Net Replacement Rates - EUROMOD estimates

The table shows the Net Replacement Rates (NRRs), which measure the percentage of disposable income that is maintained after an individual gets unemployed. Results are produced by the EUROMOD NRR Add-on, which simulates disposable income (and its components) in case of unemployment for all individuals of working age (18-64) currently in work (with positive earnings in the data). These estimates are average values calculated for the working individuals in the EUROMOD input data, and hence are different from similar indicators calculated based on hypothetical households.

We exclude from our calculations the top percentile of total NRR values if they exceed 150% and the lowest percentile of total METR values if they are negative. These exclusions are made in order for average NRR to be less sensitive to “outliers”. However, such values are in principle plausible, e.g. negative values if replacement income is zero and a lump sum tax is applicable anyway, and values above 150% indicating that a person is better off if not working.

NRRs provide a measure of labour market incentives at the extensive margin: the highest (lowest) the NRR, the lowest (highest) the incentives to take up work.

Total NRR (on disposable income) is also decomposed by income components: benefits (including pensions), direct taxes, and SIC paid by the individual.

Results are shown in percentage.

For more information on the economic and socio-demographic concepts used, see the EUROMOD Glossary and the list of breakdown variables.

References:

Jara, H.X. (2024), EUROMOD Net Replacement Rate (NRR) Αdd-on - technical note, European Commission, Seville, JRC136811 (link)