SOCIAL SECURITY

Social security, any of the measures established by legislation to maintain individual or family income or to provide income when some or all sources of income are disrupted or terminated or when exceptionally heavy expenditures have to be incurred (e.g., in bringing up children or paying for health care). Thus social security may provide cash benefits to persons faced with sickness and disability, unemployment, crop failure, loss of the marital partner, maternity, responsibility for the care of young children, or retirement from work. Social security benefits may be provided in cash or kind for medical need, rehabilitation, domestic help during illness at home, legal aid, or funeral expenses. Social security may be provided by court order (e.g., to compensate accident victims), by employers (sometimes using insurance companies), by central or local government departments, or by semipublic or autonomous agencies.

The International Labour Organisation (ILO) uses three criteria to define a social security system. First, the objective of the system must be to grant curative or preventive medical care, to maintain income in case of involuntary loss of earnings or of an important part of earnings, or to grant a supplementary income to persons having family responsibilities. Second, the system must have been set up by legislation that attributes specified individual rights to, or that imposes specified obligations on, a public, semipublic, or autonomous body. And third, the system should be administered by a public, semipublic, or autonomous body.

In its statistics the ILO includes provisions according to which the liability for the compensation of employment injuries is imposed directly on the employer, although such schemes do not strictly meet the third criterion above. For this reason, employer liability is included here.

An alternative but wider term for social security in the countries that are members of the European Union is social protection, which includes voluntary schemes not set up under legislation. In some countries the term social security is used in a narrower sense. For example, in the United Kingdom only statutory benefits in cash are regarded as social security. The term social services is used to cover social security; health, education, and housing services; and provisions for social work and social welfare. In the United States the term social security is restricted to the federal social insurance system (OASDI) as distinct from state benefits and “welfare,” which in Europe would be called social assistance. In some countries (for example, Denmark and the United Kingdom) the reduction of poverty historically has been a central aim of social security policy, and the concept of maintaining income has been grafted on at a later stage. In other countries, such as France, measures to deal with poverty have been seen as quite separate from the income maintenance aims of social security.

Approximately 140 countries have some type of social security scheme. Nearly all of these countries have schemes covering work-related injury and old-age and survivors’ pensions. Well over half have provisions for sickness, and nearly half have provisions for family allowances. The least commonly provided schemes are for unemployment, though at least 40 countries have them.

The use of compulsory insurance as a mechanism to provide medical benefits and cash benefits in the case of sickness, disability, widowhood, and old age became acceptable to legislative bodies fearful of accepting extended state intervention that would require higher taxes to finance pensions or other benefits. In societies where self-help by voluntary insurance had been widely supported, the further step of compulsory insurance was seen as a means of making workers “good” by legislation. Because the schemes were financed by contributions levied on both employers and employees with, in some cases, modest state subsidies, unacceptable levels of national taxation were avoided; indeed, as such schemes reduced the need for social assistance or poor relief, the burdens on local taxation were reduced.

Compulsory insurance contributions are essentially a tax on earned income. Employers try—and probably succeed in most circumstances—to shift the burden of their share of the contribution either to consumers in higher prices or more probably, in the long run, to their employees by paying them less in cash. Thus employers’ contributions are in most cases not paid at the expense of profits. However, the fact that the worker is told that the employer has to pay a proportion of the total contribution helps to make such schemes acceptable to employees, quite apart from the clearly defined benefits that flow from paying their share. Compared with the complexities of an income tax, a social insurance tax is a simple one to collect. But if the level of contributions is high, it creates incentives for workers to become self-employed in what has come to be called the “black,” or “underground,” economy and for employers to avoid contribution liability by employing contract labour rather than full-time staff.