Social Policy Research Unit financial incentives and mother’s employment: a comparative perspective

Table 7 presents notional replacement rates for a lone mothers earning half national average female earnings. The replacement rates for the lone mothers with one child are high in Austria, Denmark, Ireland, Japan, Luxembourg, New Zealand and Norway. They are relatively low in the USA, the UK before housing costs and services and thus the financial incentive for mothers to enter paid work in these countries is higher. After housing costs and services, Germany also has very high replacement rates. The contrast between the lone mothers needing childcare and one not needing childcare is a measure of the impact of childcare costs on replacement rates⁶. Childcare costs increase the replacement rates in almost all countries and substantially in Belgium, Canada, Germany, Ireland, Luxembourg, New Zealand and Norway. Only in Finland, the Netherlands, Italy and Japan do childcare costs have little or no impact on replacement rates. There are eight countries where as a result of childcare costs the lone parent has no financial incentive for entering employment.

It is clear from this analysis that some countries have very high replacement rates but it is the case that they do not tend to be the countries that are most anxious about incentives to work. It can be seen in Table 6 that Australia, the UK, the USA and Canada have comparatively low replacement rates for couples. They are higher for lone parents who need childcare in Canada, Ireland New Zealand. However, countries like Austria, Denmark, the Netherlands, Norway and Japan are managing with very high replacement rates.