Different Methods, Different Standards? A Comparison of Two Finnish Reference Budgets

Published date01 December 2021
Date01 December 2021
Subject MatterArticles
Different Methods, Different
Standards? A Comparison of
Two Finnish Reference Budgets
Lauri Mäkinen
University of Turku, Turku, Finland
According to Principle 14 of the European Pillar of Social Rights, everyone should have the right to
adequate minimum income benef‌its that ensure a life in dignity. Reference budgets have been pro-
posed to monitor this principle. Reference budgets are priced baskets of goods and services that
represent a given living standard. At the moment, no common methodolog y for constructing
reference budgets exists; instead, different methods are used to construct them. This study sought
to compare the approaches and results of two Finnish reference budgets: one created by the
Centre for Consumer Society Research (CCSR), and the second by the ImPRovE project. The pur-
pose of the article is to respond to a gap in existing literature around how different methods for
constructing reference budgets impact their outcomes. The two reference budgets offer a strong
basis for comparison because they both sought to capture the same living standard in the same
context for similar household types (single woman, single man, heterosexual couple, and hetero-
sexual couple with two children), while using different approaches. The results suggest that the
two reference budgets arrive at different estimates of what is needed for social participation.
Ultimately, we found that the most signif‌icant differences between the budgets were housing
and mobility costs for the couple with two children due to differences in information bases, selec-
tion criteria, evaluators, and pricing. The study makes a signif‌icant contribution to the literature
because it is one of the f‌irst to explore how different approaches to constructing reference bud-
gets affect their outcomes. The results suggest that clear criteria for constructing reference bud-
gets are needed to monitor Principle 14 of the European Pillar of Social Rights.
Adequacy, minimum income, reference budgets, social participation, social policy
Corresponding author:
Lauri Mäkinen, University of Turku, Assistentinkatu 7, Turku 20014, Finland.
Email: ljmaki@utu.f‌i
European Journal of Social Security
2021, Vol. 23(4) 360378
© The Author(s) 2021
Article reuse guidelines:
DOI: 10.1177/13882627211048514
1. Introduction
The European Union is currently under pressure to make a decisive contribution in safeguarding
social protection systems. This movement has given rise to the European Pillar of Social Rights
(EPSR), an initiative that strongly emphasises adequate income. According to the EPSRs four-
teenth principle, everyone should have the right to adequate minimum income benef‌its to ensure
a life in dignity. To date, different indicators have been used to monitor the degree to which this
principle is fulf‌illed. Scholars suggest that indicators of the adequacy of minimum income benef‌its
should be attentive not only to income, but also to societal circumstances, such as the relative
degree of service provision in a particular society (Penne et al., 2019). Currently, the principle is
monitored using only the at-risk-of-poverty (AROP) indicator, which sets the poverty threshold
at 60 per cent of the national median equivalent disposable income. However, there are widely
acknowledged problems with this indicator, such as its inability to capture the determinants of
the adequacy of a minimum income (e.g., Callan and Nolan, 1991; Ringen, 1987).
To address the problems with the AROP indicator, reference budgets have been proposed to
assess the adequacy of social security (e.g., Penne et al., 2019). Reference budgets(RBs) are
priced baskets of goods and services that can be used to represent a particular living standard
(Bradshaw, 1993). RBs are most frequently used to def‌ine the items that citizens need to participate
in a particular institutional, cultural, and social context (Goedemé et al., 2015a). Thus, RBs consider
the costs of public services and the impact of public provisions on householdslivelihoods. In add-
ition, RBs can be used to account for variation in housing costs across different geographical loca-
tions. While RBs are based on needs, RBs are relative indicators because, as noted above, they aim
to capture the requirements for social participation in a certain time and place.
Currently, RBs are constructed in almost all European Union Member States; however, no
common methodology exists (Storms et al., 2014). RB approaches differ not only by the
methods used to construct them, but often by their theoretical backgrounds, too (Deeming,
2017). In Finland, two RBs with different methods have been constructed. The f‌irst was formed
by the Centre for Consumer Society Research (CCSR) based on focus groups who consensually
drew the budget. The second was created by the ImPRovE
project and relies mainly on guidelines
and expert knowledge; however, focus groups were also used to validate the baskets. The CCSRs
budget has been used to assess the adequacy of the minimum social security amount in Finland
(The Second Expert Group for Evaluation of the Adequacy of Basic Social Security, 2015) and
to measure poverty (e.g., Mäkinen, 2017). Along these same lines, ImPRovEs Finnish budget
has also been used for poverty research from a comparative perspective (Goedemé et al., 2019a;
Penne et al., 2016).
Against this background, the current study sought to: (1) analyse whether these two Finnish RBs
produce similar estimates of acceptable living standards; (2) inspect whether differences in the RBs
research design or implementation produce any differences in the RBsestimates; (3) compare the
RBs to the AROP threshold; and (4) assess the adequacy of the Finnish minimum income benef‌it
against these RBs. This approach stems from the rationale that because different methods follow
different procedures, it is plausible these RBs may produce different standards (Deeming, 2017;
1. In the ImPRovE project (a project funded under the 7th Framework Programme of the European Commission), cross-
comparable reference budgets were constructed for seven cities: Antwerp, Athens, Barcelona, Budapest, Helsinki,
Luxemburg, and Milan (Goedemé et al., 2019a, 2019b).
Mäkinen 361

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