Income replacement

Although Germany has a long-standing reputation as a passive welfare state with elaborate schemes of status-protecting income replacement through social insurance in case of unemployment and a full-blown system of active labour market policies, all benefit systems had formal elements of activation and work requirement - but they had not been enforced systematically. 

Unemployment insurance benefit (UB, Arbeitslosengeld) provided earnings-related income replacement for a limited duration of up to 32 months if unemployed had been in employment covered by social insurance for at least 12 months. Unemployment insurance benefits were funded through employer and employee contributions and administered by the Federal Employment Agency, which was also in charge of implementing active labour market policies. 

The original idea to create joint customer centres, which was supposed to end the different treatment of recipients of unemployment insurance benefits and unemployment assistance (dealt with by BA) on the one hand and social assistance (administered by the municipalities) on the other, did not work for political reasons. A major goal of combining UA and SA benefits in one single means-tested income replacement scheme for persons who are able to work was therefore to reduce the administrative overhead inherent in the old system and to arrive... 

From the implementation of the new 2005 legislation, a 20% reduction of the benefit amount is possible, for the duration of 2-6 months if beneficiaries fail to furnish proof of personal efforts to find employment, or if they reject a job or training offer of the labour authorities (see above). Upon repeated disregard of this incidental obligation, the (income replacement) benefit may be halved for the... 

While various institutions are competent for the administration of sanctions, the departement branches of the employment ministry (ministere charge de I emploi), under the normal hierarchy of the Prefet, are the ultimate responsible authority for controls and sanctions. What the new 2005 legislation introduced was that this competence is now shared with ASSEDIC however, the final say remains with the state. Decisions concerning a reduction, suspension or cancellation of (income replacement) benefits are incumbent on the Prefet after consulting with a committee in which ASSEDIC and ANPE are represented (Art. L. 351-18, R. 351-28 Code du travail). 

The cantons (and the municipalities, where applicable) certainly have an interest in leading social assistance recipients back into employment, but a second best option for them is to have them relying on a federal income replacement scheme unemployment or invalidity insurance.3 Regional placement offices, responsible for... 

Chief among unemployment insurance benefits is the provision of income replacement upon loss of employment - in other words, the aforementioned unemployment benefit or dagpenge. It is granted to AK members who (simply put)... 

An evaluation of TAA-funded training was done before and after significant TAA reforms implemented in 1988. Decker and Corson (1995) found no evidence that TAA-funded training had a substantial positive impact on the earnings of TAA trainees. These results suggest that the main effect of Trade Act programmes is income replacement rather than improved labour market outcomes. 

Fenn, Paul T. 1981. Sickness Dmation, Residual Disability, and Income Replacement An Empirical Analysis. Economic Journal 91(361) 158-173. 

B) Income replacement rate (W) Length of waiting period... 

The large dispersion in the income replacement rate across type of injury, level of income, and state complicates specifying a single level of WC benefits. We based our initial value on Johnson and Wai s (1980, p. 38) estimate of the median replacement rate for married men (30 percent) as the most representative for the U.S. manufacturing sector in the early 1970s. Because Johnson and Wai ignored taxes in their study we used an income replacement rate of 0.50 in our baseline simulations to reflect federal and state income taxes of 40 percent. 

To investigate OSHA s labor market effects we increased the average fine for violating safety standards from 0 to (1) 553, (2) 1,107, (3) 3,980, or (4) 22,329. To examine the interaction between OSHA and the WC system we calculated OSHA s labor market effects at four levels of WC benefits (income replacement rates of 0.5, 0.8, 1.0, and 1.5). 

Employment. Figure 4.4 shows the impact of stringently enforced OSHA safety and health standards on the distribution of workers across safety levels at two levels of WC benefits, income replacement rates of 0.5 and 1.5. At both levels of WC benefits OSHA reduces the number of workers who locate in the uppermost segment of the risk distribution... 

To investigate the impact of workers compensation insurance we used a method identical to that described for investigating the impact of OSHA enforcement activities. Specifically, we first numerically simulated hedonic labor market equilibrium at four rates of income replacement (0.5, 0.8, 1.0, and 1.5) assuming no experience rating of WC premiums and no safety and health standards and then calculated changes caused by increasing WC benefits from the usual 0.50 rate of income replacement. To examine the interaction between OSHA and WC we varied the average fine for safety and health violations from 0... 

Most importantly the niunerical results we present emphasize the low labor market response rate to changes in the economic incentives to expand workplace safety. A 200 percent increase in the rate of income replacement (from 0.5 to 1.5) produces only about a 1 percent increase in injuries at current levels of OSHA enforcement. Clearly, our results do not argue for lowering WC benefit levels to encourage job safety. 

Absolute (percentage) changes from a 0.5 rate of income replacement under WC. 

The Interface Between WC and OSHA. We can use the results reported in Table 4-4 to examine further the interface between WC and OSHA. The absolute size of the interaction must, of course, be the same as reported earlier when we discussed the labor market effects of OSHA enforcement activities. Still, because WC increases injuries only slightly, the interaction between the two safety programs appear larger when put on a percentage basis. For instance, a movement toward a 0.80 rate of income replacement increases the average frequency of injuries by 0.4 percent in the absence of safety standards, but by 0.6 percent with maximum enforcement of safety standards. Further, the increase in WC benefits raises the maximum probability of injury by 0.2 percent without OSHA but by 0.3 percent with an extremely stringent OSHA program. 

The effect of WC on wages is quite small, less than 0.5 percent at every level of risk. The small WC effect is not surprising because, on average, insurance costs increase by less than 94 per worker to expand coverage to a 1.5 income replacement rate. Moreover, the cost increase is borne not only by workers but also by firms and consumers... 

Employment. The final WC effect we consider concerns the distribution of workers across safety levels. Figure 4.6 shows the movement of workers across the risk spectrum caused by increasing the rate of income replacement from 0.5 to 1.5 with no enforcement and with maximum enforcement of OSH A safety and health standards. WC benefits lead workers to relocate away from relatively safe toward relatively hazardous workplaces. An increase in the rate of income replacement from its baseline 0.5 level to 1.5 attracts an additional 87,700 workers, almost 1 percent of the workforce in our model, to high-risk jobs (0.002 < tt < 7i ) when OSHA safety and health standards are totally absent. However, more generous WC benefits also... 

No single number describes the income replacement rate in U.S. workers con )ensation due to the diversity of programs across states and because benefit levels differ according to injury severity and... 

PIj = price of WC insurance per unit of coverage (varies by risk level) i = WC income replacement rate (=0.50)... 

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