The value of social services

Welfare states provide social benefits both in cash and in kind. In Europe, cash benefits include income transfers, such as retirement pensions, family benefits and unemployment allowances, while in-kind benefits are usually derived from the use of publicly provided services, such as healthcare, education, early childhood care and care for the elderly. These social services and policies have become key components of European welfare states, especially with the rising importance of the social investment paradigm in recent decades. High levels of spending on these services are often seen as an indicator of commitment to social investment. In most European welfare states services constitute an important part of public social spending, as shown in Figure 1. In 2019, almost 40% of social spending in European countries was allocated to in-kind spending, with considerable variation across countries, ranging from 25 percent in Greece to up to 50 percent in Norway. Despite this importance, the value of public services is often ignored in distributive analyses, although the arguments to include them carry substantial weight. As argued in OECD (2008) households pay taxes to finance these services, and while taxes are deducted from gross incomes to arrive at net incomes (the core variable in most distributive analyses), the corresponding provided public services are not accounted for. It is, however, clear that these services affect households’ consumption possibilities. Given the budgetary importance of these services, it can be expected that these services have a significant impact on households’ well-being, and thus it is important to estimate the value of these services (Aaberge et al., 2010, Marical et al., 2008; Aaberge et al., 2024; Verbist, 2017). Ignoring the value of publicly provided services results in an incomplete picture of the economic well-being of household, leading to inaccurate comparisons between countries and within countries over time. Given the country variation shown in Figure 1, an analysis using a cash income only approach is biased towards countries with more generous cash benefits. As a result a country that predominantly focuses on social support through social services or that reallocates social spending towards in-kind benefits might appear less redistributive than a country that focuses on in-cash support. Also from the sustainable well-being perspective, which is central in the SWINS-framework, it is necessary to be able to gauge the value of publicly provided social services. Services undoubtedly “are enablers of individual and collective capabilities, providing the foundational conditions for effective labour market participation, continuous skills development, innovation, and social cohesion” (Ciani & Fattacciu; 2025, p.8). In addition, “capability-oriented frameworks to evaluate social services provision and design (…) showing how services contribute to capabilities” (Ciani & Fattacciu; 2025, p.13). As one of the key goals of SWINS is “to find out which social services are worth the money and can improve people’s lives over time” (Ciani & Fattacciu; 2025, p.9), it is important to be able to estimate the value of these services. Over recent years, several attempts have been made to include the value of social services in the assessment of economic wellbeing, mainly focusing on healthcare, social housing, education and elderly care (Aaberge et al., 2010; Verbist et al., 2012; Marical et al., 2008). Most studies find that social services have an important redistributive role, reducing inequality and poverty, although their redistributive impact remains lower than that of cash transfers (Aaberge et al., 2010; Verbist et al., 2012; Marical et al., 2008; Cruces et al., 2025). These studies also highlight the different conceptual and methodological challenges that arise if one wants to incorporate the value of government services in household income (see e.g. Aaberge et al., 2010; Garfinkel et al., 2006; Marical et al., 2008). These challenges refer to: The valuation of publicly provided services; Their allocation among individuals and households; 3. the incorporation of corresponding needs of households. We discuss these different challenges in more detail in section 2. We then explain our approach and how it goes beyond the current standard cost of production practice. Specifically, we develop a more refined methodology to estimate the value of public services and compare its outcomes with those obtained using the standard approach. Next, we provide an empirical application of our approach, using ECEC (section 4) and healthcare services (section 5) as an example. Section 6 discusses the main findings and concludes.