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Society at a Glance 2011: OECD Social Indicators
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branch 6. Equity Indicators
  branch  Leaving low income from benefits

Definition and measurement

The indicators show gross earnings levels expressed as a percentage of average full time earnings, required for a family to reach a 60% median income threshold from benefits of last resort. Benefits of last resort are paid when all other sources of income are exhausted. 60% was shown because many countries have benefits of last resort above 50%. Benefit income includes family-related benefits and housing benefits (with and without), on top of core benefits. It is expressed as a percentage of average full-time wages. Income tax and social security as well as tax-related benefits are also counted. The indicators are shown for 2009 and for lone-parents and couples with two children aged 4 and 6. In the married-couple case, a one earner couple is assumed. Family incomes in these situations are simulated using the OECD Tax-Benefit Model (methodology available in Benefits and Wages 2007 and on-line: www.oecd.org/els/social/workincentives). Median incomes come from Growing Unequal? (2008). They relate to the mid-2000s and are converted to 2009 prices. No bars are shown for countries where the sum of all benefits, excluding earnings, exceeds 60% of median income. For Australia, Canada, Israel, New Zealand, Switzerland, Turkey and Korea, the indicators are for 2008.

 

The ease with which different sort of families with dependent children can leave low income through getting a paid job from benefits of last resort is an indicator of upward mobility. This ease depends on two policy features of the tax-benefit system: the extent to which benefits of last resort push people upward towards the low income threshold and the extent to which taxes increase and benefits reduce people start getting paid work.

In 2009, when housing benefits have been taken into consideration, the ease of families leaving low income through work was high in Ireland, Japan and the United Kingdom ( Figure EQ4.1 ). In fact, in these countries, full take-up of the minimum benefit placed such families above the low income threshold to start with. However, only some countries pay a housing benefit. Since housing benefits often vary according to local housing costs and hence the region, actual housing benefits may be lower than shown here. Hence results are also presented excluding housing costs, which make a big difference in some countries.

Countries where it was hard for parents of both types to get out of low income include Estonia, Switzerland, the United States ( Figure EQ4.1 ). In the United States a job paying 80-90% of average gross earnings were required, and Swiss figures and Estonian were similarly high. Other countries make it difficult for couples with children to get out of low income via earnings. Jobs paying around 90% of average gross earnings were required in the Netherlands and Canada.

Higher benefits of last resort mean that only relatively low earnings are needed to leave low income ( Figure EQ4.2 ). However, for a given generosity of benefits of last resort, the ease of getting out of low income varied greatly between countries due to differences in tax and benefit abatement treatment (Figure EQ4.2). For example, in New Zealand, Sweden and Belgium benefits of last resort for lone parents were all about 80% of the low income threshold but a job paying below 20% of the average wage was needed in New Zealand, a job paying below 40% of the average wage was needed for Sweden and a paying upward of 50% of the average wage was needed in Belgium. This variation was due to differences in abatement through the tax/benefit system as people start earning.

Further reading

OECD (2007), Benefits and Wages: OECD Indicators, OECD Publishing, Paris.

Figure notes

Figure EQ4.1  and Figure EQ4.2: Australia, Canada, Israel, Korea, New Zealand, Switzerland and Turkey data are based on 2008.

Information on data for Israel: http://dx.doi.org/10.1787/888932315602.

Indicator in PDF Acrobat PDF page

Figures
EQ4.1 The ease of leaving low income from benefit Figure in Excel
The ease of leaving low income from benefit
EQ4.2 Benefit levels and net wages from getting work both matter for leaving low income Figure in Excel
Benefit levels and net wages from getting work both matter for leaving low income