Family, social security and social insurance: General remarks and the present discussion in Germany as a case study

19

Overview 5: Effective contribution rate in case of an allowance

A = allowance (500)

UC = upper ceiling (5100)

c = contributi on rate (10 %)

W = (individua l) gross earnings

= effective (individua l) contributi on rate

_ c (W - A )

= W

for W ≤ UC

Disentangling employee’s and employer’s contributions - which would result from the above
mentioned two strategies (different contribution rates or allowances) - could stimulate (at
least in Germany) a more fundamental discussion about the assessment base for employer’s
contributions. This was discussed in Germany (as well as in some other European countries
like Austria and Belgium) in the past. It was proposed not to base employer’s contributions on
earnings only but on (gross or net) value added of the firm. Because of the different ratios of
labour costs to value added in different branches of the economy contribution payments
based only on earnings are burdening in particular labour-intensive production.¹⁵ Such a value
added levy of employers, however, would in fact be a tax that cannot be allocated to the
individual employee as in case of earnings-related employer’s contributions which are part of

15 For a detailed analysis see Schmahl et al. (1984) and Schmahl (1992).

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