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IPSWICH – Follow-up committee: Incidence, composition and drivers of in-work poverty

Jeroen Horemans Herman Deleeck - Centre for Social Policy 19/06/2017

Overview of the presentation

• The context
• A story of a steady river and shifting undercurrents
• Can the specific profile of non-standard workers explain

their increased poverty risk?

• Single parents as a particular risk-group
• Mapping the rough and isolated landscape of the living

Standards and Poverty among the Self-employed

• Clarifying the policy conundrum

The context

3

Employment and poverty: a macro perspective (1)

4

RO LV LT ES BG EE EL IT PT HR PL UK DE MT CY IE LU BE HU SE SL AT CH FR FI SK DK NL NO CZ IS EU-28 5 10 15 20 25 30 45 50 55 60 65 70 75 80 85 90 At-risk-of-poverty rate total population Employment rate population age 20-64

Figure 1 Employment rate and at-risk-of poverty rate Europe, 2015

Source: Eurostat: EU-LFS (lfsi_emp) and EU-SILC database (ilc_li) Note: for CH, HR, and IE the at-risk of poverty rate refers to the year 2014.

Employment and poverty: a macro perspective (2)

5

Figure 2 Evolution employment rate and AROP rate, Europe, 2005-2015

Source: Eurostat: EU-LFS (lfsi_emp) and EU-SILC database (ilc_li)

Note: ‘2005-2015’: CH: 2010-2014, BG:2006-2015, HR: 2010-2014, RO: 2007-2015, IE: 2005-2014, and for ‘2010-2015’: CH: 2010-2014, HR: 2010-2014, IE: 2010-2014

EL CY IE ES PT HR SL DK IT FI FR BE NO IS CH NL RO UK LU BG LT SE SK LV AT CZ EE HU DE PL MT

• 6
• 4
• 2

2 4 6

• 12
• 10
• 8
• 6
• 4
• 2

2 4 6 8 10 12 Change at-risk-of-poverty rate total population, 2005-2015 Change employment rate population age 20-64, 2005-2015

Employment and poverty: a macro perspective (3)

6 2 4 6 8 10 12 14 16 18 20 EU-28 EU-15 FI CZ BE DK MT IE NL HR NO SK CH SL IS SE FR BG AT UK CY HU LV DE LT EE PT PL IT LU ES EL RO

Figure 3 Evolution employment rate and AROP rate, Europe, 2005-2015

Source: Eurostat EU-SILC database (ilc_iw)

Note: 2014 for EU-15, IE, HR, and CH

Employment and poverty: a macro perspective (4)

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Figure 4 In-work poverty employed persons aged 18-64, 2004-2015

Source: Eurostat EU-SILC database (ilc_iw)

2 3 4 5 6 7 8 9 10 11 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 BE NL DE EU-15

In-work poverty in Belgium the past decade

A story of a steady river and shifting undercurrents

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2005 2014 Poverty Share among workers Poverty Share among workers Total 4.3 5.0 INDIVIDUAL LEVEL CHARACTERISTICS Sex men 4.6 56.0 4.7 53.3 women 3.2 44.0 5.3 46.7 Education low 7.2 15.9 9.3 13.7 middle 3.8 35.8 6.2 34.1 high 3.7 48.4 3.1 52.2 Age 18_29 4.9 20.0 5.5 17.1 30_49 4.4 59.9 5.5 54.4 50_64 3.4 20.1 3.6 28.5 Born in Belgium 3.0 89.3 3.3 86.1 EU 4.8 5.8 8.9 6.8 Not EU 20.5 4.9 18.2 7.1 Region Flanders 3.5 61.5 3.7 61.7 Brussels 10.2 8.3 11.4 9.4 Wallonia 4.2 30.2 5.5 28.9

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2005 2014 Poverty Share among workers Poverty Share among workers HOUSEHOLD LEVEL CHARACTERISTICS Children 2.6 46.0 3.3 46.7 1 4.6 22.3 4.6 21.2 2 5.2 20.0 6.1 22.3 >2 8.9 11.7 11.0 9.9 Family type Single adult 7.2 19.3 9.4 18.3 Couple 3.4 61.0 3.7 60.7 Other 4.1 19.8 4.8 21.0 Household ]0;0,5[ 14.9 16.4 21.3 7.2 Work intensity [0,5;0,8[ 3.3 19.2 9.4 20.3 [0,8;1[ 1.6 18.0 2.4 23.4 1 2.0 46.4 2.0 49.1

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The basic story… For some groups the poverty risk increased, but their share decreased

2005 2014 Poverty Share among workers Poverty Share among workers JOB CHARACTERISTICS Full year No 10.7 3.8 13.5 6.3 Yes 3.7 96.3 4.2 93.7 Low market income No 1.5 82.5 1.5 82.2 Yes 13.4 17.5 15.1 17.8 Temporary No 2.4 91.2 2.5 91.5 Yes 5.9 8.8 14.9 8.5 Part-time No 3.3 79.9 3.9 75.2 Yes 4.8 20.1 6.1 24.8 Self-employed No 2.7 88.1 3.7 89.4 Yes 12.8 11.9 14.5 8.5

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Non-standard workers

Can the specific profile of non-standard workers explain their increased poverty risk?

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Non-standard workers

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0.000 0.020 0.040 0.060 0.080 0.100 0.120 0.140 Part-time temporary self-employed

Difference in poverty rate

Difference in poverty rate

Non-standard workers

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0.000 0.020 0.040 0.060 0.080 0.100 0.120 0.140 Part-time temporary self-employed wage Difference in poverty rate

Non-standard workers

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• 0.040
• 0.020

0.000 0.020 0.040 0.060 0.080 0.100 0.120 0.140 Part-time temporary self-employed individual controls famtype (ref.: single) wihhO child_D (ref.: no) wage

• ccup (ref.: ISCO 1 + 2)

benefitself (ref.: no) Difference in poverty rate

Non-standard workers

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• 0.040
• 0.020

0.000 0.020 0.040 0.060 0.080 0.100 0.120 0.140 Part-time temporary self-employed individual controls famtype (ref.: single) wihhO child_D (ref.: no) wage

• ccup (ref.: ISCO 1 + 2)

benefitself (ref.: no) Total explained Difference in poverty rate

Earnings differences explain a substantial share of the difference in the AROP rate between standard and non- standard workers. However ... Low earnings are not the key explenation for in-work poverty in general !

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Non-standard workers

Non-standard workers

Belgium in comparison to the “Dutch miracle”

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Belgium compared to the Netherlands

• NL: higer employment rate, also for the low skilled
• NL: more non-standard and low paid jobs
• NL: less poverty in general
• NL: In-work poverty slightly higher
• NL: lower relative poverty risk for non-standard and low

paid workers

Temporary workers

2 4 6 8 10 12 14 1 2 3 4 5 6 7 8 9 10 eq_disp HH income active age (18-64). relative to poverty line NL total workers BE total workers NL temporary workers BE temporary workers Source: EU-SILC 2014. own calculations

Part-time workers

2 4 6 8 10 12 14 16 1 2 3 4 5 6 7 8 9 10

eq_disp HH income active age (18-64). relative to poverty line

NL total workers BE total workers NL strictly PT employee BE strictly PT employee Source: EU-SILC 2014. own calculations

Low paid (part-time and full-time) workers

2 4 6 8 10 12 14 1 2 3 4 5 6 7 8 9 10 eq_disp HH income active age (18-64). relative to poverty line BE total workers BE FYPT low paid BE FYFT low paid BE all FY workers NL total workers NL FYPT low paid NL FYFT low paid NL all FY workers Source: EU-SILC 2014. own calculations

Composition active age population (18-64). by household work-intensity

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% BE NL HH_WI = 1 HH_WI = ]0.8, 1[ HH_WI = ]0.5, 0.8] HH_WI = ]0,0.5] HH_WI = 0

Source: EU-SILC 2014. own calculations

Composition active age population (18-64). by personal income source(s)

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% BE NL

• nly earnings

both benefits and earnings

• nly benefit income

no income

Source: EU-SILC 2014. own calculations;

Note: earnings = income as an employee or income from self-employment

Mapping Living Standards and Poverty among the Self-employed

An Exploration of a Rough and Isolated Landscape

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Self-employment and poverty

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• 60
• 40
• 20

20 40 60 80 CZ HU CY MT AT FI HR BG BE NL SE UK IS NO FR DK IT LT DE LU SK LV SL EU-28 EL ES PL PT EE RO difference employees and self-employed self-employed

At-risk of poverty rate ‘self-employed’ and the difference with the poverty risk of employees, 2015

Source: Eurostat: EU-SILC_[ilc_li04] Note : self-employed include self-employed with or without employees and family workers.

Self-employment and poverty

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2 issues 1) Different results when looking at AROP (income poverty) and MD (material deprivation) 2) Limited overlap between AROP (income poverty) and MD (material deprivation) among self-employed in particular

Self-employment and poverty

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~ Australia (Bradbury, 1997), the UK (Hick, 2015), and Sweden (Sevä & Larsson, 2015).

The story …

• Self-employed: increased income poverty risk, but not lower living standard
• The situation is most problematic for self-employed without employees

• Two individuals with the same income can have very

different living standards if their income does not measure adequately all the resources available to them (Fusco et al., 2011: 139).

• Unobserved (and unobservable) for self-employed:
• tax-benefit regulations allowing wealth accumulation through their

businesses

• Life-time wealth accumulation
• income volatility, and/or other problems with income data from

self-employment

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Self-employment and poverty

Figure xx Correlation at-risk of poverty rate and material deprivation among employees (only income as employee), individuals aged 18-64, 2014 (r=0,367)

Source: EU-SILC 2014, own calculations FI CZ BE IE IS DK NL SK SI NO MT HR RO SE UK AT FR HU DE LV PL PT CY LT EL IT EE BG ES LU 5 10 15 20 25 30 35 40 2 4 6 8 10 12 MD rate employees at-risk of poverty rate employees

Self-employment and poverty

Figure xx Correlation at-risk of poverty rate and material deprivation among self-employed (only income from self-employment), individuals aged 18-64, 2014 (r=0,060)

Source: EU-SILC 2014, own calculations Note: Romania is not included as an extreme case that influenced overall correlation level. Including it gives a correlation of r=0,480. FI CZ BE IE IS DK NL SK SI NO MT HR SE UK AT FR HU DE LV PL PT CY LT EL IT EE BG ES LU 10 20 30 40 50 60 70 10 20 30 40 50 MD rate self-employed at-risk of poverty rate self-employed

Self-employment and poverty

Self-employment and poverty

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Share of MD among workers who are AROP, individuals aged 18-64, Belgium 2014: * Employees: 40.7 % of the AROP are also MD * Self-employed: 9.4 % of the AROP are also MD Income poverty is a worse predictor of (material) living standard among self-employed.

Single working parents

A policy dilemma ?

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Single parents: key findings

Single parents face poverty risks that are more than ten percentage point higher than for partnered parents in most countries. Work-intensity is key, but more difficult for Single parents Yet, even FYFT working single parents face a substantial poverty rates. e.g. Belgium:

• Total IWP: lower than 5 %
• FYFT single parents: 10.4 %
• not FYFT single parents: 29.8 %

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Single parents: key findings

Targeted income supplements strongly support the living standards of single parents. Welfare state arrangements have a potentially negative effect on the initial position of single parents in the pre- distribution, moderating their net impact on poverty. . Simply looking at how transfers affect the income situation

• f single parents misses the point that the pre-transfer

position is also determined by these transfers and the work- (dis) incentives they may bring.

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Clarifying the policy conundrum

The puzzle of disappointing poverty trends despite employment growth? (Bea Cantillon)

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Clarifying the policy conundrum

Cantillon, B., Marchal, S., & Luigjes, C. (2016). Decent Incomes for the Poor: Which Role for Europe? Journal of Common Market Studies, 55(2), 240-256. Cantillon, B., Collado, D., & Van Mechelen, N. (2017 forthcoming). The Glass ceiling of poverty reduction. In: Cantillon, B. Hills, J., & Goedemé, T. (eds.). Improving Poverty Reduction in Europe. Oxford: Oxford University Press. Collado, D.,, Cantillon, B., Van den Bosh, K., Goedemé, T., & Vandelannoote, D. (2017 forthcoming).The end of cheap talk about poverty reduction: The cost of closing the poverty gap while maintaining work incentives. In: Cantillon, B. Hills, J., & Goedemé, T. (eds.). Improving Poverty Reduction in Europe. Oxford: Oxford University Press. Cantillon, B., Collado, D., & Van Mechelen, N. (2017 forthcoming). The structural nature of inadequate social floors for single parent families. In: Nieuwenhuis, R. & Maldonado, L. C. (Eds.). The Triple Bind of Single-Parent Families, Bristol: Policy Press

Clarifying the policy conundrum

An overall approach to fighting poverty basically means fighting unemployment traps and raising minimum income packages for working and non-working families.

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Clarifying the policy conundrum

Eradicating poverty does not come cheap ! Difficult trade-offs between the cost of social spending, guaranteeing decent incomes for the poor and work incentives both for those out of work and those in work The cost of closing the poverty gap without worsening current incentives at the bottom of the income distribution would be around twice the cost of just lifting all incomes to the level of the poverty threshold

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Clarifying the policy conundrum

In concreto, what can we do?

• At the least: adjusting social benefits and tax thresholds

to changes in prices and average wages; on top of that, increasing the minimum social floor

• However, little room exist for doing so without

compromising too much on work incentives

• Minimum wages relate as a ‘glass ceiling’ to the social

minimum floor and the fight against unemployment traps => adequate wage policies and collective bargaining;

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• Raising net income packages for low-wage earning HH
• (targeted) tax and/or social contribution credits
• specific wage subsidies for (household) service sector

jobs

• increasing significantly (targeted) child benefits and/or
• ther cost compensations;
• Financed by:
• Tax shifts towards consumption and wealth,
• A return to more progressive income taxes
• A 'spending shift‘ to increase the pro-poorness of social

spending;

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Clarifying the policy conundrum

• Structural inadequacy of the minimum floor for families

with children => Financial provisions to compensate for unpaid caring activities

• In addition to the necessary structural policies to combat

poverty, small-scale and local socially innovative practices are important complementary instruments, not at least to reinforce non-financial incentives to work rather than merely focusing on financial incentives.

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Clarifying the policy conundrum

Clarifying the policy conundrum

The role that the EU in realising a decent income for all in Europe: decisive advancement of the current European social governance.

• Common goals and targets should become more

concrete

• We need to move from output to input governance

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IPSWICH – Follow-up committee: Incidence, composition and drivers of in-work poverty

Jeroen Horemans Herman Deleeck - Centre for Social Policy 19/06/2017