 Germany and Greece: payment rates are higher when dependants are present.

7 German payment rates are expressed as a percentage of net income.

8 Japan: the payment rate depends on age and previous earnings level.

9 Norway: total duration equals two periods of 80 + 13 weeks Average earnings in previous three years must be at least 75 per cent of the “base amount” to qualify.

Source: OECD.

Unemployment assistance

When an unemployed individual is either not eligible or no longer eligible for UI, he or she may

seek unemployment assistance (UA) benefits in some countries (Austria, Finland, France, Germany,

Greece, Ireland, the Netherlands, Portugal, Spain and the United Kingdom) Table 2.3 provides

information on UA payment rates and benefit duration in these countries The information included

in the table applies to a 40-year-old single worker with a long employment history, previously

earning an average income

Entitlement to UA payment is conditional on previous employment (Column 2) in some countries

but can be paid to all unemployed persons in others (Australia, Finland, Iceland and New Zealand)

Some of the UA benefit schemes include a waiting period (Column 3), which is only effective for

first-time users (i.e unemployed who do not qualify for UI in Ireland and Sweden; all unemployed

in New Zealand) The length of the waiting period in New Zealand is calculated according to

previous earnings and varies between 2 and 10 weeks The total duration (Column 9) is indefinite

in most cases but limited in Greece, the Netherlands, Portugal, Spain and Sweden

The determination of gross benefit levels varies greatly across countries The payment rate

(Column 4) is in some cases flat, in other cases calculated according to previous UI benefits or as

a percentage of previous earnings These rates are maximum rates and payments are subject to a

means-test with the financial resources of the household playing a role in the assessment The level

of benefits may further differ regionally in some countries because of the social administration

office’s discretionary power in benefit decisions

Family benefits

The presence of dependent children may qualify a household for supplementary benefit payments

The most important such benefit payments are Family Benefits, but unemployed people with

dependants can also receive an increase in their unemployment benefits Table 2.4 shows the

yearly amount of family benefits granted for one child, as well as additions for further children The

table also indicates if additional unemployment benefits are granted when there are dependants,

and if so, how much The tabulated amounts are based on the assumption of one child under the

age of 13 in a one-earner couple

With few exceptions, family-benefits are paid as fixed amounts per child and are not means-tested,

meaning that people with work and people without receive the same amounts In Greece, Iceland,

Italy and the United States, family benefits are means-tested - determined taking other income into

account

Additions to unemployment benefits for dependants exist in eight of the 27 countries and are

sometimes also paid for dependants other than children (e.g in Greece, New Zealand, Norway,

Portugal and the United Kingdom additions are paid for a dependent spouse)

Benefit Systems and Work Incentives

Table 2.3 UA payment rates and benefit duration

Employment conditions Waiting Payment Minimum benefit Maximum benefit Duration

period rate (%) 1 (yearly) 2, 3 (yearly) 2,3 (months)

National US$ National US$

currency currency Column 2 Column 3 Column 4 Column 5 Column 6 Column 7 Column 8 Column 9 Australia - - flat - - 8 076 5 999 indefinite Austria to have received UI - 92% of UI 18 503 1 315 140 296 9 969 indefinite

Belgium - - - - - - -

-Canada - - - - - - -

-Czech republic - - - - - - -

-Denmark - - - - - - -

-Finland - - flat 30 449 5 067 - - indefinite France 5 years in the last 10 years - flat 26 640 4 023 - - indefinite Germany 4 6 months in the last year - 53 - - 49 608 24 009 indefinite Greece 60 days in the last 2 years - 36% of UI 640 440 3 076 - - 3

Hungary - - - - - - -

-Iceland - - - - - - -

-Ireland - 3 days flat 3 250 5 000 - - indefinite Italy - - - - - - -

-Japan - - - - - - -

-Korea - - - - - - -

-Luxembourg - - - - - - -

-Netherlands 3 years in the last 5 years 0 flat 18 171 8 743 - - 12

New Zealand 5 - 2-10 weeks flat - - 7 200 4 768 indefinite Norway - - - - - - -

-Poland - - - - - - -

-Portugal 6 5.9 months in 1 year - flat 436 800 3 580 - - 10.5 Spain to have exhausted UI, or to - flat 658 350 5 263 - - 30

have worked 6 months Sweden 75 hours in the last 5 days flat 63 700 6 389 - - 5

5 months Switzerland - - - - - - -

-United Kingdom - - - - - - -

-United States - - - - - - -

-Notes:

1 The payment rate is expressed as a percentage of gross earnings, unless indicated “flat” which means a flat rate equal to the value in the minimum column or “% of UI” which means that the UA benefit is calculated as a percentage of the previous or theoretical

UI benefit.

2 Minimum and maximum benefits are, if necessary, recalculated from yearly earnings ceilings.

3 1995 purchasing parities are used to calculate US$ values

4 Germany: the payment rate is expressed as a percentage of net income and is higher when dependants are present.

5 New Zealand: waiting period depends on previous earnings.

6 Portugal: first-time jobseekers with dependants do not need to meet the employment conditions; duration is 18 months if claimant was not eligible for UI.

Source: OECD.

Table 2.4 Benefits for dependent family members

1st child (yearly) 1 Extra for additional children Extra in unemployment benefit

National US$

currency

Australia 2 2 311 1 714 Increases per child

-Austria 18 600 1 321 Amounts per child Sch 627($45)/month/child

Belgium 31 212 829 Benefits increase until the third child, Family benefit amounts are increased in

and increase by two steps with age 7th month of unemployment

-Czech republic 7 920 701 Increases with age (means-tested)

-Denmark 9 600 1 113 Amount related to the child’s age

-Finland 6 420 1 069 Increases per dependant Lump sum additions Mk 6 192 ($1 031) for the

first child France 7 980 1 205 Amounts increase with age -

Germany 3 840 407 Progressively increasing until the UI is raised with 7 percentage points, UA with

3rd child, then DM 2 880 ($1 594) 5 percentage points per child

Greece 5% of gross - Same amount for each of the first UI is raised with 10 percentage points for each

earnings 3 children plus 10% for a dependent dependant

spouse Hungary 33 000 482 Amounts per child increase with -

the family size Iceland 39 364 506 Increases for low income families IKr 85.63 ($1.10)/day per dependent child

Ireland 324 498 Ir£384 ($591) from the third child Ir£686 ($1 065) for each dependent child

Italy 4 1 080 000 1 681 The amount reduces with increases in

-taxable income; different rates for single parents

Japan 60 000 341 The amount is doubled for third and

-subsequent children

-Luxembourg 39 504 992 Increases with the number of children The replacement rates is increased with

5 percentage points Netherlands 1 139 548 Increases per child and with age -

New Zealand 2 016 1 335 NZ$1 296 ($858) for each other child UA amounts depend on family type

under 13 Norway 10 572 1 128 Increases per child A flat-rate addition for each dependant

Poland 252 187 Same amount for each child

-Portugal 30 960 254 - UA is increased for dependants

Spain 36 000 288 Increases for each child

-Sweden 9 000 903 Skr 2 400 ($240) for the 3rd,

-Skr 7 200 ($720) for the 4th

Switzerland 2 112 1 025 Amounts per child UI is increased by 10 percentage points if there

are dependants United Kingdom 541 807 81% of this amount is paid for Additions for a dependent spouse

subsequent children United States 1 056 1 056 AFDC is in fact part of financial -

assistance to the whole family

Notes:

1 1995 purchasing parities are used to calculate US$ values (1994 for the Czech Republic).

2 Additional Family Payments pay out extra, age-related amounts per child Receipt of this benefit entitles to additional benefits.

3 Family benefits are means-tested.

4 Benefits may be received from the second child onwards.

Source: OECD.

Benefit Systems and Work Incentives

Table 2.5 Housing benefit allowances

Housing benefits Benefit reduction rate Treatment of housing costs (maximum payments in % of rent) (% of net income) in social assistance Column 2 Column 3 Column 4

Australia Rent is added to Additional Family 50%

-Payment (AFP) if it exceeds certain amounts (<75%).

Austria - - Regionally differing treatment

Belgium - - Housing costs are supposed to be covered

by standard SA rates Canada Housing costs are added to 100 % maximum SA is the only possible way to cover housing

SA payment rates up to maxima (100%) expenses Czech Republic - - Housing costs are supposed to be covered

by standard SA rates Denmark Separate means-tested scheme 16-27% Rent in excess of housing benefits is added

(75% subject to a maximum) to SA payment rates Finland Separate means-tested scheme (<80%) 28% Rent in excess of housing benefits and

certain other housing costs are added to

SA payment rates France Separate income-related scheme (80%) - -

Germany Separate means-tested scheme 21% Rent in excess of housing benefits is added

(100% subject to a maximum) to payment rates and is conditional on

receipt of at least a part of SA

Ireland 100% 100% Rent included in SA means-test

-Luxembourg 100% 100% Total coverage up to LF 5 000 ($126)/month

conditional on receipt of at least a part of SA Netherlands Separate means-tested scheme (80%) Progressive, 0-100% Housing costs exceeding individual

subsidies are supposed to be covered by standard SA rates

New Zealand Separate scheme (65%) 25% in restricted

-range of earnings, otherwise none Norway Nkr 1 000 ($107)/month on average 100% -

Poland Zl 61.95 ($46)/month 100%

-Portugal - - Additions to social assistance are possible Spain - - Rent allowance is part of social assistance Sweden Separate scheme (30-75%, depending 10-33%, depending Rent in excess of housing benefits is added

on rent) on family type to SA payment rates Switzerland Housing costs are added to SA payment 100% SA is the only possible way to cover housing

rates up to maxima (100%) expenses United Kingdom 100% of rent is covered for 65% for people not 100% of rent is covered for SA claimants

SA claimants receiving assistance United States Local initiatives exist - Rent is included in the Food Stamps means-

test

Source: OECD.

Housing benefits

To help people on low income pay their private rents and housing costs, most OECD countries

operate a separate benefit scheme Housing benefits are broadly distinguishable in two groups In

some countries (Denmark, Finland, France, Germany, Hungary, Iceland, the Netherlands, New

Zealand, Norway, Poland, Sweden and the United Kingdom), housing benefits are administered

through a separate scheme Greece, Italy and Korea are the only countries where rents are neither

covered in a separate scheme nor by SA, but these countries allow a tax credit for rent payments

Other countries have included a special allowance in SA Table 2.5 shows how the housing benefit

schemes are operated; no specific assumptions need to be made for this table

Payments under both types of housing benefit depend on rent and family composition The

maximum amount of rent covered by the schemes varies per country between 30 per cent (Sweden)

and 100 per cent in several countries (Column 2) The maximum benefit amounts are reduced

according to a certain percentage of present income (Column 3) In Belgium, the Netherlands and

the Czech Republic, rent is not added to SA payment rates (as it is in many other countries –

Column 4) but is an integral part of SA In some countries maximum benefits for both the separate

housing benefit scheme and the assistance related scheme can be received at the same time

(Denmark, Finland and Sweden)

Child-care benefits

The cost of approved day care or nursery centres may be partly or totally compensated through

benefit payments The refund possibilities for child-care costs for a single parent in work with two

children under 4 years old in approved day care centres is shown in Table 2.6

A number of countries have a separate benefit scheme paying out to parents who make use of

approved child-care facilities (Australia, New Zealand, Norway and Poland) Other countries make

allowances either in the tax system (Australia, Canada and France), in the means-test of family

benefits (Germany, United Kingdom) or reduce the child-care fees according to the parents’ income

(Finland, Japan, New Zealand) In other countries child care may be provided without fee for the

parents (Sweden) or is provided by the employer (possible with state support; not included in the

table)

Employment conditional benefits

Some benefits are only paid to people in a full-time or part-time job They are paid directly to

the employee upon taking up paid employment These employment conditional benefits effectively

increase the net income from work, increase the difference between in-work and out-of-work

income and thereby create an incentive to leave a situation of benefit dependency Several OECD

countries have introduced employment benefits of some form or other with varying payment rates

and qualifying requirements Table 2.7 provides an overview

Benefit Systems and Work Incentives

Table 2.6 Child-care benefit systems

Refund possibilities Australia Subsidised provisions; means-tested benefits; tax rebate

Austria

-Belgium

-Canada Child care is treated as a work related expense and is thus deductible from taxable income (up to a maximum) Czech Republic There is a benefit allowing mothers to care for children at home; no benefit for care centre fees

Denmark Actual cost if earnings are below a ceiling (80% of APW)

Finland Contributions in child-care costs depend on present income

France The subsidy equals the social security contributions of the applying parent, separate programmes and tax

reductions also exist; different tax credits also exist Greece -

Germany Can be covered by social assistance

Hungary There is a benefit allowing mothers to care for children at home; no benefit for care centre fees

Iceland

-Ireland

-Italy

-Japan Contributions in child-care costs depend on present income

Korea Not fully developed yet

Luxembourg Payments are made for home child care

Netherlands

-New Zealand Means-tested scheme, reduces payable fees

Norway Flat-rate means-tested benefit: Nkr 66 000 ($7 041) per annum

Poland Flat-rate means-tested benefit: Zl 62.41 ($46) per month per child

Portugal

-Spain

-Sweden Free care provided universally

Switzerland

-United Kingdom £40 ($60)/week per child in care can be added to net income apart from the Family Credit formula; some

locally subsidised day care centres; nursing vouchers United States Some locally subsidised day care centres

Source: OECD.

Lone-parent benefits

Lone parents may be entitled to a separate benefit The nature of lone-parent benefits and themaximum value for a lone parent with two children under 4 years old is shown in Table 2.8 Alllone-parent benefit schemes in the table have flat payment rates

In Australia, France, Ireland, Japan, and Sweden, for example, lone-parent benefits aremeans-tested but recipients are not required to look for work Supplements to family benefits, such

as paid in Denmark, Finland, Hungary, Iceland, Italy, Norway and the United Kingdom are paidunder the same conditions as the basic family benefits Lone-parent benefits can be received inthese countries until the oldest child reaches the age that is indicated in the table, ranging from

3 years old in France to 18 years old in Italy In the Netherlands, a separate benefit for lone parentsdoes not exist but lone parents receiving SA are not required to look for work until the oldest child

is 5 In the United States, lone parents qualify for regular family benefits

Canada Ireland 3 Italy 4, 5 New Zealand 6 Spain 5 United Kingdom 7 United States 8

Work income Family income Family benefits Independent family Employment credit Family Credit Earned income tax supplement supplement for employees tax credit credit

Minimum earnings C$3 750 ($3 038) none none none none none none

Phase in rate 8% none none - - none 34/36/7.65%

Earnings when C$20 921 immediately L 15 000 000 pa NZ$20 000 annually Ptas 1 035 000 £73 per week ($109) $11 290/11 290/

phasing out begins ($16 949) ($1 589) ($13 587) annually ($8 274) 5 130 annually

Withdrawal rate 10% of gross 60% of gross stepwise reduction: 18% between NZ$20 000 5% of gross income 70% of net income 15.98/20.2521/ 7.65%

income income effectively 37-48% ($13 587) and NZ$27 000 under Ptas 1 915 000 of gross income

for higher incomes ($18 342), 30% above

Minimum hours no limit 20 hours (19 from no limit no limit no limit 16 hours supplement no limit

worked July 1996) for 30 hours or more

Family type families with families with every earning families with children every earning person families with children first figure is for 1-child

children children person pilot scheme for families, 2nd for 2 or

others more children, 3rd for

no children

Notes:

1 Data on the entitlement rules refer to 1995 except for New Zealand (Independent Family Tax Credit, 1997) and the United States (1996) Data on costs, number of recipients, etc., refer to

1993 for Canada and Ireland, 1990 for Italy and 1994 for the United Kingdom and the United States.

2 1995 purchasing parities are used to calculate US$ values (1994 for the Czech Republic).

3 Payment is 60 per cent of the difference between family income before tax and a weekly threshold of Ir£165 plus Ir£20 per child with a minimum payment of Ir£5; there are other

employment-conditional benefits in Ireland The part-time job incentive scheme is open to the long-term unemployed (15 months or more) who work for less than 24 hours a week A flat-rate payment (Ir£40 per week for singles, Ir£66 for one-earner couples) is paid where this is more beneficial than means-tested unemployment assistance The Back to Work Allowance

is paid to the long-term unemployed (one year or more) who are aged 23 years or more and to lone parents (no age limit) where the person takes up self-employment or a new job

(i.e additional in the economy) 75 per cent of the standard means-tested unemployment or lone-parent assistance is paid in the first year, 50 per cent in the second year and 25 per cent

in the third year.

4 In addition to this payment, Italy has income-related tax credits for dependent spouses and children Ordinary unemployment benefits only last for 6 months in Italy, so the allowance operates de facto as an employment-conditional benefit.

5 The credit is not refundable; its value is limited for people on low incomes.

6 IFTC and Family Support are subject to the same means-test; at least 70 per cent of family income must be from earnings (or pensions) IFTC figures for New Zealand are forecasts for when the scheme is fully implemented in 1998-99 The pre-existing Guaranteed Minimum Family Income (GMFI), which is a smaller employment-conditional payment, will continue to be paid The GMFI is paid to lone parents working more than 20 hours and couples working more than 30 hours, and the difference between family income and NZ$320 is paid As all eligible families receive family benefits, and there is a minimum wage of around NZ$6.25 per hour, maximum benefit for lone parents is around NZ$110, substantially less (around NZ$30) for single-earner couples It has approximately 5 000 recipients It is operated through the tax administration.

7 Rates depend on age and number of children The above figure is for two children aged under 11.

8 Figures for the earned income tax credit are total programme costs including the outlay on repayments and the tax expenditure component (the reduction in tax liabilities).

Source: United Kingdom Department of Social Security (1994), United States Department of the Treasury, United States House of Representatives (1994) and information supplied by national

authorities.

Benefit Systems and Work Incentives

Table 2.8 Lone-parent benefit arrangements

Type of benefit Rate (yearly) 1 Income test

National US$

currency Australia 2 Separate benefit, and tax rebate for children under 16 9 651 7 160 50% of earnings

-Denmark Family benefit supplement for children under 6 29 076 3363 no

Finland Family benefit supplement 20 088 3 348 no

France Separate benefits for children under 3 27 912 4 215 100% of net income Germany Increases in social assistance supplements for 3 186 1 542 100% of net income

children under 16

-Hungary Family benefit supplement for children under 16 6 000 88 no

Iceland 3 Family benefit supplement and separate benefit for 72 710 934 no

children under 16 Ireland 4 Separate benefit for children under 18 4 831 7 428 -

Italy 5 Increases in family benefits from the 3rd child 240 000 151 no

onwards for children under 18 Japan Separate benefit for children under 18 556 680 3 165 no

-Luxembourg Non-refundable tax credit in taxable income - -

-Netherlands 6 No job-search requirements for SA until the oldest - -

-child is 5 New Zealand Separate benefit for children under 18 11 250 7 450 18-30% of earnings Norway Additional amounts in family benefits for 132 00 14 070 no

-United Kingdom Addition to child benefits for children under 16 328 488 no

United States Lone parents receive family benefits for children - -

-under 19

Notes:

1 1995 purchasing parities are used to calculate US$ values (1994 for the Czech Republic), the examples assume two children younger than 4 years of age.

2 Means-test is less stringent than for unemployment beneficiaries.

3 There is a supplement for people with low incomes which is means-tested.

4 Unemployment benefits are halved if lone-parent benefits are paid The income test is not applied to the first Ir£24 of weekly earnings

5 Family benefits are in fact lower per family member for a lone parent than for a married couple with the same number of children.

6 Prior to January 1996, lone parents were required to be looking for work.

Source: OECD.

Social assistance

People without resources can, in most OECD countries, fall back on state-provided financial

assistance Table 2.9 shows the maximum social assistance payment rates for three different family

types which are used in this study

Social assistance payments can depend on decisions of regional governments or even on the

discretion of social workers Other than UI, and in some cases UA, SA is paid to the entire household

and the resources of the entire household are considered for the assessment.2 How this study deals

with the regional variation of the payment rates is indicated in the final right column The words

“national rates” refer to uniform rates that are paid throughout the country Where national rates

are recommended without being strictly enforced, the table says: “national guidelines” Where

there is regional variation in payment rates, two approaches may be followed: the national average

is known and used, otherwise the study uses a representative region (“regionally determined”)

Country-by-country descriptions, which are available on the Internet (see foreword) give details

about the determination of SA payment rates The fact that representative regions are used in some

cases and national averages in others is explained in the annex.

The tax treatment of benefits

Benefit income is treated as taxable income in many OECD countries, but the recipient is often

entitled to special allowances Moreover, different benefits have different tax treatments (Table 2.10)

The table employs abbreviations T and S where tax and social security contributions are payable

respectively The word “reduced” between brackets indicates that tax or social security contributions

are payable by beneficiaries but at a reduced rate In some cases, benefits are taxable but the tax

system is structured such that a year-long recipient will pay no tax – these are indicated by T(n)

The dash (-) indicates that the specific benefit is not taxable Where a specific benefit does not

exist, for example, for the UA in Canada or the UI in Australia, this is indicated by “None”

Benefit income in some countries (UI and UA in Austria and Germany) is calculated as net

income and is therefore not taxable

Part-time and occasional work

Many of the benefits above are reduced as soon as the beneficiary starts to work The rate at

which such reductions take place is an important determinant of the incentive to take up occasional

or part-time work Many countries allow a limited amount of earnings without affecting benefit

receipt, thus reducing the disincentives to start work

2 In other words, the benefit unit (i.e., the group of persons to whom the benefit is paid) and the resource unit (i.e., the

group of persons whose resources are considered in the assessment) are the household The resource unit and the

benefit unit are the individual for UI UA benefits can be paid to the individual but have the household as resource

unit (as for example in Germany) More details can be found in the country-by-country descriptions (see foreword).

Benefit Systems and Work Incentives

Table 2.9 Maximum social assistance monthly amounts

Single 1 Couple plus two children 1 Lone parents, two children 1 Determination of rates

National US$ National US$ National US$

currency currency currency Australia n.a - n.a - n.a -

Austria 5 260 374 9 966 708 7 774 552 regionally determined Belgium 20 103 534 26 805 712 26 805 712 national rates

Canada 520 421 1 178 954 1 086 880 regionally determined Czech Republic 2 440 216 7 060 625 5 380 476 national rates

Denmark 6 643 770 8 850 1 027 8 858 1 027 national rates

Finland 2 021 336 6 104 1 016 4 689 780 national average

France 2 326 351 4 885 738 4 187 632 national rates

Germany 590 286 1 652 860 1 475 714 national rates

Greece 25 000 120 25 000 120 25 000 120 national rates

Hungary 6 720 98 6 720 98 6 720 98 national guidelines Iceland 43 360 558 78 048 1 004 69 376 892 national guidelines Ireland 262 402 538 828 376 578 national guidelines Italy 622 000 392 1 586 000 998 1 323 000 833 regionally determined Japan 81 120 462 192 430 1 095 153 120 871 regionally determined Korea 115 258 186 115 258 186 115 258 186 national rates

Luxembourg 31 165 782 55 921 1 404 40 339 1 013 national rates

Netherlands 1 332 641 1 902 915 1 712 824 national rates

New Zealand 2 - - 1 205 798 1 205 798 national rates

Norway 5 083 542 9 167 978 - - regionally determined Poland 196 145 196 145 196 145 national rates

Portugal 3 20 000 164 20 000 164 20 000 164 national rates

Spain 32 000 125 54 400 435 48 000 384 regionally determined Sweden 3 451 346 9 630 967 7 279 730 national guidelines Switzerland 985 478 2 111 1 024 1 581 767 national guidelines United Kingdom 202 301 500 744 407 607 national rates

United States 4 119 119 916 916 759 759 regionally determined

Notes:

1 1995 purchasing parities are used to calculate US$ values (1994 for the Czech Republic).

2 Only available as guaranteed income to full-time employees with family benefits.

3 Only available to first time jobseekers in the age 18-25, it lasts 15 months after a 24-month waiting period.

4 Amounts include AFDC and Food Stamps.

Source: OECD.

Table 2.11 indicates, for all means-tested schemes (Column 2), the resource unit of the means-test

(i.e the group of persons whose resources are taken into account for the determination of the

benefit payment level) and the amount of income that is disregarded in the means-test (Columns 3and 4) The disregarded income amounts are converted into hours (Column 5); someone working

at APW (Average Production Workers) earnings level could work the specified number of hours perweek before his/her benefit started to be reduced In some countries, the disregard can beaccumulated (Australia, Canada, Finland and Iceland) Unused disregards can be saved over time(so that A$30 per week equals A$60 after two weeks of benefit, and so on, up to a limit), be paid outupon finding employment (Iceland) or contribute to future benefit entitlements (Canada)

Table 2.10 The tax treatment of benefits 1

Unemployment Unemployment Family benefits Lone-parents Housing benefits Social

insurance assistance benefits assistance

Australia None T(n)S(n) - - -

-Belgium T(reduced) None - - None

-Canada TS None None - None

-Czech Republic - None - None None

-Denmark TS(reduced) None - - - TS(reduced)

Finland TS(reduced) TS(reduced) - - -

-France TS(reduced) T(n)S(n) - - -

-Greece T(reduced)S T(reduced)S TS None None T(reduced)S

Hungary TS - None None None None

Iceland TS(reduced) None - TS(reduced) TS(reduced) TS(reduced)

-Korea - None None None None

-Luxembourg TS(reduced) None - None None TS(reduced)

-Norway TS None - None None

-Portugal - - - None None None

Spain TS(reduced) T(n) T(n) None None T(n)

-Switzerland TS(reduced) None - - None

-United Kingdom T(n) None - - - T(n)

United States T None - - None

-Note:

The table employs abbreviations T and S where tax and social security contributions are payable respectively The word “reduced”

between brackets indicates that tax or social security contributions are payable by beneficiaries but at a reduced rate In some cases,

benefits are taxable but the tax system is structured such that a year-long recipient will pay no tax these are indicated by T(n) The dash

(-) indicates that the specific benefit is not taxable Where a specific benefit does not exist, for example, for the UA in Canada or the UI in

Australia, this is indicated by “None”.

Source: OECD

A disregard in the means-test of UI translates into an immediate work-incentive for beneficiaries

(Austria, Belgium, Canada, Finland, Germany, Hungary, Ireland, the Netherlands and the United

Kingdom) Apart from Australia and New Zealand, where UI does not exist, a disregard in UA or

SA benefits those people who have exhausted their UI-entitlements and have been employed for

some time In those countries where the resource unit of the means-test is the household, the

benefit amount available to other household members (e.g., non-working spouses) is affected by

the beneficiary’s decision to work (see also Chapter 4)

Benefit Systems and Work Incentives

Table 2.11 Casual employment and benefit receipt

Scheme Income test Maximum disregard 1 Disregarded in Observations

hrs/w equivalents 2

Column 2 Column 3 Column 4 Column 5 Column 6

Australia UA individual A$30/week of GI 1h45 unused disregards can be accumulated Austria UI individual Sch 3.500/month of NI 6h30 benefit ceases when income exceeds

disregard Austria UA household Sch 5 500/month of NI 10h10 benefit ceases when income exceeds

disregard Belgium UI individual - - benefit ceases when income exceeds

disregard Belgium 3 SA household BF 12 500/month of NI 7h10 no accumulation of unused disregard Canada 4 UI individual reduction in proportion to hours worked 0h unused disregards can be accumulated Canada 7 SA household C$518/month + 25% of remainder of NI 6h10 no accumulation of unused disregard Finland UI individual Mk 750/month + 20% of remainder of GE 2h45 no accumulation of unused disregard Finland UA household Mk 567/month + 25% of remainder of GE 2h05 unused disregards can be accumulated Germany UI individual DM 30/week + 50% of remainder of NI 2h15 no accumulation of unused disregard,

working >18h/week: benefit ceases Germany SA household DM 250/month of NI 2h50 no accumulation of unused disregard Hungary UI individual minimum wage level (Forint 12 200/month)15h30 benefit ceases when income exceeds

disregard Hungary SA household Forint 1 000/month of GE 1h15 -

Iceland 5 UI individual reduction related to hours worked 0h unused disregards can be accumulated,

working >2 days/week: benefit ceases Ireland UI individual Ir£10/week of GE 1h50 no accumulation of unused disregard Ireland UA household Ir£15/day of GE (individual income) 2h no accumulation of unused disregard,

working >3 days/week: benefit ceases Luxembourg SA household 20% of maximum payment standard in GE 5h15 no accumulation of unused disregard Netherlands 6 UI/UA individual 70% of GE for first 5h/week 0h no accumulation of unused disregard,

working >4 days/week: benefit ceases Netherlands SA household local discretion - -

New Zealand 7 UA individual NZ$60/week per person + 70% of 7h40 no accumulation of unused disregard

remainder NI Portugal SA household 80% of Esc 52 000/month of GE 16h25 -

UK 7 UI individual reduced in proportion to days worked 0h

-UK 7 SA household £15/week of NI 2h40

-UK 7 CTB 8 household £15/week of NI 2h40

-USA FS 9 household $737/month of NI 2h50

-USA FS 9 household $30 of irregular income per quarter 2h20

-Notes:

1 Disregards can be as a percentage of gross earnings (GE), gross earnings plus gross benefits (GI), or net income (NI).

2 The equivalent in hours that can be worked before the disregard is exhausted if the beneficiary has APW full-time equivalent pay, assuming a 40 hours working week If disregards are net of tax, the income situation of a couple with two children has been used for the conversion to hours per week.

3 BF 10 000/month of gross earnings for someone without children.

4 Benefits are proportional to the ratio hours worked/:minimum qualifying number of hours so that part-timers always qualify and ad-hoc or casual work helps build up entitlements An “intensity rule”, penalising repeat users, can be offset by “work-credits” An individual has a five-year benefit history during which each 20-week block of UI claim exceeding the first 20 reduces Gross Replacement Rates with 1 percentage point (maximum five percentage points) work credit: work whilst on UI will be credited against the intensity rule proportional in number of hours on claim.

5 Accumulated disregards can be paid upon entry in employment.

6 The availability criterion is used for all income, when more than five hours are worked The full benefit will be reduced in proportion

to the number of days the recipient is no longer available for work, provided he/she was dismissed from a job extending the part-time hours.

7 Disregards are increased for dependent family members.

8 CTB = Council Tax Benefit.

9 FS = Food Stamps.

Source: OECD.

3 COMPARATIVE TABLES AND CHARTS

Introduction

This chapter contains comparative information on net replacement rates (NRR) as calculated

using the assumptions given in the annex (p 51) and Chapter 2 (p 13) and the country-specific

information available on the Internet (see foreword)

Benefit income in the first month of receipt

NRRs in this section are calculated for the first month of unemployment after any waiting period

(see Table 2.2) has been completed Taxation is calculated by multiplying benefits received in the

first month by 12 and determining annual tax liability as if the benefit level were to remain unchanged

over the year In each case it is assumed that the unemployed worker is 40 years old and has an

uninterrupted employment record of 22 years Children are assumed to be aged 6 and 4 Child-care

benefits are not included Benefits are calculated for the main unemployment benefit No social

assistance is assumed to be paid, reflecting an assumption that the household has sufficient assets

to be disqualified

Table 3.1 presents net replacement rates for four family types and at two earnings levels Some

combination of higher rates of unemployment benefits, family benefits, increased housing benefits

or reduced tax payments on unemployed families ensures that replacement rates are almost always

higher for couples where one spouse is not working than they are for single persons NRRs for

families with children are higher yet

Tables 3.2 and 3.3 indicate the importance of different income sources for a single unemployed

person and a one earner couple with two children respectively The total benefit income in the first

month of unemployment is split up in its different components, standardising total net income out

of work at 100 In each case, calculations are for someone who previously earned the APW

earnings Sources of income other than unemployment benefits are often very important to families

with children