Research Group for Inclusive Welfare Policies

Assets-testing in Social Assistance Programmes

Are the Welfare states moving towards ”savefare”?

Presented to OECD seminar: Life Risks, Life Course and Social

Policy (31.5-1.6.2007Professor Ivar Lødemel

Research Group for Inclusive Welfare Policies

“And your mom was saving money for you in a jar. Tried to start a piggybank for you so that you could go to college. Almost had a thousand dollars, until someone broke in and stole it. And I know it hurt so bad it broke your mamma’s heart.”

From the song “Mockingbird” by Eminem

Research Group for Inclusive Welfare Policies

Outline

• Present the main terms and issues• The role of assets testing in the Welfare State• Outline possible effects on saving behaviour• Tentative comparison of means testing in a

select number of OECD Member Countries, including changes in the 1994-2006 period

• Discuss the extent to which changes are related to an increased emphasis on the need to promote saving

• Speculation about future scenario

Research Group for Inclusive Welfare Policies

Key terms and concepts

• Social assistance• Institutions of curtailment

– Work house test (today: ideal type workfare?)– Less elibility (today: low benefits and strict means

test)

• Means test– Earnings and other income (such as Child Benefit)– Assets

Research Group for Inclusive Welfare Policies

Why focus on social assistance

• Assets-based initiatives focus on the poor• The means test if often stricter in social

assistance than in other means tested programmes

• From life course perspective: means testing in social assistance has greater implications than in for example old age pensions

• Lack of comparative studies following great changes in s.a. over the last decade

Research Group for Inclusive Welfare Policies

The means test in the Welfare State

• “The hatred of the means test” in the poor laws facilitated transition to modern welfare states

• Great variations in the use of means testing across welfare states (Australia vs Nordic)

• Highlights contradiction of the two aims of s.a.– Makes sense in ensuring lowest safetynet function– Resulting ”asset stripping” in conflict with help-

towards-selfhelp

Research Group for Inclusive Welfare Policies

Arguments for means testing (in sa)

• Benefits targeted at poor are more effective in closing poverty gaps than are universal programmes

• .”.a comprehensive approach to poverty reduction calls for a program of well targeted transfers and safety nets..” (World Bank 1990)

• OECD Jobs Study (1994)• Dependency argument (Malthus and Murray):

avoid exposing people to welfare

Research Group for Inclusive Welfare Policies

Aguments against a strict means test

• Dependency (Mead): discourages thrift and self help

• Poverty traps (asset traps)• Inability to “save for a rainy day” • Intrusive enquiry and stigma• Low take-up• Social divisiveness• Undermines social capital (Rothstein)• High administrative costs• Poor relief rather than furthering self-reliance

Research Group for Inclusive Welfare Policies

Review: Tentqtive on effects of assetstest on saving

• Review of (some) 30 studies– Majority of studies conclude with negative effect– Few studies comparing systems with different assets

test– US study 1995 found different saving in states with

different rules (Powers 1995/1998)

• Vast majority of studies from the US– Saving is more important than in Europe– Much research closely related to ABW

• Lacking cross national comparison

Research Group for Inclusive Welfare Policies

Means testing in OECD Member Countries1994 (Eardley et al 1996)

• Strict: Austria, Switzerland, Norway, Sweden, Japan

• Less strict: English speaking countries• Eardley: ”An unlikely mix of countries”

Research Group for Inclusive Welfare Policies

Changes in allowable incomefrom earnings and in assets 1994-present

• Canada (Ontario)– Earnings: from CD 143,- plus 25% of above to 50% of

all earnings (2006)– Assets: Car, savings for children’s education (RESP)

• USA– Earnings: Exemptions remain low (up to poverty level)– Assets: Connecticut eliminated assets test for families

with children. In general: exemptions of USD 1-2000,-

• UK– Earnings: still low disregards– Assets: exemption was unchanged 1994-2006, now

doubled to pounds 6000,-

Research Group for Inclusive Welfare Policies

Changes in other nations (examples)

• Denmark: Earnings disregard for recipients on ”activation”

• Finland: 20% of earnings (up to Euro 150) disregarded

• Norway: Increased earnings disregard for people on activation

Research Group for Inclusive Welfare Policies

Tentative asessment of changes

• Observed changes mainly related to earnings• This corresponds with emphasis on activation

and transition to work• Less change with regard to assets• More nations disregard child benefits (child

poverty)• No evidence to suggest that the growing

interest in assets-based welfare has resulted in greater changes in ABW-nations (possible exception Canada)

Research Group for Inclusive Welfare Policies

Discussion:Savefare as 3rd generation activation?

• Activation: generic for ”ALMP for the poor”..1. Workfare: An offer you can’t refuse2. Trainfare: An offer.. (u shouldnt ref..)3. Savefare: An offer (that seems to good to

refuse?)• Elements of what may become savefare

• Assets-based programmes for s.a. recipients• Assets exemption only for participants• Determines use of saved assets (paternalistic)• Compulsory training for those accepting offer

• Danger (as with workfare): lots of claims about great effects, strong moral (under-)tones in advocacy/debate