Aino Salomäki and Teresa Munzi
The study reviews various approaches applied in computing net replacement rates for the unemployed. Until now, there have been relatively new comparative studies on net replacement rates. Most of them are based on simulation calculations for a set of stylised households. The stylised calculation method has given rise to discussion for a number of reasons such as different results in various studies, non-representative stylised households and sensitivity to various assumptions. In order to verify the results of stylised approaches, the Commission services have conducted this study on the basis of the European Community Household Panel (ECHP) data from 1993. For this purpose, an empirical equivalent for the net replacement rate is constructed by comparing the out-of-work income of the unemployed with the in-work income of the employed. The main body of the study analyses the results of the ECHP data. Moreover, the study discusses differences in approaches applied in various studies, their advantages and disadvantages as well as data issues.