Wage Subsidy for Employers or Social Security for Low-Paid Workers? The Impact of the Earnings Disregard Reform on the Use of Housing Allowance Among Workers in Different Industries in Finland

Abstract

<p>The longstanding aim of social security reforms in economically advanced countries has been to ensure that work is financially beneficial. In-work benefits (IWB) have emerged as pivotal tools in achieving this objective. Earnings disregards, which exempt a portion of earned income from benefit calculations, represent one form of IWBs. This study focuses on Finland's general housing allowance, examining its use following the 2015 reform that introduced the earnings disregard. Using the total population registry of all single-adult households from 2011 to 2018, we observed a significant rise in housing allowance recipients with earned income, underscoring the growing role of the allowance as an IWB. There was a notable increase in housing allowance recipients, particularly in low-wage service sectors and industries marked by atypical employment patterns. Although IWBs contribute to low-paid workers' earnings, the empirical findings raise the critical question of whether these benefits form wage subsidies that incentivise employers to further increase the use of low-paid, non-standard jobs.</p>