WORKING PAPER
Technical report: replacement rates
invalidity benefits 2010
General documentation
Josephine Foubert
Ghent University
Participation,
Opportunities,
Structures
WP
 Nr: 5  Versie: 1  23 september
2015
REPLACEMENT RATES INVALIDITY BENEFITS 2010
Technical report: Replacement rates invalidity benefits
Josephine Foubert
Ghent University
23 September 2015
Abstract
The purpose of this technical report is to provide more information on the data sources and calculations
of the replacement rates of disability benefits as used in Foubert, Halvorsen, and Van Rossem (2015).
REPLACEMENT RATES INVALIDITY BENEFITS 2010
One of the main challenges of comparative research on disability policy concerns the collection of
comparative data related to the countries’ social protection systems. One option is the use of social expenditure
data. In this approach, differences in welfare states are operationalized in terms of public spending on different
programs and services (Ferrarini, Nelson, & Sjoberg, 2014). The main advantage of this approach is that these
data are publicly available from international organizations (OECD, Eurostat) for a larger number of countries
and years. Although a certain amount of economic resources is necessary to provide quality services and
benefits, the poor validity of social expenditure data to account for welfare state structures is also well known
(Esping-Andersen, 1990; Ferrarini, et al., 2014; Gilbert, 2009). Social expenditures are not only heavily
influenced by welfare needs, but they are also sensitive to changes in the gross domestic product (GDP) which is
the most widely used denominator to report the spending rates. Moreover, the same amount of economic
resources can be spent in different ways: on benefits and services for a limited group in society or on broader
populations groups with increased availability and coverage of services and income maintenance schemes
(Ferrarini, et al. 2014).
As a response to these problems, comparative welfare state research has established a focus on the
development of social rights via the welfare state and looks into the institutional organization of specific policies
and programs (Ferrarini, Nelson, Korpi, & Palme, 2013; Korpi, 1989). With regard to income maintenance
programs, these organizational features can be summarized in two main dimensions: coverage (or the proportion
of the relevant population eligible for benefits) and the generosity of the benefits (the replacement rate) (Palme,
2006). In comparison with the social expenditure approach, an institutional focus is sensitive to the fact that
programs are often organized along different principles and gives to a greater extent insight in what it means for
an individual to live in a certain institutional and programmatic context.
Although there are datasets available that gather data on the institutional features of the main social
insurance programs (unemployment, sickness and old age) of European and OECD countries (e.g. Social
Citizenship Indicator Program, Welfare entitlements Dataset), disability benefits are not included therein by
default. To the best of my knowledge, only one research report (Palme, Nelson, Sjöberg, & Minas, 2009),
published replacement rates of disability benefits before. For that report, the focus was on the year 2005. In my
paper on disability policy types across Europe (Foubert, et al., 2015), the focus lies on 2010. As an institutional
approach gives a more detailed insight in the programmatic features of the income maintenance policy, I wanted
to calculate the replacement rates of disability benefits. Fortunately, I could draw on the calculations made
earlier for the report published in 2009. In the following paragraphs data sources and calculation methods are
described more systematically.
Mainly, I drew on two information sources: the MISSOC and the SPIN databases. The MISSOC
(Mutual Information System on Social Protection) was established by the European Commission and provides
up to date information on social protection systems on 32 countries and 12 areas of social protection, including
invalidity (European Commission, 2015). It provides information on the main outline of the benefit systems, the
calculations of the height of the benefits, whether the benefits are taxed and social security contributions have to
be paid. Every half year the data are updated, but the user can select the main themes, countries and periods of
interest. The SPIN (Social Policy Indicators) database provides the foundation for longitudinal and comparative
research on welfare states, based on T.H. Marshall’s ideas of social citizenship (Swedish Institute for Social
Research, 2015). The SPIN makes data on social rights and duties of citizen’s available and is oriented towards
analyses of institutions as manifested in the social policy legislation. Within the SPIN database, the SIED (Social
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REPLACEMENT RATES INVALIDITY BENEFITS 2010
Insurance Entitlements Dataset) stores data on three social insurance programs (sickness, unemployment and old
age pensions) and information on wages and benefit recipients for all EU Member States for two data waves:
2005 and 2010. The SIED is a continuation of the SCIP (Social Citizenship Indicators Program) database, which
covers the years 1930 till 2005.
Following the example of previous research making used of the SPIN databases (e.g. Ferrarini, et al.,
2013; Palme, et al., 2009), I made use of a type-case approach to get insight in the generosity of the invalidity
benefits. This means the calculation of the benefits is based on the social rights provided to model family
constellations in each respective country. The benefits are thus calculated based on the rules governing the social
insurance systems of the countries. In the case of the invalidity benefits, the calculation is based on the case of a
55-year old man who receives invalidity benefits due to a 100 percent incapacity to work. In countries were the
benefits entitlement is related to the insurance record, 25 years of contributions are assumed. Calculations were
made for both a single earner household and a single-earner with a non-working spouse. No other benefits (such
as those related to rehabilitation or long-term care) were taken into account.
The replacement rates are calculated in two steps. In a first step, the gross replacement rates, without
taking into account the fiscal system of a country are established. The gross replacement rates are calculated by
relating the amount of the benefit to the wage level of an average production worker. An average production
worker (APW) works in manufacturing or the metal industry and has received earnings equal to the Average
Production Worker’s Wage (APWW). When different protection systems cover different types of workers, the
program with the largest coverage among workers in manufacturing has been coded. In countries where different
occupational categories (such as salaried employees, self-employed and farmers), programs covering salaried
employees are used to calculate the replacement rates. The sum of the invalidity benefits the type-case receives
in one year is the numerator. For the denominator, the yearly earnings of an APW are used. In a second step, the
fiscal system of a country is taken into account. Both the benefits and the wages are calculated net of taxes and
social security contribution. Consequently, the net replacement rate is the ratio of the net yearly benefit amount
to the net yearly wage of the average production worker. In the paper, we use the average of the replacement
rates for the two model households described previously. By calculating both gross and net replacement rates, it
is possible to see the effects of the tax system and transfers. Formally, the rates are calculated as follows:
nr
nr
nr
dissi= disnetsi/netapwsi
disfa= disnetfa/netapwfa
dis = (nrdissi + nrdisfa)/2
Where
si = single person
fa = family with single-earner and non-working spouse
dis = disability benefit (52w)
nr = net replacement rate
apw= average production worker.
The data concerning the gross and net APWW’s are gathered from the SIED-database. Information on
the calculation of the benefits is predominantly taken from MISSOC (update of 01/07/2010). For more
information on country-specific calculations that were made, I refer you to the document listing the decisions for
each country.
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REPLACEMENT RATES INVALIDITY BENEFITS 2010
Acknowledgments
The research leading to these results has received support under the European Commission’s 7th
Framework Programme (FP7/2013-2017) under grant agreement n°312691, InGRID – Inclusive Growth
Research Infrastructure Diffusion. I am grateful to the SOFI institute for hosting me for two weeks in Stockholm
and providing me access to the SPIN-database and previous calculations on disability benefits. I would like to
thank Laure Doctrinal, Maria Forslund and Daniel Fredriksson for their enthusiasm while answering my many
questions on the calculations and for digging in the past, Katharina Wesolowski and Ola Sjöberg for their
previous work on replacement rates of disability benefits in 2009, and Kenneth Nelson for discussing my
research approach in general.
References
European Commission. (2015). Social Protection Systems - MISSOC. Retrieved 22/09/2015, 2015, from
http://ec.europa.eu/social/main.jsp?catId=815&langId=en
Esping-Andersen, G. (1990). The three worlds of welfare capitalism. Cambridge & Oxford: Polity press.
Ferrarini, T., Nelson, K., Korpi, W., & Palme, J. (2013). Social citizenship rights and social insurance
replacement rate validity: pitfalls and possibilities. Journal of European Public Policy, 20(9), 12511266.
Ferrarini, T., Nelson, K., & Sjoberg, O. (2014). Decomposing the effect of social policies on population health
and inequalities: An empirical example of unemployment benefits. Scandinavian Journal of Public
Health, 42(7), 635-642.
Foubert, J., Halvorsen, R., & Van Rossem, R. (2015). Disability policy in Europe: a fuzzy set ideal-type analysis
of approaches towards active citizenship. Ghent University.
Gilbert, N. (2009). The Least Generous Welfare State? A Case of Blind Empiricism. Journal of Comparative
Policy Analysis, 11(3), 355-367.
Korpi, W. (1989). Power, Politics, and State Autonomy in the Development of Social Citizenship - Social Rights
during Sickness in 18 Oecd Countries since 1930. American Sociological Review, 54(3), 309-328.
Palme, J. (2006). Welfare states and inequality: Institutinal design and distributive outcome. Research in Social
Stratification and Mobility, 24, 387-403.
Palme, J., Nelson, K., Sjöberg, O., & Minas, R. (2009). European Social Models, Protection and Inclusion.
Stockholm: Institute for Future Studies.
Swedish Institute for Social Research. (2015). Social Policy Indicators (SPIN). 2015, from
http://www.sofi.su.se/spin/
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