IZA DP No. 8786 Are Recipients of Social Assistance ‘Benefit Dependent’? Concepts, Measurement and Results for Selected Countries Herwig Immervoll Stephen P. Jenkins Sebastian Königs January 2015 DISCUSSION PAPER SERIES Forschungsinstitut zur Zukunft der Arbeit Institute for the Study of Labor Are Recipients of Social Assistance ‘Benefit Dependent’? Concepts, Measurement and Results for Selected Countries Herwig Immervoll OECD and IZA Stephen P. Jenkins LSE and IZA Sebastian Königs OECD and IZA Discussion Paper No. 8786 January 2015 IZA P.O. Box 7240 53072 Bonn Germany Phone: +49-228-3894-0 Fax: +49-228-3894-180 E-mail: [email protected] Any opinions expressed here are those of the author(s) and not those of IZA. Research published in this series may include views on policy, but the institute itself takes no institutional policy positions. The IZA research network is committed to the IZA Guiding Principles of Research Integrity. 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IZA Discussion Paper No. 8786 January 2015 ABSTRACT Are Recipients of Social Assistance ‘Benefit Dependent’? 1 Concepts, Measurement and Results for Selected Countries Means-tested Social Assistance (SA) benefits play an important role as social protection floors supporting households in financial difficulties. This paper presents evidence on the patterns of SA benefit receipt in a selection of OECD and EU countries. It provides an overview of the role of SA benefits in social protection systems and assesses the generosity of benefit payments. It then studies the dynamics of SA benefit receipt based on micro-level data describing trends in aggregate receipt and transition rates and presenting new evidence on spell durations and repeat spells. The final part of the paper summarizes recent empirical evidence on state dependence (or ‘scarring effects’) in benefit receipt and discusses its possible sources and policy implications. JEL Classification: I38, J60, J64, C23 Keywords: social assistance, welfare benefits, state dependence, benefit dependence, scarring Corresponding author: Sebastian Königs OECD 2, rue André Pascal 75775 Paris Cedex 16 France E-mail: [email protected] 1 This report was produced with the assistance of the European Union, as part of the joint OECD/EU project “Multi-country Database on Benefit Recipients and Analysis of Recipiency Patterns” (2010-13). The authors thank Monika Queisser for guidance and detailed drafting suggestions and Ross Finnie for providing results on benefit receipt in Canada. Jenkins’ research was partially supported by core funding of the Research Centre on Micro-Social Change at the Institute for Social and Economic Research by the University of Essex and the UK Economic and Social Research Council (award RES- 518-28-001). This report is also released as OECD Social, Employment and Migration Working Paper 162. Sections 2 and 3 are available as Statistics Norway Discussion Paper (Königs, 2015). The usual disclaimer applies. In particular, the views expressed in this paper should not be reported as representing the official views of the European Union or the OECD, or of their member countries. The opinions expressed and arguments employed are those of the author(s). Table of contents Summary and Introduction .......................................................................................................................... 3 1. Social assistance in OECD and EU countries ....................................................................................... 6 A typology of social assistance benefits: scope and links with other transfer programmes..................... 7 Number of benefit recipients .................................................................................................................. 13 Social assistance benefit levels .............................................................................................................. 15 2. Trends in social assistance benefit receipt .......................................................................................... 22 Composition of the recipient population ................................................................................................ 24 Rates and trends of benefit receipt ......................................................................................................... 26 Benefit transition rates and the relative importance of entries vs. exits ................................................. 30 Main findings from Section 2 ................................................................................................................. 35 3. The micro-dynamics of benefit receipt ........................................................................................... 36 Duration of benefit spells (1) – evidence from long panels ................................................................... 38 Duration of benefit spells (2) – a cross-sectional perspective ................................................................ 42 Repeat spells and time until re-entry ...................................................................................................... 44 Total duration of social assistance benefit receipt .................................................................................. 48 Characteristics of short- and long-term recipients ................................................................................. 48 Implications and Limitations .................................................................................................................. 50 Main findings from Section 3 ................................................................................................................. 51 4. State dependence in benefit receipt: Do past benefit spells make continued receipt more likely? . 53 Heterogeneity, genuine, and spurious state dependence ........................................................................ 53 Estimates of the degree of state dependence, spurious and genuine ...................................................... 55 Policy implications ................................................................................................................................. 59 Main findings from Section 4 ................................................................................................................. 62 Annex 1.A. Social Assistance programmes included in the recipiency statistics reported in Section 1 ... 64 Annex 4.A. Issues complicating assessments of state dependence: model specification ......................... 66 Annex 4.B. Issues complicating assessments of state dependence: data and definitions ......................... 71 Bibliography .............................................................................................................................................. 77 Summary and Introduction Almost all OECD and EU countries operate comprehensive means-tested benefit programmes for working- age individuals and their families. These benefits have a major role as Social Protection Floors, either providing last-resort safety-net income support alongside primary income-replacement benefits or acting as a principal instrument for delivering income support. Government spending on such benefits is a substan- tial budget item in OECD and EU countries. More generally, patterns of social assistance benefit receipt are of significant social policy concerns, and have become more so in recent years. As for other parts of social protection, the aftermath of the ‘Great Recession’ has created not only greater demand for social support but also increased pressures to reduce or control spending. A greater focus on targeting limited resources to the poorest families has shifted the bal- ance of insurance versus assistance benefits in some countries, and created pressures to rely more heavily on social assistance and other benefits of ‘last resort’. Also, the nature of last-resort benefits has been changing over time, e.g., as a consequence of the ‘welfare to work’ reforms introduced in countries such as the USA, the UK, Australia, New Zealand, and Germany; these reforms may affect the extent of income support that these benefits can provide, the transitions into and out of benefit receipt, and the levels, trends and composition of social spending. The aim of this paper is to review a number of the most important aspects in light of current economic and social developments. It gives an overview of social assistance (SA) policies across OECD and EU coun- tries and presents new evidence on the duration of SA benefit receipt, and related indicators of ‘benefit