Background Paper No. 8
By Terri B. Chapman
Terri Chapman is Program Manager for the Economic Policy Program at Observer Research Foundation America
Introduction
Families are changing. Across Organization for Economic Co-operation and Development (OECD) countries, fertility rates are declining, divorce rates are increasing, more people are cohabitating, there are more single parents, and a rise in dual-income households. However, many key welfare programs maintain design and eligibility features based on family dynamics from the last century, leaving many people ineligible for basic social welfare programs.
Social benefits help people cope with the risks associated with life, like unemployment, sickness, poverty, and aging. Welfare programs, however, are disproportionately tailored towards a specific family model: a two-parent, heterosexual couple with children, which doesn't match what families actually look like today. This is important because many social benefits, which are key pillars of the welfare state, have eligibility criteria that depend on family and household characteristics.
Failure to adapt welfare policies to fundamental transformations in what families look like directly impacts the ability of families, households, and individuals to access crucial social benefits like health insurance and pensions. The inability to adapt also means risking increased poverty, impeding progress towards gender equality, and declining welfare. The Covid-19 pandemic led many OECD countries to re-evaluate and adapt social benefits, creating an opportunity to make further changes to benefit programs to better meet the needs of people and families.
Background: Social Benefits
Social benefits consist of many, often interconnected programs and policies to assist people in circumstances such as unemployment, aging, illness, disability or loss of housing. Social benefits include cash and in-kind transfers and vary in structure and generosity between OECD countries. Social benefits also make up a substantial part of national spending, which averages at 20 percent of gross domestic product (GDP). Some OECD countries such as France, Germany, the Netherlands, Iceland, Sweden, Norway, Denmark, and Finland offer comprehensive, often universal (availed to everyone) social assistance and insurance. Other countries, such as the U.S., offer fewer, less generous programs and have more stringent eligibility criteria.
Social assistance programs typically provide support to families or individuals that fall below a certain standard of living. Such benefits are generally provided to those that meet particular criteria, such as income below the poverty line. Determining eligibility is done through a process called means-testing. Social assistance programs aim to reduce people's vulnerability to shocks and help them cope with the impacts of such shocks. These programs are usually non-contributory, meaning that they are available to people in need rather than only to those that paid into them. An example is the Temporary Assistance for Needy Families (TANF) program in the U.S. However, meeting eligibility criteria does not guarantee access to benefits. For instance, just 21 percent of U.S. families with income below the poverty line receive TANF benefits. A limited number of social assistance programs are also conditional, such as Mexico's PROGRESA. PROGRESA is a cash transfer to low-income and rural households. The program is both means-tested (based on the household's income) and conditional on school and healthcare attendance among household children.
In response to Covid-19, there have been many new and temporary social assistance programs implemented to help people cope with the economic shock caused by the pandemic. Korea, for instance, implemented a new cash transfer program for the lowest 70 percent of income earners. Likewise, the U.S. implemented universal cash transfers provided to all citizens. In addition, many other countries such as the Netherlands, Australia and Germany temporarily eased eligibility criteria for income assistance programs. Typically, to be eligible for income assistance, an applicant would have to show that their income is below a certain threshold and don't have a large amount of savings or assets that could be drawn upon to smooth their consumption. During the pandemic, these countries temporarily eased these requirements to allow individuals with assets that would typically deem them ineligible to access income assistance. Moreover, many income transfer programs require that recipients meet specific job search criteria, for example, applying to a certain number of jobs each month. During the ongoing crisis, several countries temporarily suspended these requirements.
Social insurance programs are usually contributory – meaning that people pay into them – and have access to support in the case of unemployment, illness, injury, disability, retirement, or death of a family member. Pensions are an example of a social insurance program because people pay into a pension scheme during their working life and draw on it when they retire. In this way, social insurance programs are typically available to individuals or families that make contributions to the system rather than to people most in need, like social assistance programs. In most OECD countries, with the notable exception of the U.S., health insurance and other basic social insurance programs are universal and therefore available to everyone. In Germany, for example, all employees and employers are required to pay into the Federal unemployment insurance program, and anyone who becomes unemployed has access to unemployment insurance benefits. During the Covid crisis, many countries changed social insurance schemes to extend access. For example, self-employed workers are notably excluded from many benefits like unemployment insurance and sick leave. Countries including Australia, Germany, Italy and the U.K. temporarily extended unemployment benefits to these workers in response to the pandemic.
Changing Families
Eligibility for social assistance and social insurance programs depends on several factors, including the characteristics of an individual's household or family. And many welfare programs are designed around various aspects of a 'traditional family.' This includes assuming, for example, that couples are married, making eligibility for some benefits contingent on the formalization and legalization of relationships. Other programs are more favorable to certain family formations, such as two-parent rather than lone-parent households or heterosexual rather than same-sex couples. And, yet other policies incentivize particular family forms and employment through tax credits that benefit families in which women stay home. These policy choices have real-world consequences for the many and increasing number of people and families that don't conform to the male-breadwinner family model. This section looks at how family formation changes in OECD countries and offers examples of policy choices that have failed to adapt to changing needs.
Partnerships are changing across OECD countries, including declining marriages and rising divorce rates in many countries. The average number of marriages dropped from 8.1 marriages per 1,000 people in 1970 to 5.0 in 2009. During the same period, the rate of divorce doubled. Meanwhile, cohabitation—couples living together without being married—is both common and increasing. On average, 10 percent of couples cohabitate, as many as 20 percent in Sweden, and around 15 percent in Denmark, Estonia, France, New Zealand, and Norway.
However, couples that are not married or are not registered—a legal definition allowed in 21 OECD countries, are rarely availed of the same rights, benefits, and protections provided to married couples. Some of the benefits that married or legally registered couples including for example financial assistance in the case of divorce/separation, inheritance laws, preferential tax policies, access to their spouse's social security or Medicare in the U.S., and decision-making rights.
Moreover, most OECD countries tax married and cohabitating couples differently. Each country's system is complex, but a recent study shows a financial bonus for marriage in several OECD countries, including Germany, Luxemburg, Belgium, Poland, and Ireland. A marriage bonus is when couples face a lower tax burden filing together than they would if they were filing their taxes independently. The opposite is true in Greece, where married couples face a financial penalty compared to cohabitating couples, paying more taxes as a couple than they would as individuals. Given that cohabitation is common and increasing, more equitable tax systems that treat married and unmarried couples equally and don't penalize single people are needed.
Across OECD countries, fewer people have children, they have them later, and, single-parent households are increasing. On average, one in six children live in single-parent households in OECD countries. This number is as high as 25 percent in Belgium, Lithuania, the U.K., and the U.S. These numbers are also projected to continue increasing.
Single-parent households tend to face additional challenges, including balancing employment, meeting the costs of childcare, and the additional costs of living. In fact, in the U.S., single-parent households are three times more likely to be poor than two-parent households. There is a role for policy in addressing this by reducing risks and improving security by providing paid parental leave, affordable childcare, income support, and child health insurance. A 2017 study of 45 countries, for example, found that paid maternity leave significantly reduced poverty among single-parent households. But, single mothers in 22 OECD countries receive less paid parental leave when compared to two-parent households.
Access to childcare in the U.S. has also been found to improve child labor market and health outcomes later in life. Most single-parents in OECD countries are women, and the net costs of childcare after accounting for government support on average add up to 17 percent of women's median earnings and as much as 30 percent in Canada, Ireland, Slovak Republic, Switzerland, and the U.S., and nearly 50 percent in other countries including the U.K. While in Germany, Italy, the Czech Republic, and Chile, early childhood care and education are essentially free. Childcare costs are significant for single-parents, "On average across OECD countries, a low-paid single mother, who takes up full-time work, loses almost two-thirds of her in-work earnings to childcare costs, taxes and the loss of social benefits." There are different policy mechanisms for reducing the cost of childcare through, for instance, the direct provision of public childcare, tax breaks, subsidies to childcare providers, and cash benefits to parents.
More households are dual income earning as more women enter the paid workforce. For example, Germany's female labor force participation increased ten percentage points between 1990 and 2020. However, women's labor force participation still lags men's in almost all OECD countries, standing on average at 68 percent among men and 51.7 percent among women. Moreover, even as more women enter the paid workforce, many policies constrain their labor market opportunities and equity, such as tax policies, the failure to address gender wage gaps through policy, and, as described above, the provision of affordable childcare.
There are important gender biases in tax systems in several OECD countries that act as a disincentive for women to participate in the paid workforce. For example, many tax systems incentivize women to stay at home by placing a higher tax on second earners. In addition, tax features such as family-based rather than individual taxation, dependent spouse tax credits and allowances, and tax credits and benefits linked to families rather than individuals all act as disincentives (mostly for women) to enter or remain in the paid workforce. Moreover, the gender wage gap stands at an average of 12.5 percent in OECD countries, meaning that women are more likely to earn less, and are more likely to leave or remain outside of the paid workforce compared to their male counterparts.
Not only do women have lower labor force participation rates, but they are also over-represented in non-traditional forms of employment such as part-time and temporary work. As a result, women have less access to social protections like paid sick leave and unemployment insurance. Less favorable employment contracts mean that women are able to make lower contributions to systems such as pensions over their working lives, leaving them with fewer protections. In European OECD countries, women's pensions are on average, 25 percent lower than that of men. These employment dynamics can also create harmful dynamics in which women's access to basic social insurance is mediated through others rather than available to them directly.
Conclusion
Social assistance and insurance programs are crucial for reducing people's risks and helping them cope with economic shocks associated with life's challenges. However, many social benefit programs across OECD countries are designed around a family model that does not reflect today's families but those of the last century. Many social benefit programs conform to a certain family form and roles, which implicitly or explicitly exclude people and families that fall outside of those definitions, such as, unmarried and unregistered couples, single people, same-sex couples, and single parents. As countries chart out new social policies, especially in the aftermath of Covid-19, they must consider how policy design and features can be inclusive of new family forms and patterns. Families and households are changing, and social policies need to adapt to meet changing needs.