Society at a Glance 2024: OECD Social Indicators

Unemployment and social safety net benefits

Public cash transfers can provide an income safety net in case of unemployment. In most countries, two layers of support are available: (contributory) unemployment insurance benefits and (non-contributory) social safety net benefits.

In a large majority of OECD countries, payment rates of unemployment insurance benefits are typically significantly higher than social safety net benefits (Figure 6.7). On average across the OECD, the net replacement rate (NRR) in unemployment, i.e. the proportion of net in-work income retained after a given period of unemployment, is 58% in the initial phase of the unemployment spell for a single person without children with previous earnings at the average wage, but it falls to 37% once they become long-term unemployed.

Social safety net benefits are sometimes significantly lower than commonly used poverty thresholds (Figure 6.8). Payment rates of social/unemployment assistance and housing allowances for a single person without children who has exhausted their entitlement to unemployment insurance benefits amount to less than 20% of median household income in Canada, Hungary, Portugal, the Slovak Republic and the United States. For those living in rented accommodation, housing-related benefits like rent allowances can provide further income assistance, levelling up incomes above the poverty line in Japan and the Netherlands. However, in all countries, non-contributory social safety net benefits alone are insufficient to escape poverty.

The number of working hours needed to escape poverty at the average hourly wage rate for recipients of social safety net benefits differs across countries and family types. On average across the OECD, a single person without children benefiting from social safety net benefits need to work 10 weekly hours at average national wage to escape poverty (Figure 6.9). Couples with two children where one partner is out of work need 17 hours. This difference is particularly significant in countries like Czechia, the Netherlands, New Zealand and Norway. In Denmark, Finland, Germany, Lithuania and the United Kingdom, couples need to work fewer hours than single people to escape poverty.

Definition and measurement

The net replacement rate (NRR) measures the fraction of net income from work that is maintained when unemployed. It is defined as the ratio of net income while out of work divided by net income while in work. The NRR presented here corresponds to a 40‑year‑old single person without children who was working full time at the average wage before becoming unemployed. The “initial phase” of unemployment refers to the second month of benefit receipt following any waiting period, and “long-term unemployment” refers to the 24^th month of benefit receipt. Results include housing benefits for tenants, calculated assuming an annual rent equal to 20% of the average wage. Family incomes are calculated using the OECD tax-benefit model (www.oecd.org/social/benefits-and-wages.htm).

One way of assessing the adequacy of countries’ social protection systems is to compare the maximum social safety net benefit entitlements with commonly used relative poverty thresholds, calculated as 50% or 60% of the median of the disposable income distribution. The maximum social safety net benefit entitlements is the level of income support that can be received by a jobless family with one or two working-age adults, with no other income sources, no assets, and no entitlement to contributory benefits such as unemployment insurance. Benefit entitlements include housing benefits for tenants, calculated assuming a rent equal to 20% of the average wage. All benefit entitlements are net of any income tax payments and/or compulsory social contributions. Results are calculated using the OECD tax-benefit model, taking into account all possible interactions between means-tested benefits and between taxes and benefits. The median of the disposable income distribution (before housing costs) is from the OECD Income Distribution Database (www.oecd.org/social/income-distribution-database.htm).

The weekly hours that a family receiving social safety net benefits (including housing benefits and temporary “into-work” benefits, i.e. benefits paid to support a recent transition from unemployment to employment) needs to work to exit poverty are calculated for two family types assuming an average hourly wage rate. The poverty line is calculated as 50% of the median equivalised disposable income.

Further reading

OECD Tax-Benefit models, www.oecd.org/els/soc/benefits-and-wages.htm.

Figure notes

Figure 6.7, Figure 6.8, Figure 6.9: data refers to 2022 instead of 2023 for Australia, Belgium, Canada, Denmark Israel, Japan, Portugal and the United States. Up to date information on Chile, Colombia, Costa Rica and Mexico is not available in the OECD tax-benefit database.

Figure 6.7. In most countries, benefit income declines significantly for people with long unemployment spells

Net income in unemployment, in percentage of the net income in work (“net replacement rate in unemployment”), single person with previous earnings equal to the average wage, in 2023

Source: OECD Tax-Benefit model, www.oecd.org/els/soc/benefits-and-wages.htm.

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Figure 6.8. Social safety net benefits alone cannot prevent income poverty

Net income level provided by social safety net benefits, in percentage of median disposable income, for a single person living in a rented accommodation, in 2023

Source: OECD Tax-Benefit model, www.oecd.org/els/soc/benefits-and-wages.htm.

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Figure 6.9. Couples with two children where a partner is jobless generally need a significantly larger number of working hours to escape poverty than single persons

Weekly working hours needed to escape poverty (50% of median equivalised disposable income) for recipients of social safety net benefits, by family type, at average hourly wage, in 2023

Source: OECD Tax-Benefit model, www.oecd.org/els/soc/benefits-and-wages.htm.

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