April 16, 2013

Income and net gains from social security during the life course

This report describes the developments of income sources, incomes, and the use and net gains of social security in the Netherlands, during the life course. The analysis is based on TRAIL, a database of 100,000 life-course income trajectories, derived from panel data on 1.1 million individuals over the 1999–2005 period.

The most important sources of income during the course of life of people between the ages of 15 and 64 were found to consist of 37 years of wages or profits, 5 years of social security benefits (related to unemployment, disability or social assistance), and over 2 years of early retirement benefits. Furthermore, people would generally be nearly 5 years without any personal income. For on average 1 year, there would be no income due to emigration or death. As many people in the Netherlands have part-time work, the amount of time spent working (with income from wages or profits) measured in full-time years would be much less, namely 29 years. Of the indigenous population and the share of western immigrants, measured in full-time years, men work (35 years) much more than women (23 years), and the native population and western immigrants together on average (29 years) much more than non-western immigrants (20 years).

The income inequality between these groups for one year exceeds the inequality in the average annual income measured over the course of people’s lives. This applies especially to the average income for the two highest income deciles compared with the two lowest. For any particular year, incomes may be zero or even negative, for example due to study or business losses, or very high, for example due to profits from business, bonuses or severance pay. Usually, these losses or gains are countered in other years, in which the income is higher or lower; therefore, differences over the course of life, on average, are smaller.

The differences in labour participation and income affect the net gains from social security. Within the social security system, for unemployment, disability and social assistance, on average there is a transfer from men to women, from the native population and western immigrants to non-western immigrants, and from high-educated to low-educated people. For Dutch state pensions, on balance, there is a transfer from men to women as well as from high-educated to low-educated people. The use of social security benefits by people before the age of 65 is rather concentrated. The 10% with the highest level of use is responsible for 39% of the expenditure on social security, whereas 22% of the population during the course of their lives up to the age of 65 does not apply for unemployment, disability or social assistance benefits, at all.

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Rob Waaijers Read more
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