A recent Cato study looked at what a single parent with two children could receive from four broad categories of welfare benefits: social assistance, housing assistance, family and child benefits, and tax credits. We found that in six countries — Austria, Denmark, Finland, Ireland, the Netherlands, and the United Kingdom– benefits exceeded £16,000 (€21,500). And, in Denmark, the most generous country, the potential benefit package exceeded €34,000 (£25,000) per year.
The benefit package was large enough in most countries that it could pose a significant deterrent to transitioning to work. In 9 countries, including the UK, welfare potentially pays more than that country’s minimum wage. In fact, benefits in the UK could top 150 percent of the minimum wage. Not just the minimum wage either. In the UK and five other countries, the benefits are worth more than 60 percent of the country’s net income at average wage. Economists often discuss the danger that high marginal tax rates can discourage economic activity. But, when you consider taxes, the phase‐out of benefits, and the cost of going to work, some of the highest effective marginal tax rates in the world are for someone leaving welfare for a job: in 15 countries — the UK among them — a single parent moving from welfare to a job paying half of the average wage would face an effective marginal tax rate higher than 50 percent. Of course the UK can always take comfort that it isn’t Austria, Croatia or Denmark, where this rate approaches 100 percent.