Appendix A - Methodology for benefit comparison

Summary

Chapter Five uses the minimum income recipients’ ‘total household net disposable income’ as a percentage of the poverty line as an indicator of the degree to which minimum income schemes provide a level of income that allows recipients to participate fully in society. The objective here is to clarify the methodology used to calculate this indicator.

Following relevant literature on the topic (see Eardley et al, 1996a, p 110), it was decided to compare the disposable income of four different households: a household headed by a single person; a household headed by a single parent; a couple without children; and a couple with children. Bearing in mind that these are not traditionally relevant in the population of social assistance beneficiaries, it was decided not to include a large household in this study (Kuivalainen, 2003, p 133).

In order to improve the reliability of the analysis, it was decided to introduce a number of restrictions in these family models. For instance, in order to exclude young adults who, in some countries, have lower benefit rates; and older beneficiaries, who might be entitled to non-contributory social pensions, the study compared adults aged 40. Also, in order to capture the impact of differentiated benefit rates of family allowances in the households’ disposable income, it was decided to focus on children of pre-school age (3) and of school age (7). Considering the previous criteria, this comparative study focuses on four household types:

• • single person, aged 40

• • lone parent with two children (first child to be 7 and the second child 3 years old)

• • couple (both aged 40) without children

• • couple (both aged 40) with two children (first child to be 7 and the second child 3 years old)

The value of the poverty line was set at 60% of the median equivalised income (Eurostat, 2003b, p 3). In order to calculate the value of the poverty line for the different households, it was decided to use the ‘modified’ OECD (Organisation for Economic Co-operation and Development) equivalence scale, which gives a weight of 1.0 to the first adult, 0.5 to any other household member aged 14 and over, and 0.3 to each child (Eurostat, 2003b, p 1).