Minimum income schemes in Europe

This paper describes and compares both the institutional and the effective social minimum in five European countries: Belgium (Flanders), Denmark, Germany, France, and the United Kingdom. The comparison of five countries sheds light on the relative performance of the different social security systems. Important lessons can be derived for the optimal design of an integrated social assistance and supplementary benefits system.

Our main research questions are:

• What package of policy instruments do countries use for the income protection of households with little or no other income sources?
• What is their effective minimum income level, for different groups?
• How many persons or households make use of minimum income benefits?
• How much non-take-up of minimum income benefits is there and which factors contribute to non-take-up?

Methodology
To answer these research questions, we use relevant studies and data sources on social security for minimum households in the five countries. These sources are selected based on the quality and reliability of the data and studies. Furthermore, we reconstruct the effective minimum income level for a set of standard households, including people of working age, households with children, and the elderly. We define the effective minimum income as the total net income from all available benefits to an individual or household with zero primary income.

Results
We find that the designs of both minimum income and supplementary benefits show similarities but also large difference between the five countries. Namely, all countries provide both base minimum income benefits and supplements. The German system stands out as relatively simple, as social assistance recipients do not have to rely on supplementary benefits in order to achieve a minimum income level.

The studied countries have a strong differentiation of minimum income benefits (including social assistance) and supplementary benefits. This differentiation concerns both age (working age, families with children, senior citizens) and particular expenses (housing, healthcare). The larger countries in our sample (France, Germany, UK) also vary their minimum income benefits by location and rent price; in Flanders and Denmark this is much less the case.

Furthermore, countries use a large variation of activation policies, such as earnings exemptions for labor income in addition to social assistance, financial sanctions in case of inactivity, job search requirements, and schooling for young welfare recipients. Earnings exemptions and job search requirements are most common.

The net monthly minimum income for persons of working age and families with children is typically between 40 and 60 percent of the net median income, taking into account household equivalence scales. The exceptions are German families with children (around 70%) and UK couples without children (35%).

In most countries, this effective minimum income level is higher for pensioners than for persons in the working ages. In the UK, pensioners’ minimum incomes are about 60 percent higher than the minimum incomes of people in the working ages; in France about 50 percent; in Denmark about 30 percent and in Flanders 15 percent. Germany is the exception, pensioners with a minimum income receive as much as persons in the working ages. In Germany the base minimum income benefit for the working-age population is equal to that of the elderly and there are no different supplements. In the other countries, the base minimum income benefits for people of working age are lower than for pensioners. In Denmark, the housing benefits for pensioners are also higher than the housing allowance for people of working age. Furthermore, pensioners in Denmark and the UK do not fall under the benefit cap, while people of working age do.

Germany is also the exception when it comes to families with children. In Denmark, single parents have a net monthly minimum income level that is about 42 percent higher than that of single persons without children is 42 percent in Denmark. In the UK, this difference is about 59 percent; in Flanders about 73 percent; in France about 89 percent, and in Germany about 136 percent. When accounting for household size, families with children are about as well off as households without children in most countries. This implies that minimum income schemes related to the presence of children actually compensate for the concerning expenses in a comparable way as for adults. However, in Germany this compensation for children’s expenses is larger than for adults. As a result, families with children who depend on a minimum income are relatively well off in Germany.

We also saw that the use of social assistance differs quite strongly between the studied countries. In Denmark and Flanders just 2 percent of the working age population receives social assistance benefits, whereas in the UK this percentage equals 10.

Finally, there is a trade-off between targeting and transparency. Transparency is important, because it has a strong association with take-up. We find relatively high non-take-up rates. Automatic eligibility determination (Flanders, and Denmark and Germany, for some benefits) or a combined efficient application for social benefits (UK) can reduce non-take-up. This can effectively lead to a decrease in poverty.