Jinxian Wang
PhD candidate in Economics
Trends in social assistance and income polarization in an international perspective
August 29, 2016 • Tax Law and Economics •	2	min read
Social assistance benefits have seen major developments in many countries over the last decades. Our research explores the benefit developments, their determinants and the impact of the benefit changes on income polarization.
Social assistance and minimum income benefits are public transfers that aim to help households obtain an adequate standard of living. The benefits are generally means-tested and non-contributory. Social assistance and minimum income benefit schemes function either as a last resort safety net or as the principle instrument for delivering social protection (Immervoll, 2009; Immervoll et al., 2015). In the new millennium there have been major developments in minimum income benefit schemes. The benefit developments are subject to country and time-specific socio-economic challenges, political developments and institutions.
Based on quantitative and qualitative analyses, our study suggests that the real minimum income benefit levels increased in many OECD countries whilst minimum income replacement rates declined on average. The increased benefit levels reflect policy changes while the declined replacement rates do not reflect benefit cuts but larger wage increases. The empirical evidence in our study shows that globalisation and soaring levels of unemployment have triggered social assistance and minimum income benefit reforms.
In addition to the factors that may have had an adverse impact on minimum income benefit levels, the introduction of the Lisbon Strategy could have had positive effects on the benefit levels of national social assistance schemes. Introduced in 2000, the Lisbon Strategy set a number of objectives for the fight against poverty and social exclusion. In this respect, social assistance has been considered an essential safety net for the most vulnerable groups (European Council, 2000a). Furthermore, in 2005 the Lisbon Strategy was revised. The Lisbon Strategy 2005 is a refined version of the Lisbon Strategy 2000 that defines the roles of the Commission, the Council and the Member States more clearly. Also, the objectives of the strategy were narrowed. Since then, the Lisbon Strategy has been more closely associated with social assistance benefits.
Social assistance and other social benefits may influence income distribution. For instance, over the last few decades the distribution of market income (labour income and capital income) has become more unequal (e.g. Immervoll and Richardson, 2011; OECD, 2008, 2011, 2015a; Thewissen et al., 2013; Thewissen and Van Vliet, 2014). However, much of the rise in market income inequality has been offset by taxes and social benefits, including social assistance benefits and pensions (Wang et al., 2014). In the subsequent analyses in this thesis, we focus on an income polarisation indicator. Income polarisation is an interesting additional social indicator for analysing income distribution across countries and over time as it captures the phenomenon of 'clustering around extreme poles'. Both income inequality and income polarisation capture the change in the middle of the income distribution. However, income polarisation is different from income inequality. Income polarisation describes to what extent a society is segregated into groups (Gradín, 2000), or the phenomenon of a 'divided society'. The basic idea of the income polarisation indicator is to capture the potential instability in a given distribution. The results suggest that income polarisation is stable in European countries and Europe as a whole. Especially, tax-benefit systems are essential in reducing initial market income polarisation.
income distribution
Lisbon Strategy
minimum income benefits