Measuring the Adequacy of Social Security – Issues and Challenges [SPA Blog]

By Jussi Tervola (Doctor of Social Sciences), Finnish Institute for Health and Welfare and Eeva Nykänen (Doctor of Laws), Finnish Institute for Health and Welfare and University of Eastern Finland.

The right to adequate social security is a human right recognized in multiple international human rights conventions. This right is guaranteed, for example, in the European Social Charter prepared by the Council of Europe. Defining the level of financial security required by human rights obligations may seem straightforward at a first glance, but the diversity of safety nets makes it a complex task. The priorities of national support systems vary greatly. Some countries are known to invest in low-cost services and reasonably-priced housing, while others focus more on monetary benefits. In some places the level of security is very low due to economic realities.

The implementation of the European Social Charter is supervised by the European Committee of Social Rights (ECSR). The ECSR has since 2004 applied at-risk-of-poverty thresholds for determining what is to be regarded as an adequate level of benefits required by the Charter.  These thresholds are used broadly in the EU to measure low income i.e., income poverty.

At-risk-of-poverty thresholds are set in relation to the population’s median net income, which means they are relative in nature. The ECSR has decided to use 40% and 50% of median income as their threshold. If the net benefit falls below the 40% threshold, it can in no way be considered adequate according to the ECSR’s interpretation. If the level of the benefit is between 40-50%, the benefit can be regarded as adequate if together with supplementing benefits it exceeds the 50% threshold.

In its treaty monitoring practice of the ECSR, it has found that the level of minimum benefits is considered too low almost in all states that have ratified the Charter. It is telling of the level of the indicator – or of meeting the social human right obligations – that in 2020 one-in-nine people (11%) in Europe lived on income that was below 50% country-specific threshold used by the ECSR. The share was the highest in Bulgaria (17%) and the lowest in Czech Republic (4%).

How well does the indicator used by ECSR describe an adequate minimum level of livelihood or social security, has not been much debated. In this blog, we highlight some of the issues with the indicator and more broadly challenges with the measurement of adequacy that should be considered in the monitoring.

Thresholds should be set in a transparent and justified manner

It is obvious that the threshold for adequate social security must be set somewhere, but it should be justified and argued as it is used for determining whether a state has breached its binding human rights obligations. The reason the ECSR has decided to set the threshold for the adequacy at 50% is unclear, as no grounds have been given for it so far.

The adequacy of guaranteed minimum resources is difficult to measure with one income-based threshold

ECSR has used the relative risk-of-poverty threshold also in determining the adequacy of minimum income benefits that can cover individually varying expenses such as housing costs or medical expenses. For the ear-marked reimbursements, the one-size-for-all poverty threshold works poorly. Instead, the assessment could be done, for example, by operating with average amount of reimbursement. Another, perhaps more sensible approach would be to present hypothetical calculation of some standardized households.

Could consumption-based limits be used instead of relative income limits?

The median income and at-risk-of poverty threshold follow economic trends, which is not a desirable feature when measuring the fulfilment of human rights obligations. During a recession the median income and therefore also the threshold typically decreases. As a result, the threshold for adequate social security level decreases. Correspondingly, during an economic boom incomes and threshold increase. Moreover, the real value of the income at the at-risk-of poverty threshold, and how it enables the participation in society, may vary a great deal from one country to another.

Based on these fluctuations, a threshold tied to a certain internationally comparable consumption level, such as a reference budgets for minimum consumption, could be more feasible. Compared to relative indicators, reference budgets illustrate better the minimum amount of money necessary for participation in society. On the other hand, they may seem more complex to build and assess, and most countries still lack comparable budgets. Therefore, EU commission has recently developed methods to assess the minimum acceptable standard of living by combining the reference budget approach with a survey-based approach.

What about the coverage dimension?

The adequacy of social security is determined not only by the level of benefits, but also by the coverage and the eligibility criteria of the benefits, which can vary greatly between countries. In some countries the coverage of benefits is based primarily on residence while in others on prior contribution. In some countries, for instance in Finland and Sweden, benefits such as unemployment assistance and parental benefits do not require any prior contribution. The non-contributory flat-rate benefits in these situations are independent from household’s assets or spouse’s income. In other countries individuals in comparable situations without prior contribution rely only on means-tested last resort social assistance.

When assessing national systems, it is important to pay attention to these kinds of structural differences. Instead of focussing on the level of individual benefits, hypothetical calculations of the whole benefit packages in different situations would highlight the variation in coverage and eligibility criteria.

Could the accessibility of social security and even the non-take-up be also monitored?

How benefits are defined in legislation may not tell the whole truth on their adequacy in practice. Even generous social benefits cannot reduce poverty if they are not accessible to the population. There is some research available from different countries on the scope of the non-take-up of social assistance and other minimum income benefits. Based on research, the non-take-up of minimum income benefits seems to be quite common, but the level varies by country. Estimation of non-take-up rates is known to be data-demanding and prone to measurement errors, which makes it hard to assess reliably. Therefore, alternative regression-based methods to study accessibility have been developed.

The wide range of ways for arranging social security produces many challenges for measuring the adequacy, scope, and availability of social security. The assessment criteria should be developed in cross-disciplinary cooperation and as transparently as possible.

Jussi Tervola (Doctor of Social Sciences) is a Research Manager and a policy analyst at the Finnish Institute for Health and Welfare.

Eeva Nykänen (Doctor of Laws) is a Chief Specialist at the Finnish Institute for Health and a Professor of Welfare Law and Immigration Law at the University of Eastern Finland.