Results from EIPA’s International Benchmarking Study
On the second day of our Conference on Public Sector Performance Results 2024 discussions centered on International Best Practices in Social Security Systems, as presented in the new chapter of our international benchmarking study. Six different case studies explore key aspects of social security policies across selected OECD countries, focusing on social assistance, housing benefits, family benefits, healthcare, and fiscal policies for low-income households.
The study identifies key trade-offs that policymakers must navigate, including administrative burden, income support effectiveness, targeting, and education outcomes.
1. Effectiveness of Income Support
Policies with high take-up rates, such as New Zealand’s tax credits and Universal Credit, enhance income support effectiveness. However, complex benefit structures, like Germany’s separate social assistance programmes and Sweden’s housing allowance design, often deter applicants or reduce financial impact, diminishing effectiveness.
Some nations have leveraged strong employment protection and wage-setting mechanisms to reduce reliance on public income support. The Netherlands, for instance, has strong Employment Protection Legislation and minimum wages, combined with two capital-based pension pillars, which have resulted in low inequality of market income.
2. Targeting & Financial Incentives
Targeted policies, such as Denmark’s education-focused benefits and Germany’s social assistance programmes, improve efficiency but require substantial administrative resources. The effectiveness of these policies depends on striking the right balance between precision in targeting and minimising bureaucratic complexity.
However, overly generous access to social assistance can sometimes act as a disincentive to work. Norway, for instance, keeps unemployment low by providing easy access to disability benefits, which, while ensuring income security, may reduce overall labor market participation.
3. Labor Market & Education Outcomes
Employment and education incentives are crucial in designing social security systems. Denmark’s policies encourage workforce participation by reducing the financial attractiveness of long-term social assistance. In contrast, Sweden’s full housing cost coverage may reduce motivation to work by offering a high level of financial security.
Similarly, attempts to create jobs by lowering wages can inadvertently increase poverty and trigger a doom loop of falling demand and employment. Instead, minimum wages, strong unions, and wage compression can ensure decent wages that reduce the need for public income support.
4. Income Security
4. Income SecuritySystems that calculate benefits based on actual rather than estimated income (as seen in the UK and New Zealand) enhance income security. However, these systems may introduce delays or risks of repayment. Countries like Germany, where benefit recipients frequently transition between different schemes, experience lower income security due to inconsistencies in support.
Social protection measures often focus on maintaining previous market income levels rather than directly avoiding poverty. Overall, social spending has been found to be only weakly correlated with poverty reduction, as demonstrated by Poland’s success in substantially reducing poverty through generous family (child) benefits.
5. Feasibility of Implementation
Large-scale reforms, such as New Zealand’s tax credit overhaul and the UK’s Universal Credit, reduce long-term administrative burdens and improve support effectiveness. However, these reforms require significant time and financial investment. Countries opting for incremental changes — such as Denmark, Germany, and Sweden — face fewer implementation challenges but may not achieve the same level of systemic efficiency.
Generous welfare states are often financed by VAT on goods and services, which disproportionately affects lower-income households. While ensuring a robust funding base, such taxation structures may exacerbate inequality by placing a higher relative burden on the poor than on the rich.
Key Trade-offs in Policy Design
The study underscores that no single approach is universally optimal — policymakers must weigh multiple trade-offs:
- Effectiveness vs. Feasibility: Comprehensive reforms (UK, New Zealand) deliver better outcomes but are harder and costlier to implement.
- Targeting vs. Administrative Burden: More targeted policies (Denmark, Germany) can enhance efficiency but also increase complexity and costs.
- Effectiveness vs. Recipient Burden: Simplified processes (UK, New Zealand) boost take-up rates, while complex application requirements (Germany, Sweden) discourage participation.
Conclusion
The findings emphasise that the effectiveness of social security policies depends on each country’s institutional context. While large-scale reforms can offer long-term efficiency gains, they require significant investment and adaptation periods. More incremental approaches, while easier to implement, may struggle to achieve meaningful improvements in social security effectiveness.
As countries refine their social security models, balancing effectiveness, feasibility, and administrative efficiency will remain a critical challenge for policymakers worldwide.
The whole 2024 study is now available for download on our website where you can also access interactive data dashboards.
