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



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After taxes and benefits

After taxes, benefits, housing costs and services




Net social assistance as % of net incomes of one earner on half ave. earnings

Net social assistance as % of net incomes of one earner on half ave. earnings




Couple + 1

Couple + 2

Couple + 3

Couple + 1

Couple + 2

Couple + 3

Australia

82

85

85

77

81

83

Austria

88

100

100

94

100

100

Belgium

72

75

76

78

61

66

Canada

68

77

87

45

64

79

Denmark

152

148

145

150

141

138

Finland

73

79

84

100

100

100

France

64

69

69

76

84

81

Germany

55

64

76

97

94

99

Greece



















Ireland

73

81

90

75

85

95

Israel

64

75

77

103

127

123

Italy

58

60

58

32

38

38

Japan

79

99

119

60

100

155

Luxembourg

91

92

92

87

88

90

Netherlands

78

79

80

102

102

102

New Zealand

85

83

82

83

81

80

Norway

100

109

116

128

133

137

Portugal

86

102

109

95

104

114

Spain

48

55

57

6

17

25

Sweden

72

75

78

100

100

100

UK

51

55

59

76

83

85

USA

32

34

37

34

39

33

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.


Table 7 Replacement rates for lone parents with one child on half average female earnings




After taxes and benefits


After taxes, benefits, housing costs and services



Net social assistance as % of net incomes of one earner on half ave. female earnings


Net social assistance as % of net incomes of one earner on half ave. female earnings




Needing childcare

Not needing childcare




Needing childcare

Not needing childcare




Australia

61

60




55

47




Austria

94

94




108

100




Belgium

72

78




111

97




Canada

69

76




107

55




Denmark

91

91




97

92




Finland

64

64




69

72




France

54

56




79

63




Germany

58

44




124

91




Greece



















Ireland

89

89




162

89




Israel

63

63




94

60




Italy

69

69




44

43




Japan

80

83




56

59




Luxembourg

86

86




106

91




Netherlands

69

70




84

83




New Zealand

76

77




142

75




Norway

78

81




121

93




Portugal

73

73




71

64




Spain

55

55







5




Sweden

70

71




89

81




UK

33

42




70

64




USA

36

33




27

22



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.


What evidence is there at a macro level that replacement rates are associated with variations in labour supply. Do replacement rates influence the extent to which mothers can earn an independent income? Chart 4 plots the relationship between overall unemployment and the average replacement rate. The relationship if any is the opposite of that expected by economic theory – countries with high replacement rates have the lowest unemployment. Chart 5 plots the same for unemployment among married/cohabiting mothers, now there is a weak positive relationship with Norway and the USA as outliers. Chart 6 examines the relationship between the replacement rate and the percentage of married women employed – if anything there is a weak negative relationship, that is those countries with higher replacement rates have fewer married women employed with Norway and USA outliers. Finally in Chart 7 we examine the relationship between the replacement rate for lone mothers and the proportion of lone mothers employed and observe a weak negative relationship – the higher the replacement rate the fewer lone parents are in employment. We conclude from this that there is some support for economic theory about the relationship between labour supply and replacement rates but it is mixed, weak and there are outliers.
Chart 4: Average replacement rate by the proportion of the population of 16 who are ILO unemployed





Chart 5: Average replacement rate by the proportion of married/cohabiting mothers who are I
LO unemployed


Chart 6: Average replacement rate by the proportion of married mothers who are employed





Chart 7: Average replacement rate by the proportion of Lone mothers who are employed



Work tests for lone parents
In addition to financial incentives (pull factors) to work, policy can be used to encourage (push), or at least not discourage, re-insertion into paid employment through the implementation of a work test. This usually requires recipients to register as unemployed and to establish in various ways that they are actively looking for work. Canada, Denmark, Finland, France, Netherlands, New Zealand, Sweden and the USA have all introduced or tightened work tests since 1996. The UK has introduced work-focused interviews for lone parents. Table 8 shows whether a work test operates for lone parents in each country and, if so, whether this is dependent on the age of the youngest child. It also gives the employment rate of lone mothers.

Table 8 Work test for lone mothers and employment rate for lone mothers with dependent children

Country

Work test for lone parents?

Dependent on age of child?


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