World ranking in Unemployment Benefit replacement rates
In times of crisis, the ability of workers who lose their jobs to retain their purchasing power has important social and economic implications. A high replacement rate (ratio of unemployment benefits a worker receives relative to the worker’s last gross earning) ensures that the negative effects of rising unemployment on aggregate demand are mitigated. It also prevents workers from falling into poverty when they lose their jobs.
The table below shows the gross replacement rate in the first year of unemployment for as many countries as is available. The data is taken from a recent IMF working paper (see end of post for full reference). I have ranked countries from highest to lowest (restricting the sample to those countries which replacement rate is superior to 0).
An interesting finding is that European countries did not have the monopoly of high replacement rates in 2000. This challenges the notion that high economic development is a necessary or sufficient condition for protection fo workers to be high. Indeed, workers who have unemployment insurance in non-EU countries sometimes score higher. For instance, in the top 10 one finds Ukraine, Algeria, and Taiwan, while Russia, Tunisia, Romania and Hong Kong make it into the top 20.
The Anglo Saxon countries rank poorly: UK (46th), Australia (43rd) and Ireland (39th); US (31st) i.e.: coming after Venezuala, Azerbaijan, Egypt, Belarus... The picture for Eastern European countries is more mixed with Bulgaria (16th), Romania (18th), Ukraine (9th) doing ok, whereas others do not do so well: Estonia (48th), Poland (41st), Czech Republic (42nd).
| Country | Gross Replacement Rate, year 1 | Ranking |
| Netherlands | 0.7 | 1 |
| Switzerland | 0.687 | 2 |
| Sweden | 0.685 | 3 |
| Portugal | 0.65 | 4 |
| Spain | 0.635 | 5 |
| Norway | 0.624 | 6 |
| Algeria | 0.612 | 7 |
| Taiwan | 0.6 | 8 |
| Ukraine | 0.56 | 9 |
| Italy | 0.527 | 10 |
| Denmark | 0.521 | 11 |
| Russia | 0.505 | 12 |
| Tunisia | 0.5 | 13 |
| Finland | 0.494 | 14 |
| France | 0.479 | 15 |
| Bulgaria | 0.473 | 16 |
| Canada | 0.459 | 17 |
| Romania | 0.45 | 18 |
| Hong Kong | 0.41 | 19 |
| Austria | 0.398 | 20 |
| Belgium | 0.373 | 21 |
| Argentina | 0.354 | 22 |
| Germany | 0.353 | 23 |
| Greece | 0.346 | 24 |
| Azerbaijan | 0.338 | 25 |
| Egypt | 0.329 | 26 |
| Venezuela | 0.325 | 27 |
| Belarus | 0.313 | 28 |
| Israel | 0.307 | 29 |
| Japan | 0.289 | 30 |
| United States | 0.275 | 31 |
| Kyrgyzstan | 0.255 | 32 |
| New Zealand | 0.254 | 33 |
| Latvia | 0.253 | 34 |
| India | 0.25 | 38 |
| Korea, South | 0.25 | 37 |
| Uruguay | 0.25 | 36 |
| Uzbekistan | 0.25 | 35 |
| Ireland | 0.238 | 39 |
| Hungary | 0.235 | 40 |
| Poland | 0.226 | 41 |
| Czech Republic | 0.225 | 42 |
| Australia | 0.21 | 43 |
| Turkey | 0.206 | 44 |
| Albania | 0.202 | 45 |
| United Kingdom | 0.189 | 46 |
| Brazil | 0.152 | 47 |
| Estonia | 0.132 | 48 |
| Lithuania | 0.117 | 49 |
| Chile | 0.115 | 50 |
| Georgia | 0.09 | 51 |
Data taken from: Mariya Aleksynska and Martin Schindler (2011) Labor Market Regulations in Low-, Middle- and High-Income Countries: A New Panel Database. IMF Working Paper.
Comments
Thus, replacement rates by definition do not take dimension (2) and (3) into account. It could be that unemployment benefits are generous but restricted to some segment of the population (and this is often the case in developing countries). However, as is apparent from the discussion above, one needs to decide what period is considered to assess the replacement rate. It could be for instance, that in the first year the replacement rate is high (e.g.: 80%) but falls to 0 in the second year. Considering the first two years would give you an average of 40%. And you get the same number for a case with 40% in year 1 and 2, even though this represents a different situation. Thus, it's always better to consider the replacement rates in different years separately, when data is available (which is the case for OECD countries, more difficult for non-OECD countries). Another thing to be aware of when discussing replacement rates is for what previous income. It is often the case for instance that the replacement rate is different for different income groups. Thus, in most system, there will be a degree of progressivity, i.e.: the top 10% would not get a replacement rate which is as high as a worker earning say 60% of the median wage.
Hope this helps,
Look forward to reading your article!
http://www.sp.uconn.edu/~scruggs/ajpspaper.pdf
That being said, the figures still tell you something for those unemployed workers that may not be eligible for means tested benefits, which could even be the case for people who do not have money but leave with a spouse that still has a job or has important savings. Thus, to gauge the evolution of a welfare system over time it's important to look at all policies in depth and how they combine to generate certain entitlements. For more on the UK, there is some good research by Peter Taylor-Gooby, Jochen Clasen, Daniel Clegg, Paul Pierson, Esping Andersen and others!
The author has stated "A high replacement rate (ratio of unemployment benefits a worker receives relative to the worker’s last gross earning) ensures that the negative effects of rising unemployment on aggregate demand are mitigated."
If I am understanding the definition correctly it is the difference between unemployment benefits and average earnings in a ratio format, correct? Assuming the data is accurate the analysis that can be drawn from this data-set is that for example the difference between UK unemployment benefits and average earnings are greater than in Romania. What this does not show is that Romanian benefits are more generous as is being claimed in the article below; http://www.dorseteye.com/north/articles/uk-unemployment-benefit-less-generous-than-romania-albania-and-the-us
The fact that there is greater divide between unemployment benefits and earnings does not confirm one nation is more generous than another. It could be argued that earnings are simply a lot higher in the UK and people are better off or to put it another way, people in Romania are not so well off. I know the author here is not to blame, but I would welcome his thoughts on this issue.
I think this is a very interesting piece with scope for greater detail and discussion but I wonder what other benefits are being neglected from the study. UK housing benefit can often make up a larger proportion of a claimants benefit entitlement and yet this does not feature. I don't know how generous other nations are in regards to housing. Likewise the UK offers Attendance Allowance, Carer's Allowance, Child Benefit, Child Tax Credit, Disability Living Allowance and Income Support. How as a collective would the UK rank when compared to other nations pooling their respective benefits?