Nova workboard

a blog from young economists at Nova SBE

Rendimento Social de Inserção: is it a subsidy for those who don’t want to work?

Portugal has a measure of social protection, known as RSI, which was created to help people “suffering from severe economic distress and at risk of social exclusion”.

Many people tend to believe that the RSI is given to people who do not want to work, but considering that we are currently facing a severe economic crisis it doesn’t make sense to think that people are getting the RIS by option. Furthermore, the amount of subsidy has been reduced in the last years and the beneficiaries are not only part of active population.

It is important to realize that a beneficiary receives a monthly payment that equals the difference between the RSI and their income. Without loss of generality, let’s take the example of an individual who lives alone: to get the subsidy, the sum of his monthly earnings should be less than €178.15. Let’s also assume that, in a situation without RSI, the individual optimizes his trade-off between consumption and leisure, working a number of hours equivalent to an income below €178. It is easy to see that with RSI, the individual will not work because he will receive a higher “income” than before, without obtaining the disutility of working. Additionally, some people who worked before, earning an income above this limit, may prefer to stop working since, in certain situations, the loss of consumption can be offset by gains in leisure. Thus, we may think that the RSI can create an undesired effect.

However, the RSI also implies a contract in order to help individuals “to be included socially and professionally”, which includes, e.g., the duty of seeking employment. However, I will focus on a new duty that is directly related to the implications described above. Since June 2012, the RSI beneficiaries between 16 and 60 years have to provide 15 weekly hours of activity in social institutions or municipalities.

In theoretical terms, this new rule has the power to reduce the undesired effect because some beneficiaries will prefer to work, since now the RSI requires a disutility of “volunteering”. Therefore, only beneficiaries with a very low productivity will remain receiving the subsidy.

In practice, the rule also seems to have the desired effects. In July 2013, the number of beneficiaries receiving RSI (270,000) decrease to a minimum since 2006 (after a peak in 2010). The “Segurança Social” estimates that about 23,000 people lost their right to receive the RSI because they didn’t meet the rules, especially the “15 hours requirement”, to declare other sources of income and to pay some documents. Thus, I think it was a correct measure that prevents people from receiving the subsidy by choice. Additionally, this means lower costs to the government and avoids the negative consequences of unemployment for these people (such as loss of capacity). Finally, for me, the huge decrease in the number of beneficiaries doesn’t match with the current situation; it may be explained by some other factors: more restrictive rules and the increase in the number of other types of “assistance”.

Filipe Silvério
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Author: studentnovasbe

Master student in Nova Sbe

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