This chapter looks at how EU and OECD countries are currently financing their social protection systems. It gives an overview of recent trends in social spending, before charting the development of broad funding bases over recent years – social security contributions, general revenue financing, and earmarked resources, including the split between employer and employee contributions. It then looks at three specific branches that are likely to be especially impacted by population ageing and / or new or emerging forms of work, applying a life‑course approach: family benefits, unemployment insurance and old-age benefits.
Financing of Social Protection
Abstract
Many OECD and EU countries are facing fiscal strain, exacerbated by high levels of debt accumulated during COVID‑19 and the subsequent cost-of-living crisis, made worse by higher interest rates and an uncertain macroeconomic and geopolitical outlook. Emerging challenges are expected to add to this pressure on spending. Population ageing will require increased spending on pensions, health and long-term care systems: Between 2023/24 and 2045, expenditure on old-age pensions is projected to increase by 1.1 percentage points (p.p.) of GDP across the OECD on average (from 8.8% of GDP to 9.9% in 2045) and by 1 p.p. (from 9.9 to 10.9% of GDP) across the EU on average (OECD, 2025[1]).1 Spending on health- and long-term care is forecast to grow by 1.5 p.p. of GDP across the OECD on average between 2023 and 2045 (from 6.9% to 8.4% of GDP), and by 0.7 p.p. across the EU (from 8.6% to 9.3% of GDP, (OECD, 2025[2]; European Commission, 2024[3])). Other emerging challenges add to these spending needs: the green transition will require programmes to support job transitions, the re‑skilling of workers, help for households struggling with carbon prices, and investments in housing. The degree to which new social programmes will be needed to offset the effects of new technologies on jobs and wages is currently unknown.
At the same time, labour income – currently the main resource base for social protection financing – is being squeezed by shrinking working-age populations (due to lower birth rates) and a trend toward non-standard forms of employment, including part-time work. A decrease in the aggregate wage bill would negatively impact on the financing of social protection systems (OECD, 2024[4]). Given this gap between growing demands and potentially declining resources, and without obvious sizable and politically feasible candidates for social spending cuts, many countries are taking stock of their current financing mixes and considering broadening the base of social protection financing.
This chapter looks at how EU and OECD countries are currently financing their social protection systems, notably the mix between contributions and general revenue, including earmarked sources. It starts out with a bird’s eye view of overall social protection expenditure across the EU and non-EU OECD countries, including the development of privately administered social spending (Sections 1.2 and 1.3). It then goes on to chart the development of broad funding bases over recent years – social security contributions (SSCs), general revenue financing (GR), as well as the financing of overall social protection spending using the ESSPROS database (Section 1.4), including the split between employer and employee contributions (Section 1.5). It then looks at three specific branches that are likely to be especially impacted by ageing populations and / or new or emerging forms of work, applying a life‑course approach and partly updating previous work by (Spasova and Ward, 2019[5]): family benefits, unemployment insurance and old-age benefits (Section 1.6).
Total (public and private2) social protection expenditures accounted for 23% of GDP in OECD and EU countries on average in 2024 (Figure 1.1). Across the OECD and EU on average, old-age benefits (9.1% of GDP on average across the OECD and 9.8% of GDP in the EU on average) and health and disability (9.2% across the OECD and 8.5% in the EU on average) are the largest areas of public social spending.3
Public4 spending on old-age and survivor cash benefits has increased from 5.6% of GDP in 1980 to 8.1% in 2021 across the OECD on average due to population ageing and the maturing of pension systems (not shown). Over the past four decades, population ageing also contributed to an increase in public spending on health from 4.0% in 1980 to 5.9% before the onset of the COVID‑19 pandemic in 2019. In the context of the pandemic, public expenditure on health peaked of 6.6% of GDP in both 2020 and 2021. As the pandemic subsided in 2022 public spending on health declined and estimates for 2023 pointed to only a small increase in 2022/23 (OECD, 2024[6]).
The level of spending on old-age benefits5 and health varies markedly across countries. At over 14% of GDP in 2024, total (public and private) pension spending was highest in Austria, Italy and Finland and lowest at below 5% of GDP in Ireland, Türkiye, Chile, Mexico and Korea. Total spending on health and disability ranged from over 13% of GDP the United States, Iceland and New Zealand to 5% of GDP or less in Türkiye, Mexico, Romania and Malta (Figure 1.1). These cross-country differences are positively correlated with differences in the age‑structure of populations and labour markets, the number of older people who have access to pensions and healthcare, and the design of pension and healthcare systems including their generosity. For example, pension spending in Korea is much lower than in Greece or Italy, partly connected to the fact that in 2020 the Korean population was relatively young and the ratio of senior citizens (65+) to persons aged 20‑64 was 24, much lower than in Greece (38) and Italy (40) (OECD, 2024[7]).
Total social protection expenditure by function as a percentage of GDP, 2024 or last year available
Note: Total social protection expenditure refers to public and private social expenditure (see Box 1). Data include both cash and in-kind benefits. Family benefits include childcare classified as social protection, but education expenditure is generally outside the scope of ESSPROS. The ‘health’ function includes cash benefits that replace earnings losses due to sickness or injury, as well as medical care. Similarly, the ‘disability’ function includes cash benefits for working-age people unable to work because of a disability, as well as goods and services other than medical care provided for disabled people. The “Other” category refers to survivors’ benefits (normally included with old-age, but separated out here as Figure 1.6 shows financing for old-age benefits separately), housing, and social exclusion (cash and in-kind benefits and services for the socially excluded that are not already in another function, e.g. means-tested payments for working-age people who are not disabled or unemployed, accommodation for vulnerable people etc.) . OECD and EU‑27 averages refer to the unweighted average of available countries. The EU‑27 weighted average is calculated as the sum of all expenditure in EUR (nominator) divided by EU‑27 GDP (denominator), as published by Eurostat. This corresponds to an average weighted by national GDP. For EU countries, data refer to 2024; ESSPROS early estimates by function. For Colombia, Chile, Israel, Switzerland, Türkiye to 2023; Australia, Canada, Costa Rica, Korea, Mexico, New Zealand, the United Kingdom, the United States to 2022; and Japan to 2021. Data on 2021 and 2022 may still contain some COVID‑19 emergency measures; cross-country comparisons should therefore be made with caution.
Source: Data for EU countries refer to Eurostat ESSPROS data on Expenditure on social benefits by function (https://ec.europa.eu/eurostat/databrowser/view/spr_exp_func__custom_19311952/default/table) and data for OECD non-EU countries refer to the OECD Social expenditure database (SOCX) https://www.oecd.org/en/data/datasets/social-expenditure-database-socx.html.
Dedicated cash and in-kind support for the working-age population accounts for a much smaller share of total social protection spending: across the OECD on average, family benefits including child allowances, parental leave payments and childcare services accounted for 2.1% of GDP across the OECD on average (2.0% of GDP across the EU on average) while unemployment benefit (UB) spending amounted to 0.8% of GDP across the OECD and the EU on average.6 With regard to family benefits, the top spenders were Poland (3.7% of GDP), where recent expansions in universal child benefits increased total spending (OECD, 2025[8]); Germany (3.5% of GDP), where cash child support is similarly high, combined with generous parental leave provision (OECD, 2025[9]); as well as Finland (3.3% of GDP), where over half of family spending is on services (OECD, 2026[10]), including a guaranteed daycare place for children between nine months and six year of age, at low- to no-cost for low-income families (OECD, 2025[11]). Spending is lowest in Mexico, the United States and Türkiye (below 0.7% of GDP). Türkiye and Mexico do provide means-tested support for low-income families, but lack a universal child benefit, while the United States provides a significant share of benefits through tax breaks that are not included in social protection expenditure (OECD, 2026[10]; OECD, 2026[12]), Box 1.1.
Unemployment benefits (UB) spending amounted to 0.8% of GDP across the OECD and EU average, significantly down from pandemic peaks (see below). For instance, in the EU, expenditure on UB was more than twice as high in 2020 than in 2024. High spending in Korea is related to the fact that the value refers to 2022, and is therefore likely still affected by pandemic-related benefit expansions and GDP contraction, although Korea did expand the coverage of its unemployment insurance to non-standard workers in recent years (OECD, 2023[13]). Spending in 2024 was also high in countries with higher unemployment rates and/or higher per-capita spending (France, Finland, Spain, Austria). On the other hand, Mexico, Romania, Türkiye, Malta and Costa Rica show very low levels of UB spending. In the case of Malta, this is connected to very low levels of unemployment (3.1% compared to 6% across the EU on average in October 2025 (EUROSTAT, 2025[14])). In Romania, net replacement rates are low compared to other EU and OECD countries, and only about one in ten jobseekers receive unemployment benefits. Few jobseekers register with the PES because income‑ and job search support is limited, as spending on active labour market policies is also low in the EU comparison (OECD, 2025[15]). Costa Rica and Mexico do not operate national UB systems (OECD, 2025[16]; OECD, 2022[17]). “Other social spending” is a residual category comprising survivor’s benefits, housing, and social exclusion benefits. Here, New Zealand and France are the highest spenders, with likely drivers a combination of comparatively high spending on housing supports (about 0.5% of GDP, highest spenders after the United Kingdom, Finland and Denmark (OECD, 2026[18])), high levels of means-tested income support (Hyee et al., 2024[19]), and, in the case of France, high expenditure for survivors’ pensions (OECD, 2025[1]).
ESSPROS
The European System of integrated Social PROtection Statistics (ESSPROS) enables the cross-country comparison of the administrative national data on social protection expenditure (cash and in-kind benefits) and revenue in EU Member States.
The scope of social protection under ESSPROS is: “Social Protection encompasses all interventions from public or private bodies intended to relieve households and individuals of the burden of a defined set of risks or needs, provided that there is neither a simultaneous reciprocal nor an individual arrangement involved. The list of risks or needs that may give rise to social protection is, by convention, as follows: Sickness/Healthcare, Disability, Old age, Survivors, Family/children, Unemployment, Housing and Social exclusion not elsewhere classified”. (Eurostat, 2026[20]) Household out-of-pocket spending (e.g. healthcare spending not covered by insurance such as non-reimbursed pharmaceuticals and dental services) as well as direct transfers of resources between private households or individuals are not included in this definition.
ESSPROS provides annual data starting in 1990 on social protection revenues (receipts) and expenditures by scheme, including both cash and in-kind benefits. “Schemes” are statistical units that are associated with expenditure or revenues in ESSPROS. These do not necessarily refer to institutions, although in many cases they do. In practice, they can for example refer to bodies or entities that administer social benefits and/or services and may be run by the government or other bodies (e.g. employer or employee organisations). Often, but not always, they are agencies responsible for the administration of benefits or services, but the same organisation can also be responsible for multiple schemes. For instance, in Austria, the “fund for the equalisation of family burdens” (Familienlastenausgleichsfonds) is a scheme – it is a fund that is financed by employer contributions, and pays for several family benefits, most importantly the universal child benefit, but also other smaller programmes. It is not an agency but an account.
SOCX
The OECD Social expenditure database (SOCX) contains information on social protection spending in OECD countries by branch (or function). It draws on ESSPROS data for European countries and from a regular questionnaire on social expenditure completed by national authorities for non-EU OECD countries.
In contrast to ESSPROS, which shows total social expenditure, SOCX distinguishes between public and private social expenditure based on who controls the relevant financial flows, public institutions or private bodies. Public expenditure includes schemes administered by the central government, social security funds or state and local government. Private expenditure is associated with schemes run by private bodies. This distinction is made according to the characteristics of the scheme related to decision making in ESSPROS.
Private expenditure can further be split up in mandatory private, and voluntary private social expenditure. Mandatory private expenditure includes, for instance, social benefits or services stipulated by legislation but operated through the private sector, e.g. legislated, employer-provided sick-pay, or benefits accruing from mandatory contributions to private pension funds, statutory or benefits from compulsory private‑sector health insurance. Voluntary private social expenditure is voluntary, but involves the redistribution of resources across households, e.g. social benefits administered by NGOs, benefits from voluntary, but tax advantaged individual pension plans, or collective (often employment-related) programmes, such as pensions, childcare support, or employment-related health plans. Household out-of-pocket spending, voluntary private insurance without an element of redistribution, such as life insurance plans, as well as direct transfers between private households or individuals are not contained in private social expenditure.
Note that SOCX considers data on the size of private social spending to be of lesser quality than information on public social spending coming from budgetary allocations. For instance, in Germany, employees are entitled to continued wage payments by their employer for the first six weeks of sick leave – these are employer-administered payments and thus private. In ESSPROS, these payments are imputed employers’ social contributions, taken from the websites of trade unions and employers’ associations (ESSPROS, 2021[21]), supplemented by other sources, including labour force surveys. Private social expenditure may also be underreported because they are not included in national accounts (e.g. social benefits paid by NGOs).
This is not the case for all private expenditure, however, e.g. expenditure by privately-run pension funds is considered very reliable. Private social expenditure is also less quantitatively important: across 22 EU countries with available data on average, private social spending accounted for 2.3% of GDP in 2021, the last year with available data, see Figure 1.3, compared to public social spending above 20% of GDP across EU countries on average (see Figure 1.2).
The OECD Global Revenue Statistics Database only includes the revenue of the general government institutional sector, which is a very different scope from ESSPROS. The two data sources are therefore not comparable.
Gross social expenditure
Data used in this chapter refer to gross expenditure and do not include taxes and social contributions paid on these benefits. They also do not include “tax breaks with a social purpose” (TBSPs), that directly provide social support or aim to stimulate the private provision of social support. TBSPs often have a similar purpose as cash benefits to households, e.g. child tax allowances or child tax credits (such as the CTC in the United States).
Social contributions
Social contributions (SCs) refer to all payments made by employers, employees, self-employed or other protected persons to social protection schemes (mandatory + voluntary) while social security contributions (SSCs) refer to mandatory payments to public statutory social security systems.
EU and OECD averages
Averages shown in the figures as EU‑27 and OECD are calculated as simple (unweighted) averages across EU and OECD countries with available data. Eurostat publishes aggregates for the EU‑27, that are calculated as the sum of all expenditure in EUR (nominator) divided by EU‑27 GDP (denominator). Mathematically, this corresponds to an average weighted by national GDP. Because of the large differences in GDP across EU countries, these two values are not comparable. In the figures, these averages are shown as EU‑27 weighted.
Note: For more information see https://www.oecd.org/en/data/datasets/social-expenditure-database-socx.html and the OECD SOCX Manual 2019 Edition: A guide to the OECD Social Expenditure Database (OECD, 2019[22]) and Database - Social protection - Eurostat, https://ec.europa.eu/eurostat/web/social-protection/database.
1.3.1. Social spending contracted quickly after the strong increase during COVID‑19 pandemic, but has lately somewhat rebounded
In the years immediately preceding the COVID‑19 pandemic, total social spending as a per cent of GDP was overall stable, with a very slight decline over all areas of social spending driven by a recovery of GDP growth coming out of the Great Financial Crisis (GFC, Figure 1.2). Due to the pandemic, total social protection expenditure increased from 22% of GDP at both the OECD and EU average in 2019 to 25% in 2020.7 Spending on unemployment benefits more than doubled, but also other benefit functions expanded as a share of GDP, partly due to a contraction of GDP, but mainly because of increased health spending as well as income support for vulnerable groups who did not have access to unemployment benefits (OECD, 2020[24]).8 Spending then declined almost as rapidly starting from 2021. Spending on unemployment support was back at (or even below) pre‑pandemic spending levels in 2022, and total social spending was only slightly above pre‑pandemic levels (Figure 1.2). In contrast, it took 10 years of continuous economic growth for social protection expenditure to fall back to pre‑crisis levels after the GFC (OECD, 2023[25]).
Total social protection expenditure by function, EU and OECD average, as a per cent of GDP
Note: Total social protection expenditure refers to public and private social expenditure (see Box 1.). For EU countries, 2024 data refer ESSPROS early estimates by function. Data include both cash and in-kind benefits. The ‘health’ function includes cash benefits that replace earnings losses due to sickness or injury, as well as medical care. Similarly, the “disability” function includes cash benefits for working-age people unable to work because of a disability, as well as goods and services other than medical care provided for disabled people. The Other category refers to survivors, housing, and social exclusion (cash and in-kind benefits and services for the socially excluded that are not already in another function, e.g. means-tested payments for working-age people who are not disabled or unemployed, accommodation for vulnerable people etc.). OECD and EU averages refer to the unweighted average of available countries. OECD and EU‑27 averages refer to the unweighted averages. The EU‑27 weighted average is calculated as the sum of all expenditure in EUR (nominator) divided by EU‑27 GDP (denominator), the EU aggregate published by Eurostat. This corresponds to an average weighted by national GDP. Data for OECD are not available after 2022.
Source: Data for EU countries refer to Eurostat ESSPROS data on Expenditure on social benefits by function (https://ec.europa.eu/eurostat/databrowser/view/spr_exp_func__custom_19311952/default/table) and data for OECD non-EU countries refer to the OECD Social expenditure database (SOCX) https://www.oecd.org/en/data/datasets/social-expenditure-database-socx.html.
The contraction in social spending was short-lived, however: in the EU on average (where data for 2023 and 2024 are already available), spending as a share of GDP rose again in 2023 and 2024 for old-age benefits and healthcare and to a lesser extent for family and other social expenditure, mainly due to cash supports to households to alleviate the impact of the cost-of-living crisis. Food and energy prices rose considerably in 2022 and 2023, and while inflation concerns abated in 2024, food and energy prices outpaced increments in household incomes in many OECD countries over the 2020 to 2024 period (OECD, 2024[26]).
1.3.2. Private social expenditure is a small share of overall expenditure in most EU countries
Private social expenditure is administered by private bodies, in contrast to public social spending that is administered by central or local government institutions or social security funds see Box 1.1.
On average across the 22 EU countries with available data, private social expenditure only accounted for 2.3% of GDP in 2021 (see Figure 1.3), compared to 24.5% for public social expenditure. However, private social spending is expected to increase as private pension systems introduced over the last decades start to mature. Private social expenditure is most significant in non-EU countries, in particular Switzerland and the United States (13% of GDP). In Switzerland, all employees earning over 22% of the average wage must contribute to private occupational pension funds that complement the basic public pension; similarly, all residents are required to purchase health insurance on the (regulated) marketplace (OECD, 2025[1]; Boes, Weisstanner and Durvy, 2025[27]). In the United States, healthcare is partly private through employer-provided healthcare, but pension-aged and low-income individuals are covered by publicly funded health insurance (Rice, Unruh and Barnes, 2025[28]). Similarly, there is an earnings-related public pension system, but many voluntarily contribute to employer-run private pension funds (OECD, 2025[1]).
The Netherlands stands out as the only EU country with private social spending accounting for more than 5% of GDP (with 11.4%): more than half of all spending on health is administered by competing not-for-profit private insurers and earnings-related pensions are provided by collectively bargained occupational schemes. While there is no statutory obligation for employers to contribute to these occupational pension schemes, about 90% of employees are covered. This explains the high share of voluntary private social protection spending on old-age benefits. See Box 1.2 for additional examples of social protection schemes established by collective agreements.
In Iceland, defined contribution pensions are mandatory but administered by private pension funds, explaining the high share of mandatory private spending, see Figure 1.3 (OECD and EC, 2025[29]; OECD, 2025[1]). In most other EU countries, private social protection spending is only around or below 2% of GDP.
Private social expenditure by type as percentage GDP in 2021
Note: Data refers to private social expenditure (see Box 1.1). OECD and EU averages refer to the unweighted average of available countries. The amount of mandatory private spending in Switzerland includes private (survivor) pension benefits worth 5.7% of GDP in 2021. These pension payments accrue from both mandatory and voluntary private pension contributions in the past, but their share is not separately identifiable.
Source: OECD (2025) OECD Social Expenditure database (https://www.oecd.org/en/data/datasets/social-expenditure-database-socx.html).
As a share of total social protection expenditure, private spending has increased slightly at the EU average over the last two decades from 5.4% in 2000 (or nearest available year) to 6.6% of overall social protection spending 2021 (or latest available year), see Annex Figure 1.A.1.
On average across the OECD, it remained almost constant. Few countries have had big changes in the share of private expenditure. For instance, the Netherlands drastically changed health insurance in 2006: before the reform, the top one‑third of earners were covered by voluntary private insurance, while the majority of the population was covered by mandatory publicly-run “sickness funds”. The 2006 reform abolished the sickness funds and introduced a mandate for private insurance for the entire population (IMF, 2018[30]). This reform did not only increase the share of mandatory private spending, but also decreased voluntary private spending, since health insurance was now mandated for the entire population (not shown). The significant drop in the share of private social spending in Korea is not due to a shift in contribution sources from private to public, but due to a significant expansion of the Korean welfare state over the past two decades: public social spending in Korea in 2000 accounted for 4% of GDP, compared to 16% in 2022. Expansion was particularly strong in pension and health spending, but also unemployment.
Private social spending is mostly in the areas of health (not shown) and pensions – for family benefits, it is zero in most countries, and for unemployment, it is zero or very small (not shown). On average across EU countries, private spending on old-age pensions amounts to 6% of total expenditure and has been stable for the past two decades (Annex Figure 1.A.2. ). For pensions, private spending accounts for almost 60% in Iceland, where basic, means-tested public pensions are topped up by a compulsory, defined contribution pension administered by pension funds. The share of private spending increased over the past two decades as the pension funds, introduced in the late 1960s and early 1970s, matured and their performance increased since the 1990s (Ísleifsson, 2015[31]). Similarly, in Australia, a basic public pension is complemented by mandatory employer contributions to private superannuation funds. Private spending is also significant in the United States and Switzerland (see above), as well as in Canada, where workers may voluntarily contribute to government-assisted savings plans (OECD, 2023[32]). As a result, the share of private social spending on the OECD average is significantly higher than on the EU average (14% Annex Figure 1.A.2. ).
Social protection schemes established by collective agreements instead of by legislation alone are an important part of the social protection system of many countries, although they are especially important in northern Europe. They often supplement statutory schemes.
Occupational pension schemes can achieve high coverage rates: for instance, in Denmark, the Netherlands and Sweden, the participation rate in these schemes is close to the coverage rate in countries with mandatory schemes (OECD, 2025[1]). Also, voluntary occupational pension plans are often supported by collective agreements, for instance in Germany, where collective agreements may include defined contribution pension schemes with minimum employer contributions. Over 50% of workers in larger firms participate, but coverage is lower in small firms and among low-wage workers (OECD, 2025[9]).
In Denmark, Finland, Iceland and Sweden, trade union-affiliated institutions administer (voluntary) unemployment benefits, with contributions partly subsidised by the government (OECD, 2018[33]) – the so-called “Ghent system”.
Collective agreements also often provide for parental leave benefits (Eurofound, 2025[34]), typically topping-up statutory entitlements. For instance, in Denmark, almost all collective agreements stipulate periods of parental leave on full pay (government-provided leave is capped at about 50% of the average wage and is paid to the employer during periods of employer-provided leave on full pay, (OECD, 2026[35])). Similarly, in Norway, collective or individual agreements top up government-provided parental leave to full pay, and many fathers receive employer-provided parental leave benefits through collective agreements (OECD, 2023[36]).
Financing strategies and policy setups differ significantly across countries. The funding mix can differ at similar levels of spending, reflecting different policy institutions (such as privately or publicly-funded healthcare and pension systems), but also different strategies for balancing the various objectives of social protection – such as risk sharing, income smoothing over time, inequality reduction and poverty alleviation.
Often, contribution-based social protection systems also require transfers from general-revenue funding even if they are designed to balance contributions and expenditure because i) rights to contributory benefits may be accumulated even when not paying into the system, e.g. pension rights acquired during periods of unemployment or parental leave, ii) claims may exceed contributions during extraordinary times (e.g. unemployment schemes in times of economic crises), and iii), contribution bases of schemes for certain professions may shrink because of occupational shifts – e.g. the miners’ pension scheme in Germany.
This section uses data on public social spending, but excludes spending administered by private bodies, see Box 1.1 and Annex Figure 1.A.3 in the previous section. This is to facilitate comparisons with non-EU OECD countries since in the OECD revenue statistics, the source on information on social security contributions, only public sector revenue is recorded.
1.4.1. Funding mixes vary widely across countries
On average, roughly around half of public9 social spending is financed through social security contributions and the other half through general revenue. Some countries mainly rely on tax revenue / general revenue (GR) to grant basic health-care services to all residents and means-tested benefits for working-age support and have a high share of private expenditure for old-age pensions (e.g. Australia, New-Zealand, Canada, the United Kingdom and, to a lesser degree, the United States (Figure 1.4).
Public social spending by social security contributions and general revenue funding, as percentage of GDP, 2023 or latest year available
Note: Excluding private social spending, see Box 1.1 The graph displays an approximate breakdown of revenue used for financing public social spending (including public old age and survivor pensions, income support to the working-age population and children, health, and all other social services except health). Shown shares of social contribution financing represent upper bounds, as social expenditure totals exclude administration costs (i.e. the costs incurred with the provision of cash or in-kind benefits), whereas social contributions may finance costs related to the administration of insurance institutions (administration costs of social protection systems in European countries range from 1% to 6% of total spending, while evidence from the United States suggests that the costs of administering a non-means tested benefit represents 1‑2% of total spending (Browne and Immervoll, 2017[37]). The share of general government contributions is calculated as the residual by subtracting social contribution revenues from public social spending totals (not strictly comparable with the ESSPROS related data). It therefore includes all sources of social protection financing other than social contributions, including also debt financing and withdrawals or property income from public pension reserve funds or sovereign wealth funds. Data refer to 2023 except for Australia, Canada, New Zealand and Japan (2022) and Bulgaria, Croatia and Romania (2021). OECD and EU averages refer to the unweighted average of available countries.
Source: Adapted from (Immervoll, 2024[38]). OECD Social Expenditure Database (https://www.oecd.org/en/data/datasets/social-expenditure-database-socx.html), ESSPROS, Eurostat Social Protection statistics, OECD Revenue Statistics (for social security contributions).
Denmark also funds its public social protection system almost entirely out of GR. Healthcare is tax-funded, and in Denmark, as well as in Finland, Iceland and Sweden, earnings-related unemployment insurance voluntary and union-run (OECD, 2018[33]). While 70% of de Danish workforce contributes to an unemployment insurance fund (OECD, 2025[39]), these payments are voluntary, and therefore not social security contributions (SSCs) (see Box 1.1). Similarly, there is a GR-financed state pension, and while some 90% of workers are covered by occupational pensions (OECD, 2025[1]), they are outside of the definition of public social spending. A similar combination of mainly GR-financed healthcare and occupational pensions complementing basic, state‑funded pensions, explain a comparatively low share of SSC in Sweden, Finland and Norway (below the EU-average of 50% of public social expenditure, Figure 1.4).
In contrast, in many central and southern-European countries, workers acquire entitlements to earnings-related benefits including old-age benefits, unemployment insurance, disability and parental-leave benefits through statutory contributions, which is why the average share of SSCs in public social spending is higher across the EU on average (50%) than across the OECD (43%).10 Some countries mainly rely on contribution-based benefits to provide income replacement for those with prior contributions, with a limited role for general-revenue financed, means-tested transfers for those who do not have the required contribution history (Hyee et al., 2024[19]), but operate a general-revenue financed healthcare system (e.g. Italy, Korea or Spain). Other countries combine a contribution-funded healthcare system and insurance‑based out-of-work benefits (including old-age pensions) with means-tested safety-net benefits for low-income households, and universal benefits for children (e.g. Austria, France and Germany). These two groups of countries have a similar share of SSCs in public social spending, around the EU average of 50% (Figure 1.4).
Finally, a group of central European countries (Slovak Republic, Czechia, Slovenia and Estonia) funds over 70% of public social spending from SSCs. This high share is due to contribution-funded health- and old-age pension systems (the biggest spending items, see Section 2), combined with a limited role for means-tested income‑support and universal child benefits (Hyee et al., 2024[19]; OECD, forthcoming[40]).
1.4.2. The share of SSCs in social spending has only declined slightly
As SSCs are levied exclusively on labour income, there have been concerns about a shrinking funding base – because of a falling labour share caused by globalisation or technological change, a rising incidence of non-standard work, or a falling labour force because of population ageing (see Chapter 3 as well as (OECD, 2024[4]; European Commission, 2023[41]; Immervoll, 2024[38])). However, since the mid‑1990s, the share of SSCs in public social spending has only slightly decreased across the OECD on average – from 47% in 1995 to 43% in 2023 (Figure 1.5). In the EU, the trend is the same: the share of SSCs declined from about 54% to 50% over the same period (Annex Figure 1.A.3). Indeed, SSCs as a share of GDP have remained stable on average, both across the OECD and the EU. SSC did not fall, but their share in financing was driven down by expanding, GR-funded spending (Annex Figure 1.A.3). The share of SSCs in social spending declined more in the United States, and to a lesser extent Japan, than in the EU, particularly in the years leading up to the GFC, but otherwise trends appear similar across major economies (see Annex Figure 1.A.4.).
The share of SSC in social spending did fall markedly during the GFC and the COVID‑19 pandemic, when employment rates collapsed, while social spending increased sharply because of emergency measures to provide income support to workers, and, in the case of the COVID‑19 pandemic, increased health spending. But it recovered in line with employment. In 2020, the share of SSCs in public social spending fell by almost 5 p.p.; but in 2023, it was only 1 p.p. below its pre‑pandemic level (Figure 1.5). In individual countries, substantial changes did take place in the long term, however. For instance, France went from over 80% of public social expenditure financed by social security contributions in 1980 to just under half in 2023. Spain and Portugal display a similar trend (not shown).
Some countries have expanded contribution-financed benefits in recent years however, as the COVID‑19 pandemic underlined the advantages of earnings-related income support for household consumption smoothing and as a stabiliser of aggregate demand. Some countries are currently extending, or considering extending, contribution-based provisions for the self-employed and other non-standard workers, e.g. Ireland, Italy, Latvia, Luxembourg or Portugal (OECD, 2024[4]). Ireland recently introduced an earnings-related jobseeker benefit, while the United Kingdom is considering introducing such a benefit (see Chapter 2).
Public social spending by social security contributions and general revenue funding across the OECD on average, as a percentage of GDP (left axis), and share of social security contributions across the OECD on average, as percentage public social expenditure (right axis), 1995-2023
Note: Unweighted average of OECD countries with available data, see also notes to Figure 1.4. Figure includes public social expenditure only, see Box 1.1.
Source: OECD Social Expenditure Database (https://www.oecd.org/en/data/datasets/social-expenditure-database-socx.html), ESSPROS, Eurostat Social Protection statistics, OECD Revenue Statistics (for social security contributions).
1.4.3. Earmarking
Tying government revenue to specific expenditure categories narrows budgetary flexibility and can crowd out public resources for other spending areas (Buchanan, 1963[42]; Immervoll, 2024[38]). The OECD Recommendation of the Council of Budgetary Governance (OECD, 2025[43]) therefore recommends “… the use of a single, centrally-controlled treasury fund for all public revenues […] with the use of special-purpose funds, and earmarking of revenues for particular purposes, kept to a minimum; […].” However, attaching a clear use to government revenues can resonate with the public and political stakeholders, and may decrease the volatility of funding for specific areas (Immervoll, 2024[38]). It may also make the introduction of new taxes more politically palpable.
Quantitatively, earmarking only accounts for a significant share of public social spending in France (11% of GDP and over a third of public social spending) and Belgium (5% of GDP and around a fifth of public social spending, Figure 1.6, share of earmarking is approximate, see figure notes). In France, there is a “Generalised Social Contribution” (contribution social géneralisée, CSG) which accounts for over two‑thirds of all general revenue funding for social spending. It is earmarked for health- and means-tested social benefits, including the means-tested element of old-age pensions. In contrast, social security contributions finance earnings-related insurance benefits, such as unemployment insurance and earnings-related old-age pensions. Despite its name, the CSG is not a social security contribution but a tax, because paying it does not build entitlements to social benefits. The CSG is levied on employment income, replacement income including retirement pensions, unemployment benefits, sickness benefits etc., as well as on asset income, investment- and gambling income. In Belgium, earmarked funding for social spending is mainly from VAT (MISSOC, 2025[44]).
Public social spending by financing source, 2023 or last year available
Note: Countries are ranked by public social expenditure as percentage GDP. Approximate breakdown of revenue used for financing public social spending (including public old age and survivor pensions, income support to the working-age population and children, health, and all other social services except health). Shown shares of social contribution financing represent upper bounds, as social expenditure totals exclude administration costs (i.e. the costs incurred with the provision of cash or in-kind benefits), whereas social contributions may finance costs related to the administration of insurance institutions (administration costs of social protection systems in European countries range from 1% to 6% of total spending, while evidence from the United States suggests that the costs of administering a non-means tested benefit represents 1‑2% of total spending (Browne and Immervoll, (2017[37])). The share of general government contributions is calculated as the residual by subtracting social contribution revenues from public social spending totals. It therefore includes all sources of social protection financing other than social contributions, including also debt financing and withdrawals or property income from public pension reserve funds or sovereign wealth funds. Breakdowns of the “general government contributions” category into “earmarked taxes” and “non-earmarked general revenue” are available for European countries only, and the earmarked category refers to proceeds from taxes and levies which, by law, can be used only to finance social protection (European Commission, 2022[45]). In principle, the earmarked category includes revenues that finance programmes at central-government or state/local level. For the United Kingdom, the share of earmarked general revenue refers to 2018, the last year available in the European Union ESSPROS data.
Source: OECD Social Expenditure Database (https://www.oecd.org/en/data/datasets/social-expenditure-database-socx.html), OECD Revenue Statistics (for social contributions), ESSPROS (for breakdowns of the “general revenue” category in European countries).
According to the textbook economic model of tax incidence, it should not be relevant whether social contributions (SCs)11 are levied from employers or employees – the actual burden of SCs depends on the relative elasticities of labour supply and demand. As labour demand has a higher empirical elasticity to labour cost than labour supply has to net earnings, employers should be able to roll over employer SSC onto workers through lower nominal earnings (Fullerton and Metcalf, 2002[46]). The empirical literature, however, has been mixed, with some studies finding full-, and others only partial shifting of employer SSCs onto workers.
The specific programme design seems to affect the incidence of SSCs. For instance, (Saez, Matsaganis and Tsakloglou, 2012[47]) show that employers struggle to offer younger workers lower salaries following a reform to increase employer SSCs for workers entering the labour market after a specific cut-off point that increases employer SSCs, while (Bozio et al., 2025[48]) show that employers find it easier to roll over SSCs that have a strong link to individual benefit entitlements, than contributions where this link is less immediate.
More than half (60%) of social contributions across the EU are levied on employers (Figure 1.7). In Estonia, almost all contributions are (statutorily) borne by employers (at a comparatively lower total spending level, see Figure 1.1). The share of employers in overall SC is also over 80% in Sweden and Iceland, although these countries have a higher-than-average share of general revenues (GR) financing in overall spending.12 On the other end, in Romania, only 14% of all SC are employer contributions. This is the result of a reform in 2018 that shifted social contributions almost entirely onto employees reducing the employer share by over 37 p.p. (not shown). The reform aimed to increase gross wages by converting employer contributions into employee contributions, as contributions to private pension accounts are paid by employees and calculated as a share of gross wages (Pop and Urse, 2018[49]). While gross wages did rise sharply following the reform, net wages were soon eroded by inflation in 2021 and 2022 (OECD, 2025[15]).
Across the EU, on average, employer contributions as a share of total social protection financing decreased by 4 p.p. over the past decade, while employee contributions increased by 2.7 p.p. (not shown),13 likely in response to competitive downward pressure on labour costs (European Commission, 2023[41]). In addition to the Romanian reform mentioned above, Lithuania implemented a reform in 2018 that decreased the employer social contributions by 37 p.p., and increased employee SC by 18 p.p. (not shown) as part of a reform package with the goal to reduce the total tax wedge on labour and to simplify the social security system by abolishing transfers from the state social insurance fund to private funds (in the hopes that higher net wages would induce workers to increase their voluntary pension savings). Wages were mandatorily indexed to guarantee an increase in nominal wages (Anciūtė et al., 2020[50]).
The self-employed only contribute 4% of total social contributions across the EU on average (Figure 1.7), although they account for 14% of total employment in 2024 (OECD, 2026[51]). Self-employed workers have generally less access to social protection than dependent employees and are overrepresented at the top and bottom of the earnings distribution, see Chapter 2.
Breakdown of social contributions in overall social protection financing, by source, in per cent, 2023
Note: Countries are ranked in terms of the share of social contributions SC in total financing of social protection (from lowest to highest). This breakdown is not available for other OECD countries. The residual to 100% is general revenue and other receipts (i.e. property income and miscellaneous). Data include public and private social contributions, see Box 1.1. The EU‑27 average refers to the unweighted average of available countries. The EU‑27 weighted average is calculated as the sum of contributions in EUR (nominator) divided by EU‑27 total contributions (denominator), the EU aggregate published by Eurostat. This corresponds to an average weighted by social contributions.
Source: Eurostat, ESSPROS Database; https://ec.europa.eu/eurostat/databrowser/view/spr_rec_scon__custom_19102843/default/table.
This section looks at the financing mix for three specific branches or functions of social protection: old-age benefits, family benefits and unemployment benefits. These functions were chosen because they touch upon the key life stages, maintaining a life‑course approach, and are especially likely to be impacted by demographic change (pensions, family benefits), as well as new and emerging forms of work and labour market transformations (unemployment benefits).
The results presented in this section are estimates by the OECD Secretariat of the financing mix by function using the methodology presented by (Spasova and Ward, 2019[5]), see Box 1.3 for an explanation of the methodology, data and limitations of this approach. This section also partly updates their previous analysis (based on 2015 data). The results presented in this section are therefore not directly available from the ESSPROS database. For some non-European OECD countries, data is also available from a dedicated questionnaire.
Overall, old-age and unemployment benefits, that are earnings-related in most countries, are estimated to have a much higher share of social contributions financing than family benefits: 64% across the EU‑22 on average for unemployment- and 63% for old-age benefits, compared to 23% for family benefits (Figure 1.8).
For old-age benefits, estimates suggest that more than three‑quarters of benefits are financed by social contributions in Hungary, Ireland, Latvia, Romania and Czechia (Figure 1.8, Panel A). This can be explained by a limited role for means-tested basic pensions for those who lack the minimum contribution periods in these countries: in Hungary, Latvia and Romania, such a benefit does not exist, while in Czechia and Ireland, these schemes cover less than 20% of total pension expenditure (European Commission, 2024[52]). In other countries with contributory pension systems, non-contributory pensions play a larger role. For instance, Canada operates two old age benefits that are entirely funded by general tax revenues (Old Age Security and the Guaranteed Income Supplement). However, the Canada Pension Plan is funded by social security contributions and the Canada Pension Plan Fund’s investment income.
Contributory pension systems also receive general-revenue transfers when expenditures exceed contributions. The pension system balance (contributions minus expenditures) was negative in 16 out of 25 EU countries with available data in 2022, with an average deficit amounting to 1.6% of GDP. Deficits were especially high in Bulgaria and Italy (4.7% of GDP), Austria (3.6% of GDP) and France and Croatia (3.3% of GDP). This deficit is expected to raise until 2024, mainly due to population ageing (European Commission, 2024[3]).
In Australia and New Zealand, in contrast, there is no public contributory pension system. GR-funded means-tested pensions are complemented by privately-run individual savings accounts (OECD, 2025[1]). The share of contribution funding across the EU on average has remained roughly equal since 2015, when it was 65% on average in the EU22 (Spasova and Ward, 2019[5]).
In contrast, almost three‑quarters of family benefit financing are from taxation (Figure 1.8 Panel B). Means-tested or universal child-benefits are the biggest spending item in the family benefit category and are mostly GR funded. But there are exceptions: for instance, in Austria, universal child benefits are funded from employer contributions (see Box 1.1), leading to an above‑average share of contribution financing of 44%. Contribution-based financing is thus completely de‑coupled from universal entitlement. Many countries also fund maternity and paternity leave from SCs, which, if combined with limited expenditure on universal or means-tested child benefits, can lead to a high incidence of contribution-based spending, as is the case in Bulgaria and Estonia, where contributions fund over 60% of family benefit financing. In Colombia, 87% of family benefits are contribution financed: maternity and paternity leave are only available for those with prior contributions, and some benefits and services including housing, unemployment or educational services provided by the Family Compensation Funds (Cajas de Compensación Familiar) differ by whether families are formal workers (paying contributions) or informal workers. Some of them are therefore financed by contributions.
Similar to pensions, unemployment benefits are estimated to be largely social contribution financed (64% across the EU22 on average, slightly above the OECD average of 59%, Figure 1.8 Panel C). Some countries, such as Germany, operate both a contribution-based unemployment insurance as well as a means-tested unemployment assistance benefit, social contributions therefore account for around 50% of total financing. While safety-net benefits for jobseekers without the necessary contribution history exist also in countries who almost exclusively finance their unemployment benefits from SCs, such as Austria, Spain, Sweden and Romania, they are social assistance benefits not exclusively for jobseekers, and therefore not included in the unemployment benefit category. On the other hand, in Australia, New Zealand and Luxembourg unemployment benefits are not financed by social contributions.
Breakdown of the financing mix by function, 2023 or last year available (% of total financing of benefits)
Note: Data for EU countries are based on estimations of the financing sources of social protection by function as in as in (Spasova and Ward, 2019[5]). Data refer to total social protection financing. “Others” refer to other type of receipts (i.e. property income and miscellaneous).
Panel A. Old age: Data for Colombia refer to CREMIL, CASUR, FOMAG, Colpensiones, RAIS, and CM. For Japan, “Old age” here includes old-age, invalidity, and survivors’ pensions. In term of expenditure, among the three categories, Old age would account for about 80%, while invalidity, and survivors’ pensions to 10% respectively. Data for Australia, Israel and New Zealand refer to 2022, and for Canada to 2022/23. Panel B. Family: Data for Colombia refer to contributions to the contributory health regime linked to maternity and paternity leave benefits, budgetary contributions for the Renta Ciudadana programme (Familias en Acción programme), and revenues from ICBF. For Japan, Family includes family benefits, ECEC, parental leave, and related benefits. Data for Australia, Israel and New Zealand refer to 2022. Panel C. Unemployment: For Japan, “Unemployment” includes unemployment benefits and ALMP services. Data for Australia, Israel and New Zealand refer to 2022. For all panels, OECD and EU averages refer to the unweighted average of available countries shown in the figure.
Source: For EU countries, estimates based on Eurostat ESSPROS Data by scheme. For non-EU countries, data are from an OECD questionnaire. For EU Member States: Not available: France, Portugal, Slovenia. Data not shown as the estimation method leads to non-meaningful results: Belgium, Poland. Estimates to be interpreted cautiously: Austria, Italy, the Slovak Republic (see Box 1.3).
The ESSPROS data published by Eurostat contains expenditure and revenue (receipts) by social protection scheme (see Box 1.1). The schemes are defined in ESSPROS as statistical units that allow the association of expenditure and receipts to the same scheme. Data show the total amount of expenditure for each individual scheme by function, and the financing mix for each scheme separately. Since many schemes administer social programmes in more than one function (e.g. old-age and / or survivors’ and/or disability benefits), and in turn several programmes within one function are funded by more than one scheme, with different funding mixes, it is not straight-forward to derive the financing mix for each function. The data does not contain information on whether resources within a scheme are internally allocated to specific functions or programmes, that is, whether specific funds, e.g. from social contributions, are earmarked for specific programmes.
The report uses the same methodology as (Spasova and Ward, 2019[5]) to estimate the mix of funding sources for the selected social protection functions (that is, Old-Age, Family and Unemployment). This methodology assumes that the division of funding for a particular scheme applies to all the functions covered by that scheme. The funding mix for each function is then calculated by aggregating across schemes according to the share of expenditure going to each function.
That is, the methodology assumes that the funding mix for every scheme applies to all the functions covered by that scheme, which will not hold for all countries and schemes. The funding mix for any function is then the aggregate across schemes, weighted by the share of financing coming from each scheme.
As an example, consider a country X with two schemes of the same revenue size. Scheme 1 is financed by 50% of social contributions and 50% of general taxation, while Scheme 2 is financed by 100% social contributions. The methodology used in (Spasova and Ward, 2019[5]) assumes that all programmes funded by these schemes have this same funding mix. Now assume that 30% of expenditure from Scheme 1 is spent on Old-age benefits, and 70% of expenditure from Scheme 2 is spent on Old-age benefits. Old-age benefits in country X are then financed by 15% of general taxation and 85% social contributions.
Possible limitations for this estimation process:
ESSPROS data by scheme are not available from Eurostat for France, Portugal and Slovenia.
In addition to social contributions and general revenue, there is an additional revenue source named “other receipts”. Other receipts include partly transfers from other schemes, that have their own mix of funding sources. These are not identifiable in the data and therefore cannot be taken into account in the estimates. In a large majority of cases, these transfers are small (under 5% of total funding) and, therefore, have little effect on the results. But in some cases, they are significant. This is especially the case for Belgium and Poland (around 30‑40%) and Austria, Italy, and the Slovak Republic (around 10‑15%). For Belgium and Poland, transfers from other schemes are so large that the results of the estimation method are not meaningful, and are therefore excluded from the analysis. For Austria, Italy, and the Slovak Republic, results should be interpreted with caution. This is not due to the quality of the underlying data, but is intrinsic to the estimation methodology.
Note: Instead of 2000, data refer to 2002 for Ireland and Poland, 2003 for Romania and Slovenia, 2005 for Bulgaria, 2010 for Colombia, 2011 for Costa Rica, and 2013 for Croatia. Instead of 2021, data refer to 2022 for Australia, Canada, Costa Rica, Korea, Mexico, New Zealand, the United States; and 2023 for Colombia, Chile and Israel.
Source: OECD Social Expenditure Database.
Note: Instead of 2000, data refer to 2002 for Ireland and Poland, 2003 for Romania and Slovenia, 2005 for Bulgaria, 2010 for Colombia, and 2011 for Costa Rica. Instead of 2021, data refer to 2022 for Australia, Canada, Costa Rica, Korea, Mexico, New Zealand, the United States; and 2023 for Colombia, Chile and Israel.
Source: OECD Social Expenditure Database.
As a percentage of GDP (left axis) and as a share of public social expenditure (right axis), 1995-2023
Note: EU average refers to the unweighted average.
Source: OECD Social Expenditure Database (https://www.oecd.org/en/data/datasets/social-expenditure-database-socx.html), OECD Revenue Statistics (for social security contributions).
Note: OECD and EU average refers to the unweighted average.
Source: OECD Social Expenditure Database (https://www.oecd.org/en/data/datasets/social-expenditure-database-socx.html), OECD Revenue Statistics (for social security contributions).
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← 1. 32 OECD countries with available data. These projections are consistent with the 2024 Ageing report (European Commission, 2024[3]).
← 2. Private social expenditure includes mandatory and voluntary payments from private actors, e.g. employer-provided sick-pay stipulated by legislation, or benefits accrued from mandatory contributions to private insurance funds (including mandatory private health or pension insurance). While SOCX presents data on private social spending, it is deemed of lesser quality than public social spending that is recorded in budget data, see Box 1.1.
← 3. According to the Eurostat EU‑27 GDP-weighted average (see Box 1.1) the share of total social protection spending is significantly higher at 27.3% of GDP. Consequently, the sub-items old age benefits (11% of GDP) and health and disability (10% of GDP) are also higher.
← 4. Administered by public bodies, see Box 1.1.
← 5. Old-age benefits exclude survivors’ benefits because the financing of old-age benefits is discussed separately in Section 1.6.
← 6. According to the Eurostat EU‑27 GDP-weighted average (see Box 1.1), these shares are a bit higher: family benefit spending amounts to 2.4% of GDP, and spending on unemployment benefit to 1.1% of GDP.
← 7. According to the Eurostat EU‑27 GDP-weighted average (see Box 1.1), the levels are significantly higher: 30% in 2020. The increase due to the COVID‑19 pandemic was also stronger: total social spending increased by 3.4 p.p. of GDP from 2019 to 2020.
← 8. Over 80% of the increase in public social expenditure was due to a spending increase rather than GDP contraction, (OECD, 2023[25]).
← 9. Only public social spending is shown here, as the OECD revenue statistics only include revenue of the government institutional sector, not private contributions, see Box 1.1.
← 10. Note that Korea and Japan also finance about half of their social protection systems by social contributions, at a similar spending size as the EU average.
← 11. Since this section looks at total social protection financing, it includes social security contributions (levied by the state) as well as social contributions to private schemes (mandatory and voluntary), see Box 1.1.
← 12. Note that, in contrast to Figure 1.3, ESSPROS data contains private social spending, that includes occupational pension schemes and publicly supported voluntary unemployment insurance, see Box 1.1.
← 13. The trend was less pronounced according to the GDP-weighted EU average reported by Eurostat (see Box 1.1): employer contributions as a share of total social protection financing decreased by 1.4 p.p. over the same period, while employee contributions remained stable.