Sweden Finland Austria

Interpretation of the ’APW-calculations’
The calculations have the form of ’gross compensation percentages’ (in some cases net, if
that is the relevant concept) and ’change in disposable income’. The disposable income
concept is somewhat crude, cf. appendix 1, and does not fully reflect the considerable
variation in income conditions for production workers in the 8 countries. Day care for
children and housing are disregarded and only standard deductions in taxable income,
standard social security contributions and public social security benefits are included.
The strength of the ’APW-calculation’ of disposable income is that it is consistent across
the 8 countries.

---

20
1)
Cf. also the November 1994 edition of The Tax/Benefit Position of Production Workers, p.
259.
The ’APW’ is a production worker, i.e. an employee in the private sector. The effect of
income events could be different for other groups in the population, e.g. self-employed
people or public sector employees. The results are only valid for employees in the private
sector.
The calculations are valid at two points in the income distribution, those of the single APW
and the APW couple. These points are not the same in all 8 countries, cf. appendix 1 .
1)
More important is the fact that ’single-point calculations’ do not reflect the effects of
varying income. This is important, because ’flat rate systems’ and ’income related sys-
tems’ have different characteristics, when the income varies. The problem could be solved
by performing calculations at different levels of income, and that will also be done in
coming reports, when suitable software has been implemented. The results are only valid
for the ’APW-points’ in the income distribution. Based upon supplementary information
on the ’benefit formula’ (’flat rate’, ’income related, low cap’ or ’income related’) it is,
however, possible to make some conclusions about the profile of the net replacement rates
(100 plus the percentage change in disposable income), often used in international compa-
risons.
The ’standard’ income events have a defined length of time (one week, 3 months, etc.),
other durations of the events could change the results. The ’seriousness’ of the event could
also influence the results, e.g. loss of working capability in connection with injuries from
work. This problem could also be ’solved’ by performing more calculations, and this has
been done in a few cases. The results are only valid for the specific duration of the events
assumed in the calculations.
Some times vacation pay and pay for overtime are not included in the basis for calculation
of benefits. In this study all wage income is included in the basis for benefits (where that
is relevant) and there are 260 wage days, 312 week days and 364 calendar days in the year,
except where the rules say otherwise. All calculations are based upon current income,
another simplification compared to the real world, where benefit calculations to a varying
degree are based upon former income.
In several countries, it is possible to receive more than one kind of benefit (e.g. unemploy-
ment compensation and social assistance) at the same time. In the APW-calculations only
one kind at a time is considered. Furthermore, it is the isolated effect of the event, which
is calculated. Many of the ’events’ lead to a decrease in disposable income and therefore
other means tested benefits, (e.g. relating to day care for children or housing), could
’respond’. This combined effect is not included in the calculations.

---

21
2) In the Netherlands the compensation scheme was privatized in 1996.
The APW-calculations therefore have a very narrow interpretation, but they do provide a
framework for illustration of the functioning of the tax/benefit rules and thereby hopefully
contribute to an insight into the structural differences between the social security (and
taxation) systems of the countries included in the study.