Perspectives on Social Protection in the Industrialized Countries

1. Perspectives on Social Protection in the Industrialized Countries Gary Burtless The Brookings Institution Washington, DC October 19, 2000

2. Assurance of minimum income Assurance of consumption adequacy Food Health care Guarantee of income in designated circumstances Children Aged Disabled Usually excludes consumption of public goods -- Primary and secondary education Public health Immunizations Sanitary food Clean air and water Social protection usually refers to assurance of adequate income or consumption . . .

3. Three competing principles of social protection -- • Protection for all citizens or residents (“universal protection”) • Protection for people with low incomes (“means-tested assistance”) • Protection for workers who have contributed to insurance fund (“social insurance”)

4. Most industrialized countries use a combination of all three principles . . . • Health insurance might be universalistic (as in Canada and the U.K.) • Basic income protection or food security might be provided using a means test (as in U.S.A.) • Old-age and disability pensions and unemployment benefits might be offered under a social insurance system (as in Germany, France, and U.S.A.)

5. Food security: Means tested Minimum income: Categorical means tested Old-age & disability pensions: Social insurance Unemployment benefits: Social insurance Old-age health insurance: Social insurance Health insurance for the non-aged: Means tested Minimum income: Universal means-tested Old-age & disability pensions: Combination of flat-rate universal and social insurance Unemployment benefits: Social insurance plus means tested Health insurance: Universal Countries provide protection in a variety of combinationsUSA UK

6. No particular combination of protection schemes is uniquely successful ... • Means-tested schemes can minimize poverty at relatively low cost, but -- • Adverse incentives can be severe • Can produce political resentment of poor (and difficulties for political sustainability) • Universal and social insurance are more popular and sustainable, but -- • Very costly: Benefits are provided to large % of population • Hard to reform

7. Relative Poverty Rates of Industrialized Countries Source: Smeeding, Burtless & Rainwater (2000).

8. Poverty rates using 50%-of-median-income standard-- Source: Smeeding, Burtless & Rainwater (2000).

9. Social transfers and the national poverty rate Source: Smeeding, Burtless & Rainwater (2000).

10. Social transfers & child poverty Source: Smeeding, Burtless & Rainwater (2000).

11. But factors in addition to the social protection system are also important • The composition of households • Female-headed families are more likely to be poor • Aged family heads -- who are usually retired -- are often poor if gov’t transfers are ignored • The distribution of labor earnings • Unequal wages & self-employment income cause high poverty rates in working-age population • The distribution of income from capital

12. Poverty rates & low wages Source: Smeeding, Burtless & Rainwater (2000).