Welfare (Social Benefits)

Welfare, in the sense of social benefits, is support that governments provide to people who face low income, unemployment, sickness, disability, old age or the costs of raising children. It can take the form of cash payments, such as pensions and unemployment benefits, or benefits in kind, such as subsidized housing, food assistance and free health care. The whole system of such programmes is often called the welfare state or social protection.

In economics, "welfare" also has a second, broader meaning: overall well-being, as in welfare economics or Pareto efficiency. This entry covers social benefits. Most cash welfare consists of transfer payments, and welfare spending is one of the largest items in the government budget of most advanced economies. In American usage, "welfare" often refers narrowly to means-tested cash help for poor families, while in Britain and Europe it usually covers the whole benefit system.

Welfare works like a shared insurance pool that almost everyone pays into through taxes and contributions. In good times most people put in more than they take out. When someone loses a job, falls ill, has a baby or retires, the pool pays them something to get through.

Some payments go to everyone in a situation, like a pension at a certain age; others go only to people below an income level, like help with rent. Societies argue constantly about how big the pool should be, who should qualify, and how to help people without making work less worthwhile.

Poor relief has existed for centuries, from Islamic zakat-funded support to England's Poor Laws of 1601. The modern welfare state took shape in the late nineteenth and twentieth centuries.

• Germany. Chancellor Otto von Bismarck introduced compulsory sickness insurance in 1883, accident insurance in 1884 and old-age and disability insurance in 1889, creating the model of contribution-based social insurance.
• The United States. The Social Security Act of 1935, passed during the Great Depression, created old-age insurance, unemployment insurance and aid to dependent children; it underpins today's Social Security.
• The United Kingdom. The Beveridge Report of 1942 proposed a comprehensive system against "want, disease, ignorance, squalor and idleness"; the post-war government created national insurance and the National Health Service in 1948.

• Social insurance. Benefits earned through past contributions, such as state pensions, unemployment insurance and disability insurance.
• Social assistance. Means-tested support for people on low incomes, such as the UK's Universal Credit, introduced from 2013, or US Temporary Assistance for Needy Families and SNAP food benefits.
• Universal benefits. Payments to all members of a group, such as child benefit in many countries; proposals for a universal basic income extend this idea to everyone.
• In-work support. Tax credits such as the US Earned Income Tax Credit, which top up low earnings and are designed to reward work.
• Services in kind. Health care, social housing, childcare and school meals.

In many developing countries, where much employment is in the informal economy and outside contributory schemes, cash transfer programmes such as Brazil's Bolsa Família, Pakistan's Benazir Income Support Programme and India's direct benefit transfers form the core of social assistance.

According to the OECD, public social spending averaged about 21% of GDP across member countries in 2022, down from a pandemic peak of around 23% in 2020, with France and Italy spending just over 30%. Pensions and health care are the largest items. The sociologist Gøsta Esping-Andersen influentially grouped rich-country systems into three types in 1990: liberal (such as the United States and United Kingdom, relying more on means testing), conservative or corporatist (such as Germany, built on social insurance) and social-democratic (such as Sweden and Denmark, with generous universal benefits).

Welfare is one of the most contested areas of public policy, and the arguments come from several directions.

• Poverty and stability. Supporters point to large reductions in poverty and inequality after taxes and transfers, and to the role of benefits as automatic stabilizers in a recession.
• Work incentives. Critics, including many associated with free-market economics, argue that benefits withdrawn as earnings rise create high effective tax rates and can trap people in dependency; these concerns drove welfare-to-work programs.
• Adequacy. Anti-poverty campaigners and many on the left argue that benefits in some countries are too low, too conditional or too hard to claim, citing low take-up and the use of sanctions.
• Cost and demographics. Ageing populations raise pension and health spending, increasing pressure on the national debt and on taxpayers; the dependency ratio is a common gauge.
• Design alternatives. Economists across the spectrum have proposed simplifying systems, from Milton Friedman's negative income tax to universal basic income.

• OECD: Social spending
• U.S. Social Security Administration: Social Security History