Introduction
France has a broad social security system, which covers injuries at work, healthcare, old age pensions, death benefits and unemployment insurance. The scheme, which was introduced in 1945 was projected to cover the whole population. In the EU, France has been ranked top among other countries in its expenditure on welfare. France spends about E200 billion every year on social security, which is higher than what the country produces. Employee contributions are made by the employee themselves while employers also pay a certain percentage for their employees. However, for the self employed, they pay their contributions in full. The French social security program is faced with a major challenge of the aging population. This is due to increased spending on unemployment benefits, pensions, and health care.
As a French citizen, one is entitled to social security benefits depending on one’s work status, residence status, and nationality. Unless one is covered by the reciprocal social security conformity, one must contribute to the social security program for a definite period before being eligible for benefits. The program is managed by a system of regional, local and national institutions, which are organized and administered by delegates of the employees and employers. Moreover, they are supervised by various ministries responsible for social security as well as the ministry of labor, industrial training and vocational training and the ministry of finance. The scheme is mainly financed through taxes and contributions, which are deducted from earnings. The compulsory scheme offers coverage against any risk for all wage earners in the trade and industrial sectors. It provides maternity and sickness benefits as well as family benefits to the whole resident population. In France, when employers hire employees they are required by the law to fill an employment declaration with the institution concerned with collecting contributions for social security. The declaration enables registration of employees that do not have a social security number and registration for the unemployment insurance.
Social Security Expenditures: A historical perspective
The social security in France is made up of different organisms known as Secutrite Sociale. The main Regimes include Farm Regime, General regime and self employed Regime. There are also a number of special regimes that refused to be joined with other regimes during their formation. Since the middle ages various professional organizations have offered minimal assistance to their affiliate. Therefore it was crucial to form a social security that would assist members and offer professional collective security. Alongside the private social insurance movement, legislators demanded for state sponsored social support. 1893 law instituted free medical aid, the 1898 law facilitated compensation, the 1904 law created the child support system and the 1905 law instituted support for the disabled and the elderly. The benefit amount was substantially increased with the introduction of a fresh disability insurance settlement (Martin & Weaver, 2005).
Creation of the Social Security program was mainly contributed by the, the idea of forming a social insurance was brought about by a committee. By 1880s, Germany had come up with a social insurance program although it required contributions from workers. It catered for maternity, old age benefits, and sickness. A number of authors have linked the early adoption of the social security to its industrialization. The period of urbanization and industrialization also accelerated introduction of social insurance program in the France. As the country industrialized, many France people were dependent on wage income, therefore, adopting the social security. Cyclical economical swings were a major concern and lost wages due to death, retirement and disability were problems that needed urgent measures.
Social Security Payment system (Pay-as-you go or fully funded or a mixture)
Social security contributions that are collected at the work place and paid by employees thus contributing towards the government revenue mainly finance programs like health issues, unemployment benefits, and pensions. General revenues are the convenient way of financing social assistance programs like health expenditures for individuals not covered under the social security. In countries with funded pensions and general taxation, government revenues are used in financing the transition costs, which are the costs of putting up with the pension obligations.
The program can be pay-as-you-go, fully funded or a mixture of the two. In the fully funded programs, revenues from contributions, taxes and transfers accrue, and they become invested in financial assets. The effect of a fully funded pension program is that individuals decrease their personal savings by the amount put in the pension funds. Pay-as-you go program is a budgetary ruling, which requires that any tax cuts and entitlement or any other mandatory spending increases must be settled by a tax increase. When compared to the fully funded program, the pay-as-you go program pulls the economy down. In this case, the social security takes more money from workers than it pays in order to handle the boomer problem. The government buys Treasury bonds with the excess money collected.
Dependency Ratio (demographic): Changes over time
The total of the demographic dependency is the ratio of the youth population combined (0 to 19 years) as well as the senior population of 62 years and above, to the working age of 20 to 61 years. It is mainly expressed as the figure of dependants for every one hundred workers. The ratio of the youth demographic is the ratio of the youthful population to those working; the ratio of the senior demographic dependency is the ratio of seniors to the working population. By relating the population group likely to be dependent economically on the group that is likely to be active economically or the net producers, this changes the dependency ratio offering an indication that there is potential of social support, which results from changes of the populating age structures.
The ratio indicates the dependency burden potential on workers and indicates the shifts on the dependency from an instance where children are dominant, to a situation where older people outnumber the children. This is due to demographic transition advances, which is a transition to low fertility, and low mortality from high fertility and high mortality. An elevated dependency ratio shows that the active population and the economy at large face a huge burden in supporting and providing social services required by children and older people that are economically dependent. A huge youth dependency ratio means that higher investments are supposed to be implemented in childcare and schooling.
As fertility levels decrease, the dependency ratio declines because the proportion of infants reduces, while the working age proportion increases. The time when dependency ratio decreases are referred to as the window of opportunity, and it occurs when there is a large number of producers compared to the amount of consumers. On the other hand, as fertility levels decline, the dependency ratios increase due to the increase in the working population. When the population grows older, there is increased pressure on the public health and the social security due to an increase in the old age dependency.
Income Distribution among the Aged Population
In most industrialized countries like France, aging populations have led to intensive discussions about old age social security. In most instances, the discussion is whether the pension program should be organized as a pay-as-you-go system, and if it is organized like that in the future, then the question is to what extent. Although many older workers are financially stable, with a significant group being very rich, the largest share of elderly persons aged 62 and above households have low income. Inequality in income among households has persisted irrespective of thirty years of income growth. There have been income programs designed in aid of reducing poverty and improving the economic status of older people. Although government transfer initiatives have substantially enhanced the welfare of many elderly persons who continually suffer low incomes, the elderly are still not comfortable.
Income distribution and inequality among elderly people is determined by a number of aspects, which comprise the market system functioning, an individuals skills in the labor market, household choices, government policies and economic opportunities. In France, many of these reasons are beyond households’ purview because individual households have personal decisions, which further determine inequality extent. The economic theory explains how households decision making largely influences inequality. Research shows that there is poverty and income inequality among the elderly (Schorr, 1965). Poverty with the elderly is calculated by the percentage of persons aged above 62 years, and live under the 60 percent poverty line. The 60 percent poverty line was officiated as a measure of poverty by the European Union. This indicator shows a higher poverty rate among the elderly.
Structure of Social Security Tax, Employers and Employee contributions
The social security tax is applied to any income related labor. Self-employed entrepreneurs and employees contribute towards the social security by payment of the social security tax also known as survivors, old age and disability insurance. It functions like a flat tax with a single fee of 12.4 percent, which is applied to the wage and the income earned by the self-employed worker. Half of this tax is paid by the employee through payroll withholding. The employer pays the other half for the employees. Self-employed individuals pay both halves since they are the employer and the employee. (Perez, 2013).
Structure of Social Security Benefits (a measure such as the GRR)
The benefit structure of the security system has not been changed although there are many modified details from 1939. The monthly benefits related to workers' earnings are paid to the disabled and the retired workers, to the eligible survivors and their families. These benefits are based on the prior earnings proportions of a worker from which they were paying Social security taxes.
Previous earnings proportions are replaced with low earnings instead of high earnings, a method which recognizes the economical needs of the individual with a low earning level. It states that there is the likelihood that the high paid worker may have private savings and supplementary pensions. Under the benefit formula, workers past wages are updated in order to reflect the recent wage levels (Hughes & Stewart, 2000). Then the monthly average of an individual’s earnings is used in computing a basic benefit. An individual’s basic benefit is condensed in case of early retirement or for delayed retirement. In case of such a situation, a specified portion of the basic amount is paid to the worker’s eligible family members. However, there is a frontier on the total monthly benefits, which are paid to an individual’s family members.
Retirees do not have work related expenses like younger employees and their taxes are not high as well, therefore; they do not require a 100 percent replacement of their earnings. When evaluating the adequacy of the social security benefits for individuals earning above average wages, those that their social security benefits are far below full replacement must be recognized, and they receive governmental and private pensions and social security benefits. Reference to a census survey pension coverage shows largely correlated with earnings. It is assumed that higher income individuals that do not have a large amount of necessities have huge amounts of personal savings (Cogley, 1998).
Retirement Age and Benefits
Many people do not know the exact age when they should start taking the social security benefits, and are not aware that it also determines the percentage of the benefits they receive. The social security benefits are awarded to people who have attained the retirement age. If a worker seeks to retire early, for instance at the age of 62, one can receive benefits but they are reduced, therefore, has to wait until the retirement age in order to receive full benefits. It depends with the year one was born in reaching the retirement age. One cannot reach the retirement age before the age of 62 in France. One has an option of delaying benefits past the retirement age, for instance, if one works after the retirement age, one can decide to delay the benefits because one’s earnings can affect the benefits negatively. However, there are instances when taking early benefits pays off (Bankrate, 2010).
An individual’s benefit is based on the amount one earned during the lifetime working career. If there are higher earnings, then there are higher benefits; if there were years when one did not work or attained low earnings, the benefit amount will be lower compared to when an individual works steadily. A worker’s benefit payment is also affected by the age at which one decides to retire. If a worker retires at 62 years, which is the earliest possible retirement age to get social security, then the benefit is lower compared to those who wait until the official retirement age.
Family Relations: Spouses Benefits, Dependent Children Benefits, Widowers Benefits
In France, if one is in a legal civil partnership or marriage and one’s partner dies, one is able to attain extra finances attributable to the loss. The benefits are known as bereavement benefits. There are also bereavement benefits for children. There are a number of benefits given to families in order to assist with the extra cost of raising children. These benefits are also allowed for pregnant women or those that have just delivered. Bereavement benefits include widowed parent allowances if one has dependent children (Advice guide, 2000). Widowed parent’s allowance are weekly payments made to a widow surviving civil partner or widower with dependent children. One can get the widowed parent allowance if one is bringing up children, or one is expecting the deceased husband’s child.
One qualifies for the allowance if one is a woman living with a civil partner and is pregnant. These children should belong to you and your deceased spouse or a child belonging to you and your deceased civil partner. One must have been under the state pension age during the time of death of the husband, civil partner or husband. The widowed parent allowance consists of basic allowance and other additional pension over the late husband’s civil partner or wife’s allowances (Martin, 2001).
Unemployment Insurance
These payments are paid off by the state or any other authorized bodies to the unemployed citizens. These benefits may be based on an obligatory Para-governmental insurance system according to the jurisdiction or the status of the individual. These payments may be less, only covering the basic needs or just a compensation of the lost time, which is proportional to the salary earned previously. Unemployment insurance is also known as unemployment benefits, and they are given to those individuals who have registered as unemployed and are on conditions of seeking employment but do not have a job (Department of Labor, 2013). The unemployment insurance was passed during the great depression in 1935 by the government due to the high rate of unemployment.
Health Care Coverage for recipients
Health care providers offer medical care to individuals not covered under territorial/provincial social and health programs, and private insurance plans. Non-insured health benefits are medical supplies, dental care, medical transportation, vision care, medical equipment and supplies, and medication over the counter. Eligible recipients are individuals entitled to receiving benefits like prescription drugs, vision care or any other services or benefits from the program. When they are qualified for benefits under the private medical care plan, social program or public health, their claims must first be submitted to the programs and plans. Service providers are supposed to bill the program directly in order for recipients not to face charges at the service point when receiving medical services or goods. When recipients pay directly for services and goods, they can seek reimbursement from the program.
Social Security Reform
The social security systems require to be restored to a long-term health. It has become a burden for most people to finance a safe retirement. It is ruined by recurring stock market busts, stagnating wages, diminished home equity as well as nonexistent or weakened pensions. The budget deficit cutting should try and consider the benefits (Ashford, 1981). Focusing on benefit cuts ignores the shrinking benefits. Under the existing law, benefits are reduced by the higher retirement age which has been risen to 62 from 60 for individuals born in the year 1960 or below.
Conclusion
The state and federal programs that give the income security to families have been formed under the Social Security Act. The act provides for old age insurance and unemployment insurance. Although the creation of the Social Security program was contributed by the Great Depression, the idea of forming a social insurance was brought about by a committee. The period of urbanization and industrialization also accelerated introduction of social insurance program in the France. Pay-as-you go program is a budgetary ruling, which requires that any tax cuts and entitlement, or any other mandatory spending increases must be settled by a tax increase. Inequality in income among households has persisted irrespective of more than thirty years of income growth. There have been income programs designed in aid of reducing poverty and improving the economic status of older people. The social security benefits are awarded to people who have attained the retirement age. If a worker seeks to retire early may be at the age one can receive benefits but they are reduced, therefore, has to wait until the retirement age to receive the full benefits.
References
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Cogley, T. (1998). On the Transition to a Fully Funded Social Security System. Retrieved on 19th June 2013 from: http://www.frbsf.org/economic-research/publications/economic- letter/1998/march/on-the-transition-to-a-fully-funded-social-security-system/
Hughes, G., & Stewart, J. (2000). Pensions in the European Union: Adapting to economic and social change. Boston [u.a.: Kluwer Acad. Publ.
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