Raising minimum income floors: old and new ways

Transcription

1 Raising minimum income floors: old and new ways CAUSES AND CONSEQUENCES OF INEQUALITY AND SOCIAL MOBILITY: WHAT CAN BE DONE? Faculty of Economics, Sapienza Ingrid Workshop November 2015 Ive Marx Centre for Social Policy, University of Antwerp IZA, Bonn

2 All talk? Minimum incomes fall well short of poverty thresholds (EU + 3 US states), 2012 Net disposable income relative to median equivalent household income Poverty threshold annual net disposable income in PPS single couple with two children single - PPS Source, CSB-MIPI database 1

3 And why is this? Hyp 1. Politicians are incurable cynics. Hyp 2. It s too expensive. Hyp 3. There are more fundamental constraints 2

4 The incomes hierarchy Average wages Minimum wages Minimum benefits in contributory schemes Social assistance 3

5 The crucial issue: Where is the poverty line? Average wages Poverty line Minimum wages Minimum benefits in contributory schemes Social assistance 4

6 The crucial issue: Where is the poverty line? Average wages Poverty line Minimum wages Minimum benefits in contributory schemes Social assistance 5

7 The crucial issue: Where is the poverty line? Average wages Poverty line Minimum wages Minimum benefits in contributory schemes Social assistance 6

8 Adequacy difficult to maintain when living standards outpace wage growth Euro Living standards/poverty lines =f (wages,number of earners, transfers, non-labour Y, household size, ) Median Yhh(eq) ( r>g? ) Average wages Relative poverty line Minimum wage MIP Potential adequacy Structural inadequacy Time 7

9 8

10 9

11 10

12 Facts

13 Minimum wages relative to poverty thresholds (ranked by level 2001) 12

14 Net incomes of minimum wages workers relative to the poverty line, 2012: single persons Adequate minimum wages still do the job Poverty threshold Source, CSB-MIPI database 13

15 MIP levels for single persons out of work are generally below the poverty line but could conveivably be made adequate while maintaining a reasonable work incentive 14

16 Net incomes of minimum wage workers relative to the poverty line, 2012: lone parent, 2 children Even highest MWs do not suffice on their own Poverty threshold Source, CSB-MIPI database 15

17 Minimum income protection for non-working lone parents are totally inadequate (with child poverty rates to match) 16

18 Net incomes of minimum wages workers relative to the poverty line: single earner couple, 2 children, 2012 Adequate sole breadwinner MWs: forget about it Poverty threshold Source, CSB-MIPI database 17

19 Bottom line Mininimum income protection in the EU sucks for the most part 18

20 Is there scope for improvement? Thus, to what degree wage floors can keep pace (or better) with overall living standards growth remains an key question because MWs are an important pillar of MIP for workers and an important constraint to adequate protection for the non-employed A MW set at the higher prevaling ranges provides adequate income to FT working single persons (and allows for adequate SA), but those with children need supplementary income support So the optimal way of providing (supplementary) direct income support remains the other key question, with the eternal issues of targeting vs universalism remaining at the forefront 19

21 The promise of new targeting? EITC/UC etc type schemes hailed as the way forward by some Encourage work and reward work But also disadvantages and unknows: - Substantial non-take up - Delayed payments - Administrative cost and complexity (especially in view of household composition and income volatility) - Wage erosion effects? Other employer behavior - Upward income mobility in phase out zone? - Affordability in countries with more compressed wage structures 20

22 Less targeted alternatives More universal benefits (e.g. child benefits/bi) provide - immediate, direct income support (no delays in payment, high take up), - are non-distortionary when it comes to work incentives (apart from possible income effects), - easy and cheap to administer, - and tend to enjoy robust political support once in place But such benefits do not come cheaply, especially at the levels that would be required to provide income adequacy for all Some degree of (categorical) targeting within universalism seems most realistic compromise 21

23 A simple old-fashioned recipe for adequate MIP Set minimum wages at a level in higher range of prevailing levels relative to median wages should do the trick for single persons putting in full work effort while allowing for adequate MIP for those not in work while maintaining work incentives Have universal child benefits a first layer of supplementary income protection for working and non-working households with kids Have (categorically) targeted supplements for specific segments, e.g. lone parents 22

24 Or a step further Average wages Minimum wage Poverty line Minimum benefits in contributory schemes Social assistance Universal income grant 23