Assets-testing in Social Assistance Programmes Are the Welfare states moving towards ”savefare”?

1. Assets-testing in Social Assistance Programmes Are the Welfare states moving towards ”savefare”? Presented to OECD seminar: Life Risks, Life Course and Social Policy (31.5-1.6.2007 Professor Ivar Lødemel

2. “And your mom was saving money for you in a jar. Tried to start a piggybank for you so that you could go to college. Almost had a thousand dollars, until someone broke in and stole it. And I know it hurt so bad it broke your mamma’s heart.” From the song “Mockingbird” by Eminem

3. Outline • Present the main terms and issues • The role of assets testing in the Welfare State • Outline possible effects on saving behaviour • Tentative comparison of means testing in a select number of OECD Member Countries, including changes in the 1994-2006 period • Discuss the extent to which changes are related to an increased emphasis on the need to promote saving • Speculation about future scenario

4. Key terms and concepts • Social assistance • Institutions of curtailment • Work house test (today: ideal type workfare?) • Less elibility (today: low benefits and strict means test) • Means test • Earnings and other income (such as Child Benefit) • Assets

5. Why focus on social assistance • Assets-based initiatives focus on the poor • The means test if often stricter in social assistance than in other means tested programmes • From life course perspective: means testing in social assistance has greater implications than in for example old age pensions • Lack of comparative studies following great changes in s.a. over the last decade

6. The means test in the Welfare State • “The hatred of the means test” in the poor laws facilitated transition to modern welfare states • Great variations in the use of means testing across welfare states (Australia vs Nordic) • Highlights contradiction of the two aims of s.a. • Makes sense in ensuring lowest safetynet function • Resulting ”asset stripping” in conflict with help-towards-selfhelp

7. Arguments for means testing (in sa) • Benefits targeted at poor are more effective in closing poverty gaps than are universal programmes • .”.a comprehensive approach to poverty reduction calls for a program of well targeted transfers and safety nets..” (World Bank 1990) • OECD Jobs Study (1994) • Dependency argument (Malthus and Murray): avoid exposing people to welfare

8. Aguments against a strict means test • Dependency (Mead): discourages thrift and self help • Poverty traps (asset traps) • Inability to “save for a rainy day” • Intrusive enquiry and stigma • Low take-up • Social divisiveness • Undermines social capital (Rothstein) • High administrative costs • Poor relief rather than furthering self-reliance

9. Review: Tentqtive on effects of assetstest on saving • Review of (some) 30 studies • Majority of studies conclude with negative effect • Few studies comparing systems with different assets test • US study 1995 found different saving in states with different rules (Powers 1995/1998) • Vast majority of studies from the US • Saving is more important than in Europe • Much research closely related to ABW • Lacking cross national comparison

10. Means testing in OECD Member Countries1994 (Eardley et al 1996) • Strict: Austria, Switzerland, Norway, Sweden, Japan • Less strict: English speaking countries • Eardley: ”An unlikely mix of countries”

11. Changes in allowable incomefrom earnings and in assets 1994-present • Canada (Ontario) • Earnings: from CD 143,- plus 25% of above to 50% of all earnings (2006) • Assets: Car, savings for children’s education (RESP) • USA • Earnings: Exemptions remain low (up to poverty level) • Assets: Connecticut eliminated assets test for families with children. In general: exemptions of USD 1-2000,- • UK • Earnings: still low disregards • Assets: exemption was unchanged 1994-2006, now doubled to pounds 6000,-

12. Changes in other nations (examples) • Denmark: Earnings disregard for recipients on ”activation” • Finland: 20% of earnings (up to Euro 150) disregarded • Norway: Increased earnings disregard for people on activation

13. Tentative asessment of changes • Observed changes mainly related to earnings • This corresponds with emphasis on activation and transition to work • Less change with regard to assets • More nations disregard child benefits (child poverty) • No evidence to suggest that the growing interest in assets-based welfare has resulted in greater changes in ABW-nations (possible exception Canada)

14. Discussion:Savefare as 3rd generation activation? • Activation: generic for ”ALMP for the poor”.. • Workfare: An offer you can’t refuse • Trainfare: An offer.. (u shouldnt ref..) • Savefare: An offer (that seems to good to refuse?) • Elements of what may become savefare • Assets-based programmes for s.a. recipients • Assets exemption only for participants • Determines use of saved assets (paternalistic) • Compulsory training for those accepting offer • Danger (as with workfare): lots of claims about great effects, strong moral (under-)tones in advocacy/debate