Does occupational welfare matter? Measurement and the importance of collectively negotiated sickness benefits in cross-national social policy analyses: Case of the Nordic countries
By Laura Järvi and Susan Kuivalainen
Laura Järvi Susan Kuivalainen
University of Turku National Institute for Health and Welfare
Paper to be presented at the annual ESPANET conference, 10 years of European Social Policy Analysis Network, September 6–8, 2012, Edinburgh.
Please note this is a very first draft – comments and suggestions are welcomed.
Introduction
Comparative studies on welfare states measure social citizenship in order to understand their development, diversity, and change. Previous studies have primarily focused on statutory provisions while neglecting occupational welfare and collectively negotiated benefits even though welfare is channelled through several different routes, as pointed out by Titmuss (1958). The reason for this narrow focus is the perception that occupational welfare plays a relatively insignificant role in welfare delivering. Another reason for this neglect is the methodological challenges to measuring occupational welfare in cross-national comparisons, including the lack of any available systematic data. This paper aims to include occupational welfare in cross-national analyses on social policy.
The central question in cross-national analyses on social policy – who gets what – is usually answered with stylised cases, which offer a common yardstick allowing systematic comparison. The social citizenship approach measures the extent of social rights via the coverage and level of protection provided. Calculations are based primarily on the average wage of the standard production worker, a gauge whose ability to reflect today’s reality is in many ways debatable due to changes in the labour market. Our analyses move away from the standard production worker and examine five different occupations representing both low- and high-skilled workers as well as public and private sector employees. We will generate analyses where the statutory provision can be compared to collectively negotiated benefits as one form of occupational welfare.
Occupational welfare in this paper is understood as social benefits provided by employers to employees as a result from the employment. Here we focus on occupational welfare as agreed upon by labour market organisations, in particular on sickness benefits. Sickness benefits are one of the key aspects of social security. Many states have given legal obligation to employers to pay compensation during sickness, and, in addition, labour market organisations have agreed upon additional support. We have chosen four Nordic countries as case examples for several reasons. The Nordic countries are characterized not only by the strong role of the state and high levels of statutory benefits but also by corporatist structures and their long tradition of collective bargaining (e.g. Esping-Andersen 1990).
Since the Nordic countries have similar systems of collective bargaining, it is useful to apply this method in analysing occupational welfare. The paper illustrates the potential of including collectively negotiated benefits into cross-national analyses covering select European countries. We discuss the strengths and weaknesses of the new approach, construct a more nuanced description of social benefits, and illustrate how a narrow focus on statutory benefits can be misleading. The paper starts by presenting the conventional method of studying social citizenship and then discusses occupational welfare and presents previous work. Much of the paper is devoted to presenting methodological choices. The section prior to the summary and discussion shows the preliminary results of inclusion of occupational welfare in analyses in year 2010.
Social citizenship approach - conventional measures
Comparative welfare state analyses have for long relied overwhelmingly on public spending as the indicator of welfare state commitment. In the late 1980s, an alternative approach emerged. While spending data revealed little about the level of social protection against risk, the social citizenship approach aimed to understand the impact of the welfare state on individual life-chances. The essence of this approach is the conditions stipulated in social insurance programs: under what circumstances are people eligible for social protection, for how long, and at what level of provision. The social citizenship approach better encompasses the extent of welfare state generosity. Moving away from the quantitative aspect toward the quality of social provision has also triggered a question of why countries with an equal level of public spending can have very different levels of social rights.
If it was difficult to obtain data on public spending at a time when few international systems existed, it was even more difficult to access information on institutional rules governing provision. Since institutional settings and rules are complex, researchers needed to ensure that like things were compared with like. A persistent question was how to find a common yardstick that could be applied internationally. Previous studies solved this problem by utilizing stylized cases (or model families). Research has verified that with stylized cases, cross-national social policy analyses are achievable. Comparisons with stylized cases created the possibility of studying how the system works at an individual level as the cases made otherwise disparate rules and circumstances more comparable and thus amenable to cross-national examination.
One of the best-known research projects in this field is the Social Citizenship Indicator Program (SCIP) undertaken by Walter Korpi and Joakim Palme (2007) in the early 1980s to establish a theoretically relevant and empirically reliable set of institutional data for comparative research on welfare state development. Over the years, a dataset for five major social insurance programs was collected at five-year increments from the 1930s to 2002 in 18 OECD countries: old-age pensions, work accidents, sickness, unemployment, and family benefits. In order to have cross-nationally comparable data, SCIP utilized as a reference point a model of a typical production worker, labelled the ‘standard worker’. This worker was defined as an employee in manufacturing (the metal industry) and was assumed to have an average production worker’s wage. To ensure comparability, further assumptions were made regarding family composition, the age of family members, and work-career. Many published studies have used SCIP data (e.g. Esping-Andersen 1990; Palme 1990; Kangas 1991; Wennemo 1994; Korpi and Palme 1998). The second generation’s studies have produced a number of different welfare state typologies, which have been classified according to their institutional features. These studies, in line with many others, placed the Nordic countries in one group characterized by a strong state role and broad statutory benefits with high coverage.
A very similar approach was initiated by Lyle Scruggs (2004) at the University of Connecticut more than a decade later, partly to replicate Esping-Andersen’s decommodification index and partly because the SCIP data was out of the public domain until the late 2000s. The Comparative Welfare Entitlement Dataset (CWED) covered very similar programme details (with the exception of work accidents) for the same 18 OECD countries, but did so annually and for a shorter period (1971–2002). Like the SCIP data, CWED data primarily analysed the level of provision for a six-month (26 weeks) spell of illness or unemployment. A key concept was the net replacement rate calculated at previous earnings at the level of the average production worker for two household situations (single person and couple with one earner). The data for wages was mostly derived from OECD.
Many individual studies conducted since the 1980s have carried out cross-national comparisons on social insurance and assistance schemes with many collecting their own data on institutional characters and benefit levels (e.g. Day 1978; Bradshaw & Piachaud 1980). They have adopted the typical-case approach and followed the same principles. OECD publishes Benefits and Wages and Taxing Wages annually, providing stylized information on OECD tax and benefit rules. With a very few exceptions, these studies (and data sets) have been devoted to comparing benefits granted through legislation. The basic principle for programme inclusion is that the entitlement conditions are regulated by the state, that is, the benefits are statutory. This choice was justified since the primary interest was on the role of the state. Further, the choice was consistent with Marshall’s (1950) idea of social citizenship, where social rights referred to legislated social provisions.
This research was subsequently criticized as being too one-dimensional as other forms of welfare were neglected (e.g. Adema 1999) as well as being based on average production worker wage calculations (see e.g. van Gerven 2008, 48; Kangas 2010, 404). Labour markets have changed profoundly during the past decades. While the ‘golden age of the welfare state’ in Western societies’ industrial era was characterized by stable labour markets, in post-industrial societies, irregularity and nonstandard work arrangements characterise increasingly segmented labour markets (Häusermann & Schwander 2012). Post-industrialization means that the majority of people are nowadays employed in the service sector, while fewer get their livelihood from industry. For example, in Norway and Denmark in 1970, around 50 percent of the workforce were in the service sector as compared to almost 80 percent in 2010. Corresponding figures for people employed in industry were 37 percent and 19 percent (see Appendix table 1). For this reason, prior assessments of the level of social provision of the average production worker now appear to be rather a long way from the average case.
At the time, the choice was arguable and presented the industrial blueprint of a wage earner for whom the welfare state was designed. The massive expansion of tertiary education has led to a broader and more heterogeneous middle class, which has displaced the lower-qualified manual worker as being the typical case. The growth of female employment, particularly in the Nordic countries, has further undermined previous assumptions: it is no longer sufficient to study the average worker simply by focusing on the average male worker. In 1970, just above one-third of the employed in the Nordic countries were females, while in 2010 almost half of employed people were females (see Appendix table 1).
Due to the past changes in the labour market, fixed-term and part-time employment are more the rule than the exception, and therefore the ‘average production worker’ no longer reflects reality. From the viewpoint of occupational welfare, trends in labour markets towards atypical and precarious employment are meaningful, since these kinds of jobs are usually those with weak occupational social protection (McGovern et al. 2004; Rueda 2007). In order to be eligible for the perks and benefits offered by an employer, employees are often required to have some years in service and to be in full-time employment.
Since 2005, OECD has used the pay for an average earned wage (AW) to calculate benefit levels. Prior to that, the average pay for an industrial worker was used. The broadened definition of the average worker includes both manual and non-manual workers, which are thought to better capture the average wage level in countries (See OECD 2005). For the Nordic countries, this has meant that the wage level with which the comparisons are made is lower in Denmark but higher in Finland, Norway, and Sweden (NOSOSCO 2009).
Adding occupational welfare to the examination
Occupational welfare – definition and previous research
The concept of ‘occupational welfare’ has been defined in many different ways. To put it simply, occupational welfare is the welfare that is distributed by employers to employees as a result from employment (see also Titmuss 1958). Broadly speaking, occupational welfare can be understood as not only covering the benefits and services related to social provision but also other non-wage benefits (‘fringe benefits’) that do not ordinarily link to social policy (Farnsworth 2004). In this work, occupational welfare is understood as a social protection, including benefits and services, with a functional role towards public welfare (see e.g. Shalev 1996; Cutler & Waine 2001; Greve 2008). This occupational social protection is approached via collective agreements that are negotiated by employer and employee organisations.
There is relatively little theoretical and even less empirical research dealing with occupational social protection (but see, respectively, e.g. Farnsworth 2004; Greve 2007; Yerkes & Tijdens 2010), with most studies focusing on occupational pensions (e.g. Shalev 1996; Rein & Wadensjö 1997; Forssell et al 1999; Ebbinghaus 2011). It is no coincidence that only a few studies exist on the subject. Occupational welfare is less distinct than statutory provision, covering a range of statutory and non-statutory benefits. Hence, the line between the private and public sector can be fuzzy (Rein 1982; Shalev 1996; Greve 2008) and examination of occupational benefits difficult. This is especially the case when measuring occupational welfare in cross-national comparisons. Each country has its own systems, and information from different occupational schemes is not easily available and even when it is, it is scarcely comparable. As a result, comparative studies dealing with occupational welfare have primarily focused on a small number of countries (e.g. Forssell et al 1999). In a more detailed manner, occupational social provision has been examined only from a national perspective (see e.g. Farnsworth 2004, Sjögren Lindqvist & Wadensjö 2006; Yerkes & Tijdens 2010).
Empirical analyses on occupational social protection have mostly focused on spending. In doing this, studies bear a resemblance to the first generation’s welfare state studies, which also focused on spending. The availability of cross-nationally comparable data on occupational social provision spending is far from adequate. Studies have mostly used data on non-wage costs, for example from the Labour Cost Survey (e.g. Rein 1996); researchers have also drawn their data from national statistics and studies in order to collect evidence on the extent of occupational welfare. Empirical analyses verify that there is more to welfare than what the state provides and the inclusion of occupational welfare in total spending leads to smaller variations between countries (Rein 1996; see also Adema 1999). The data on labour unit costs, however, appears to be inadequate for studying the importance of occupational welfare cross-nationally for different occupations and socioeconomic groups, since the studies are only from a national perspective. With stylised cases, one can study occupational welfare also from the viewpoint of different occupations and groups.
Several studies provide analyses of coverage (e.g. Farnsworth 2004), which give important information on the extent of occupational welfare at the individual level. However, it is very rare for empirical research on occupational welfare to have adopted a social rights approach, involving an analysis of the importance of occupational welfare with the help of stylised cases. This type of analysis adds valuable information on the importance of occupational welfare not only for understanding its meaning for individuals but also to understand the logic of a public-private mix in providing welfare as well as to grasp potential stratifying effects.