In practice, however, the two principles are often combined within national systems of unemployment support. The German "Arbeitslosenhilfe", for instance, is a needs-related benefit, but one whose level depends on previous earnings, while entitlement to British unemployment benefit depends on payment of insurance contributions, but the benefit level is not linked to previous earnings (since 1982). Some countries also have, in addition to, or instead of, unemployment assistance, a guaranteed minimum income (social benefit) which is available to all those in need, irrespective of whether, as registered unemployed, they are available for paid employment or not. On this basis three basic types of support systems can be distinguished in the Community member states:

A number of countries with an unemployment insurance and unemployment assistance system, also provide those not or not adequately covered by either of the two systems with a minimum income in the form of social benefit.

8.1.1. Unemployment insurance schemes

Unemployment insurance schemes,

whose benefits are conditional on previous paid employment and the payment of insurance contributions, operate in all the Community's member states. The ideal-typical characteristics mentioned above are, however, to be found to a varying degree in national systems. Not only are the regulations governing national insurance systems more complex in practice than in theory, they are often not even consistent (cf. synopsis). As regards the mode of financing, the German, Spanish and French systems appear to come closest to the ideal-typical insurance principles: here benefits are financed out of wage-related contributions to a very large degree. Although the way in which the burden of contributions is divided between employers and employees varies greatly between these countries, the fact that indirect wage costs can be passed on to prices and wages or offset by other factors means that such differences are of relatively minor importance. In the other countries the financing of the unemployment insurance scheme deviates from the pure insurance principle in the following ways: - the provision of substantial p

ublic subsidies to the insurance fund (in regular way and not only to compensate deficits arising in the insurance system) - in Denmark, Italy and the Netherlands; - the payment of a single contri

bution to the social-insurance system as a whole in which the funds destined for the unemployment-insurance scheme are subsumed - in Ireland, Portugal and the UK; - flat-rate rather than income-r

elated contributions - in Denmark. In all EC member states entitlem

ent to benefits under the unemployment-insurance scheme is conditional on a minimum period in socially insured employment. This period ranges from 360 days in Germany to 78 days for workers under 18 in Belgium. Since the mid-1970s a number of countries (incl. Germany, France and Spain) have reacted to the increase in long-term unemployment and the widening deficits in the unemployment-insurance funds by raising the minimum period of employment and/or linking the duration of benefit entitlement more closely to the length of previous employment. In the majority of member countries the maximum duration of benefit entitlement now varies according to the length of previous employment (in some cases also with the age of the person affected); this duration can reach fife years (France, Netherlands) for older workers with many years' paid contributions, and is virtually unlimited in Belgium. In a number of countries (Greece, Ireland and the UK) benefit entitlement does not commence until after a waiting period of several days. For countries in which unemploym

ent benefit is wage-related, the level of benefit at the start of the period of unemployment varies between 20 and 50% of the last gross wage - in Italy, Ireland and Greece - and 90% in Denmark. The level of benefit is subject to somewhat atypical regulations in Germany and the UK: in Germany it depends not on gross, but on net wages, and in the UK unemployment benefit is not wage-related but is a flat-rate allowance. In some countries - incl. Belgium, Spain and France - the level of benefit has been staged degressively, i.e. benefit levels fall with increasing duration of unemployment, a response to the rise in long-term unemployment.

8.1.2. Unemployment assistance and guaranteed minimum income

Five EC countries - Germany, France, Spain, Ireland and

Portugal - have special unemployment assistance schemes, which provide, under certain conditions, unemployed persons who are not, or no longer entitled to benefits from the unemployment-insurance fund with needs- related support. In other countries the only source of

support for such unemployed persons is the general social security system, which guarantees a minimum level of income. At the same time, in three of the five countries - Germany, Spain and Portugal - the unemployment assistance scheme is not open to all unemployed persons in need, but is restricted to those who were previously entitled to unemployment benefit or had been employed for a short period of time. In principle - the exceptions here are Spain and Portugal - unemployment assistance is paid for as long as the claimant has no other source of income and is available for employment. In most cases benefit is paid at a flat rate, although one which varies according to age, marital status and number of children. Only in Germany is the level of unemployment assistance linked to previous earnings, although at a lower level than that of unemployment benefit.

8.1.3. Insurance and welfare principles

The comparison between the EC coun

tries shows that the national systems of support for the unemployed are based to widely varying extents on the insurance or the welfare principle (Chassard 1992). Germany, France and Spain are clearly the countries in which the insurance principle is most dominant. Here - following the tradition of Bismarck-ian social insurance legislation - benefits are most closely linked to previous employment, wages and paid contributions. In the United Kingdom and - to a lesser extent - Ireland, on the other hand, the welfare principle predominates: here - in the tradition of Beveridge - national systems guarantee a minimum income, a flat-rate benefit level which varies according to marital status and number of children, and which is financed from taxes and progressive (rather than proportional) contribution payments. Analysis of the changes which have

occurred in national unemployment-support systems since the mid 1970s shows that no convergence has occurred between the insurance and welfare-oriented systems. Under the pressure of rising unemployment and the increased financial burden on support schemes, the two systems have, indeed, further sharpened their respective profiles. The insurance-based systems in Germany, France and Spain have, for instance, tied their benefits even more closely to previous employment. The welfare-oriented British system, on the other hand, loosened this linkage to an even greater extent in the course of the 1980s by abolishing income-linked benefits, introducing progressive insurance contributions, and permitting a gradual shift to occur away from unemployment benefit and towards the general social security system.

8.1.4. Figure 1

8.1.5. Benefit-recipient quotas and wage-compensation rates

Differences in the unemployment-support systems are also shown by the figures on actual benefits paid and claimant numbers. Two indicators are particularly revealing here: the benefit-recipient quota, i.e. the number of benefit recipients as a proportion of total unemployed; and the wage-compensation rate, i.e. actual benefits as a proportion of earned income.

According to figures collated by the European Labour Force Survey, benefit-recipient quotas in 1990 ranged from less than 20% - in Greece, Portugal, Luxembourg and Italy - to more than 80% - in Denmark and Belgium (cf. figure 1). Even though caution is required when interpreting these figure, due to a number of methodological difficulties2, they clearly show that very different proportions of the unemployed are in receipt of financial support in the different member states. Generally speaking, benefit-recipient quotas are lower in the southern countries of the Community than in the North, and are lower in countries adhering strictly to the insurance principle (Germany, France) than in other comparable countries (Belgium, Denmark). Detailed analysis reveals that the lower quotas in countries whose systems are based on the insurance principle are due to the fact that younger workers and the long-term unemployed are less well protected than other workers (Commission 1992a, p. 163-4). This reflects the close linkage in such systems between benefits and previous employment, and the consequently lower level of protection afforded those who have not paid a sufficient number of contributions. Welfare-oriented systems, on the other hand, treat the majority of unemployed persons equally - even the "bad risks"; however, they only provide a minimum degree of income compensation.

The difference between insurance and welfare-based systems is also shown by the comparison of wage-compensation rates illustrated in figure 2.3 In those countries most closely approximating to the welfare principle - the United Kingdom and Ireland - the level of benefit (compared with previous earned income) is, for short periods of unemployment, the lowest, whereby, in accordance with the welfare principle, the level of benefit is dependent on family status from the onset of unemployment. In most of the other countries the initial wage-compensation rate is significantly higher (at 50 to 70%), and is independent of family status. This reflects the fact that the system of unemployment insurance in most countries ensures, at least for an initial phase of unemployment, a wage-related income independent of family status. It is interesting to note that the actual wage-compensation rate in a number of member states - Belgium, Denmark and Spain - is significantly below the benefit rate set out in the unemployment-insurance provisions. This is due to ceilings on the absolute level of benefit which can be claimed.

Except for the United Kingdom, where the benefit rate - again in line with the welfare principle - remains at the same, low level throughout the period of unemployment, the wage-compensation rate in most member states declines as the duration of unemployment increases, while family status comes to play an increasingly important role (cf. figure 2). The determining factor here is that after a given period the unemployed lose their entitlement to benefits under the insurance scheme, so that claimants have to fall back on unemployment assistance or a guaranteed minimum income, unless another source of income is at hand. In such a case, an unemployed person who is married and whose spouse is in employment is usually no longer entitled to any benefits at all, as their household income is above the minimum level. Single persons, or married persons with a dependent spouse, on the other hand, generally have an unlimited entitlement to benefits (exceptions are Greece and Spain). For the long-term unemployed, the wage-compensation rate in such cases is highest in Denmark, in the Netherlands, Luxembourg and Belgium.

8.1.6. Figure 2

8.1.7. Problems arising out of differences in national systems

The differences between member states described in the preceding sections show clearly that the Community is a long way from realising a "unified social area in Europe" with regard to social security for the unemployed. A number of observers have expressed the fear that the juxtaposition of such diverse national security systems for the unemployed within a single labour market and economic area will (or could) lead to major problems. Three problem areas can be summarised as follows (cf. among others Chassard 1992; Walwei and Werner 1991b).

(1) Mobility barriers: Workers moving from one member state to another, in which the level of benefits are lower or entitlement conditions tougher, face the risk of losing, partially or entirely, their acquired social protection. Thus the differences in national systems of social security represent an obstacle to the mobility of labour - and thus to the optimal allocation of labour - within the Community.

(2) "Social-security tourism": the differences in social-security systems might equally induce people to migrate to those countries in which benefits are particularly generous and entitlement conditions lax.

(3) "Social dumping": Increasing competitive pressure within the Single European Market may induce individual member states to reduce the benefits it offers to the unemployed, and thus the contributions paid by employers, in order to gain a competitive advantage over other member states. "Social dumping", as this is termed, could lead to a "race" between the member states to reduce social costs, and so to a general deterioration in social standards within the Community.

8.1.8. Unemployment support and migration

With the aim of at least mitigating the first two problems - the obstacles to the mobility of labour and the danger of "social-security tourism" - in 1971 the European Community passed a decree, based on Art. 51 of the Treaty of Rome, which regulates social security for migrants within the Community. With respect to support for the unemployed, the decree, in its most recent form (cf. Regulation 1992; Altmaier 1992; van Raepenbusch 1991; Wanka 1991), makes the following stipulations:

By means of these regulations, the Community enables employed workers to transfer their potential claims on the unemployment insurance system from one member state to another. For those already unemployed, on the other hand, the "export" of benefits is only permitted for a short period of time and is subject to restrictive conditions. Community regulations can thus be seen as an attempt to find a balance between two conflicting aims - to increase the mobility of labour and to prevent "social-security tourism". Yet they cannot completely fulfil either aim. The fact that, while an employed worker can transfer his/her periods of employment and contribution-payments when moving to another member state, the level of benefit on unemployment is that prevailing in the new country of residence, can, for instance, reduce mobility where benefit conditions are less favourable in the new country of residence than in the old (Simon 1990: 30). Equally, even the tightly circumscribed opportunity to export benefits (the aim of which is to enable the unemployed to seek work in another member state) will be used, at least to some extent, by persons migrating for purely personal reasons, who are not really seeking work in their new place of residence. Such individuals can rely, it is argued (Wanka 1991: 99), on the fact that the employment office in the new country of residence (which after all does not have to bear the cost of the export of benefits) will not be in a position to verify, nor will have an interest in checking whether they are actually available for work. In view of such problems (at least in theory), the efforts made by the EC Commission4 and the southern member states to increase the scope for benefit export have so far been unsuccessful. They have met stiff resistance from a number of member states with relatively generous benefit conditions and a relatively large proportion of foreign workers, who fear that any extension of the right to export benefits would be to their disadvantage.

At the same time, the influence of differences in national social security systems for the unemployed on potential or actual labour migration within the community should not, for a number of reasons, be overestimated. Firstly, against the background of the gradual narrowing of living-standard differentials in the Community, labour mobility between the member states has been declining since the 1970s: workers from other EC countries - some 2 million in all - account on average for less than 2% of national labour forces.5 Even in the coming years, this share is only expected (Simon 1990; Werner and Walwei 1992) to increase significantly in isolated segments of the labour market (among trainees and young, highly skilled specialists and executive personnel, and in border areas). Secondly, empirical studies of labour mobility show that social security benefits are only a subordinate motive for migration (Werner and Walwei 1991b). Third, the European Labour Force Survey shows that in the leading immigration-countries workers from other EC countries constitute only a very slightly higher proportion of unemployment-support recipients than their share of the workforce6. Fourth, national data indicate that the transfer of entitlement periods and the export of benefits are of relatively minor quantitative importance: the German unemployment insurance fund registered 16,275 persons in 1988 who had left Germany and made a request for confirmation of periods of insured employment in Germany in order to support a benefit claim abroad. In the same year the fund registered 6,803 unemployed persons who transferred their benefit entitlements to another country for a maximum of three months, and 665 unemployed individuals who transferred benefits acquired abroad, again for a maximum of three months (Walwei and Werner 1991b: 87).

8.1.9. "Social dumping"?

The question whether, and if so to what extent, national social security systems constitute a competitive advantage or disadvantage vis a vis other member states, and thus constitute an incentive to "social dumping" is a subject of great controversy. From a macroeconomic perspective there is no evidence for the view that the existence of a comprehensive national system of social security has a negative impact on the competitiveness of the national economy. Rather, international comparison shows that economic performance and the level of social security correlate closely (Wilensky 1975; Chassard 1992: 17). This can be partly explained by the fact that social security not only incurs macroeconomic costs, but also generates macroeconomic benefits; for instance, by protecting workers from the consequences of structural economic change it renders such structural changes socially acceptable.

For individual firms or branches, on the other hand, a generous social security system can indeed represent a competitive disadvantage, particularly where social benefits are financed out of wage-related social contributions, and the resultant high level of indirect wage costs cannot be offset by a correspondingly high level of labour productivity. From this point of view, it is interesting to note that the systems of unemployment support in the EC member states not only provide very different levels of benefit, they also have very different impact on indirect wage costs. Contribution rates to the unemployment-insurance scheme range from less than 2.5% of wages (in Belgium, Denmark, Luxemburg and the Netherlands) to more than 6% (in France, Germany and Spain) (cf. synoptic table). Such differences place firms in certain countries - ceteris paribus - at a competitive disadvantage, and give rise to demands for a downwards adjustment and harmonisation of benefit levels.

This situation is reminiscent of the genesis of the unemployment system in the USA in the early 1930s, where, initially, various states attempted to set up a contribution-financed unemployment-insurance system. This plan failed, however, to gain approval in state parliaments, largely because of the argument that the burden of contributions on employers would put them at a competitive disadvantage against firms in other states. Not until 1935, when a federal law ensured that the burden of employer contributions would be the same in all states, did all the states set up their own unemployment-insurance schemes (cf. Schmid, Reissert and Bruche 1992: 77-78).

8.1.10. Convergence of national unemployment-support systems?

The differences between national social-security systems for the unemployed in the EC member states create both positive and negative migration incentives and competitive advantages and disadvantages, the importance of which, though, as the above analysis has shown, should not be overstated. In order to narrow the benefit differences between national systems and to mitigate their problematic effects, the EC Commission is seeking to bring about a harmonisation of social security systems in the member states by agreeing on minimum requirements. These efforts are largely based on the Social Charter on employee rights, passed by the European Council (without the approval of the United Kingdom) in 1989, and the programme of action aimed at implementing the Charta published in the same year. By July 1992 the Commission had managed to persuade the Council of Ministers to make a recommendation on the "convergence of social protection objectives and policies" (Council 1992) based on the programme of action. This makes the following recommendations to all member states:

"a) in accordance with the provisions of the recommendations of 24 June 1992 and subject to their active availability for work, to guarantee minimum means of subsistence for employed persons legally resident in the territory of the Member State;

"b) to make available to the unemployed, particularly to young people arriving on the job market and to the long-term unemployed, a range of measures against exclusion designed to foster their integration into the labour market, subject to their active availability for work or for vocational training with a view to obtaining employment;

"c) to provide employed workers who have lost their jobs with either flat-rate benefits, or benefits calculated in relation to their earnings in their previous occupation, which will maintain their standard of living in a reasonable manner in accordance with their participation in appropriate social security schemes subject to their active availability for work or for vocational training with a view to obtaining employment."

Thus the recommendation conceives social security for the unemployed in terms of a combination of a minimum income (the welfare principle), active labour market policy, and the maintenance of living standards (insurance principle). The recommendation is not binding on member states, however. It is at present impossible to judge whether it will create an impetus towards convergence between national unemployment-support systems.

8.1.11. Selected bibliography

Altmaier, P. (1992): Unemployment benefits, in: Commission (1992c), pp. 38-45

Chassard, Y. (1992): The convergence of social protection objectives and policies. A new approach, in: Commission (1992b), pp. 13-20

Commission of the European Communities (1992a): Employment in Europe 1992. Luxembourg

Commission of the European Communities (1992b): The convergence of social protection objectives and policies. Social Europe, Supplement 5/92. Luxembourg

Commission of the European Communities (1992c): Social security for persons moving within the community. Social Europe 3/92. Luxembourg

Council of the European Communities (1992): Council recommendation of 27 July 1992 on the convergence of social protection objectives and policies (92/442/EEC), in: Official Journal of the European Communities no. L 245 of 26.8.92, p.49; also published in: Commission (1992b), pp. 63-66

ECOTEC (1992): Mobility of cross-border workers. Birmingham

MISEP (1990): Aid to the unemployed: unemployment benefit, in: inforMISEP 31 (autumn 1990), pp. 12 ff.

MISEP (1991): Aid to the unemployed: unemployment assistance and social assistance, in: inforMISEP 34 (summer 1991), pp. 10 ff.

MISSOC (1992): Social Protection in the Member States of the European Community. Situation on July 1st 1992 and Evolution. Brussels

OECD (1991): Unemployment Benefit Rules and Labour Market Policy, in: OECD Employment Outlook 1991. Paris, pp. 199-236

van Raepenbusch, S. (1991): La sécurité sociale des personnes qui circulent à l'intérieur de la Communauté économique européenne. Bruxelles

Regulation (1992): Consolidated version of council regulation (EEC) no. 1408/71 on the application of social security schemes to employed persons, to self-employed persons and to members of their families moving within the Community, in: Official Journal of the European Communities no. C 325 of 10.12.92, p. 1; also published in: Commission (1992c), pp. 74-113

Reissert, B. (1992): Thesen zum Reformbedarf der Arbeitsmarktpolitik im Europäischen Binnenmarkt, in: WSI-Mitteilungen 45, no. 7, pp. 467-472

Schmid, G., B. Reissert and G. Bruche (1992): Unemployment Insurance and Active Labour Market Policy. An International Comparison of Financing Systems. Detroit, Michigan: Wayne State University Press

Simon, G. (1990): Ein Standpunkt zur Mobilität der Bevölkerung in der EG: Tendenzen und Perspektiven im Vorfeld des Binnenmarktes, in: Soziales Europa 3/90, pp. 22-36

Toft, C. (1992): The regulation of social protection in the European Community: the case of unemployment compensation, in: A. Castro, P. Méhaut and J. Rubery (eds.), International Integration and Labour Market Organisation. London, pp. 190-202

Walwei, U. and H. Werner (eds.) (1991a): Beschäftigungsaspekte und soziale Fragen des EG-Arbeitsmarktes. Beiträge aus der Arbeitsmarkt- und Berufsforschung 142. Nürnberg

Walwei, U. and H. Werner (1991b): Soziale Sicherung bei Arbeitslosigkeit im Europäischen Binnenmarkt - Konsequenzen für die Bundesrepublik Deutschland?, in: Walwei and Werner (1991a), pp. 72-88

Wanka, R. (1991): Wechselwirkungen zwischen dem europäischen Recht und den Vorschriften über das Recht der Arbeitslosenversicherung der Bundesrepublik Deutschland, in: Walwei and Werner (1991a), pp. 89-103

Werner, H. and U. Walwei (1992): Zur Freizügigkeit der Arbeitskräfte in der EG, in: Mitteilungen aus der Arbeitsmarkt- und Berufsforschung 25, no. 1, pp. 1-12

Wilensky, H. (1975): The Welfare State and Equality. Berkeley

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