Conclusion

This final chapter summarizes the main findings of the book and concludes with a discussion of the implications for realizing progress in terms of poverty reduction and guaranteeing a decent minimum income to all. It stresses the inadequacy of current minimum income schemes and highlights trade-offs with other policy objectives. It argues that employment increases by themselves are not enough and that policy choices can make a difference, as they have done in the past. Moreover, the cost-effectiveness of policy responses in reducing poverty varies widely between instruments and countries. However, in any case making progress does not come cheap. If policymakers want to deliver on their promise to substantially reduce poverty and social exclusion in Europe, they will have to improve the adequacy of minimum incomes while maintaining financial work incentives, implying the need to also increase low-wages, either directly through increasing minimum wages, or indirectly, by subsidizing employment or increasing in-work benefits.

Do Employment-Conditional Earnings Subsidies Work?

Cash transfers and tax credits to people in paid work but with low earnings are increasingly prominent in affluent countries. How effective are these programs at reducing poverty and increasing employment? The experiences of the United States and United Kingdom suggest that, in an economy with weak unions and limited labor market regulations, an employment-conditional earnings subsidy increases employment among persons at the low end of the labor market but reduces low-end wage levels somewhat. Overall, it appears to boost the absolute incomes of low-end households. Even so, cross-country comparison offers little support for a conclusion that the institutional configuration in these countries, including the employment-conditional earnings subsidy, is especially effective at generating high and rising employment, high and rising incomes among low-end households, or low and decreasing relative poverty rates. Quite a few other affluent nations have done as well as or better than the United Kingdom and the United States in recent decades.

The Impact of Social Transfers on Income Poverty and Material Deprivation

In 2010, the European Union (EU) committed to lifting at least 20 million people out of poverty and social exclusion, using income poverty, severe material deprivation, and (quasi-)joblessness as metrics to measure progress on this goal. As part of a broader set of commonly agreed indicators, the EU also (crudely) measures the impact of transfers by comparing income poverty rates before and after social transfers. This chapter develops a regression approach to study the effects of transfers on material deprivation by predicting the material deprivation rate before social transfers. We apply the method to pre-recession and post-austerity EU-SILC data for Germany, Greece, Poland, and the United Kingdom. We find that, in addition to reducing income poverty, transfers substantially reduce the extent and depth of material deprivation. Changes in social transfers, therefore, have a twofold effect on Europe’s poverty-reduction target.

Policy and Poverty in Seven European Union Countries in the Lisbon Decade

This chapter examines the extent to which tax and benefit policy changes introduced in the period 2001−2011 had poverty- or inequality-reducing effects. The analysis uses the tax−benefit model EUROMOD and covers seven diverse EU countries: Belgium, Bulgaria, Estonia, Greece, Hungary, Italy, and the United Kingdom. It separates effects of structural policy reforms and those resulting from methods used for indexation of monetary parameters of the systems. Adequate indexation was typically more important in alleviating poverty and inequality than changes to the structure of policies. In fact, most of the structural changes that governments introduced, especially in the 2007−2011 crisis-onset period, had poverty- and inequality-increasing effects. There was considerable variation among the countries in how different policy instruments were adjusted and in the effects of the adjustments by income, by age, and by household composition.

Employment and Poverty Dynamics Before, During, and After the Crisis

This chapter investigates how changes in employment and poverty relate to each other across the European Union’s Member States. Large employment volatility was accompanied by sizable changes in poverty rates between 2005 and 2012. Based on panel regression results, the poverty to employment elasticity was estimated to be around 25% on average. The role of changes in the poverty rates of individuals in jobless and non-jobless households and of changes in the share of those in jobless households differs greatly across countries. The success of poverty reduction depends to a large extent on three factors: the dynamics of overall employment growth, the fair distribution of employment growth across households with different levels of work intensity, and properly designed social welfare systems to smooth out income losses for families in need.

What Does It Mean to Live on the Poverty Threshold? Lessons From Reference Budgets

This chapter makes use of the first effort to construct cross-country comparable reference budgets in Europe to show what the large cross-national differences in living standards imply in practice for the adequacy of incomes at the level of the at-risk-of-poverty threshold. The budgets show that, in the poorest EU Member States, even adequate food and housing are barely affordable at the level of the threshold, whereas a decent living standard is much more in reach for those living on the threshold in the richer EU Member States. The reference budgets also suggest that the poverty risk of some groups (for instance, children) is underestimated relative to that of other age groups, while the poverty risk of homeowners is probably relatively overestimated.

Toward Adequate Minimum Incomes

Involvement in poverty reduction at the European Union level remains mainly limited to soft governance initiatives, such as the formulation of nonbinding outcome targets and the monitoring of Member States’ progress toward these targets in the Open Method of Coordination (OMC) Social Inclusion and more recently in the revised European Semester. This chapter asks how to give more bite to European social governance and how to further “socialize” the existing Europe 2020 strategy and the European Semester. It argues that binding input governance in the field of minimum income protection is the place to start. As a first step, the chapter proposes augmenting the so-called auxiliary output indicators with relevant input indicators.

Improving Poverty Reduction

This chapter discusses the potential of social innovations as effective policies and actions to reduce poverty. Social innovations are driven by an unconventional mix of actors and apply multidimensional approaches to respond to social needs that are not adequately met by macro-level welfare policies. The chapter first gives a brief overview of the history of social innovation as an academic concept and an important concept in current European policies to combat poverty. It then turns to the implications of adopting a social innovation perspective for our understanding of poverty. We stress the multidimensional and relational character of poverty, highlight the importance of place-based developments and their multilevel governances, and point out the crucial role of participation and empowerment. Finally, we present preliminary lessons for anti-poverty strategies based on our extensive case-study analysis, stressing the important link to broader strategies to foster social cohesion, the value of bottom-linked approaches, and the importance of collective empowerment.

Distributive Effects of the Crisis in the European Periphery

This chapter aims to provide an assessment of the distributional implications of the economic crisis in Greece, Spain, Italy, Portugal, Latvia, Lithuania, and Romania in the period 2009−2013. On the one hand, the recession has caused unemployment to rise and household incomes to fall, which are both changes that raise the demand for social protection. On the other hand, austerity policies and program reforms affect the capacity of welfare states to provide social protection. We use a microsimulation model to disentangle the first-order effects of tax–benefit policies from the overall effects of the crisis. Moreover, we estimate how the burden of the crisis has been shared across income groups and how the differential impact of the crisis may have altered the composition of the population in poverty. We conclude by discussing the methodological pitfalls and policy implications of our research.

The Design of In-work Benefits

This chapter focuses on the impact of the design of in-work benefits on work incentives and poverty reduction. Focusing on one country, Belgium, microsimulation techniques are used to study stylized design changes in a stepwise manner, examining in each step which characteristics of an in-work benefit “make it work.” As this study makes clear, both the size and design matter. Sufficient budget is needed to reach significant changes in outcomes, while the exact specifications of the way in which the benefit is designed are crucial. The results show some trade-offs between employment and poverty objectives, as well as between labor-supply outcomes at the extensive and the intensive margin. For the Belgian context, an individual-based system that uses hourly wages as a threshold seems to reconcile both work incentives and poverty outcomes in a satisfactory way.