The end of decent social protection for the poor? The dynamics of low wages, minimum income packages and median household incomes

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1 The end of decent social protection for the poor? The dynamics of low wages, minimum income packages and median household incomes Bea Cantillon, Diego Collado and Natasha Van Mechelen Centre for Social Policy

2 Introduction Developed EU welfare states = AT, BE, DE, DK, FI, FR, NL, SE & UK Trends to keep in mind: Poverty standstill/increase despite growth (from middle 90 s to crisis) Inadequate income for jobless families, in particular with children (Van Mechelen & Marchal, 2012) Some and variable income poverty of one-earner low wage families (Marx & Nolan, 2014) Increase of dual earners might have pulled up poverty threshold and make it more difficult for one-earner families to reach (Marx, Vandenbroucke & Verbist, 2012) Big research question: Why poverty standstill? Our general research question: i) whether and ii) why countries failed to improve minimum income protection for families with children? 2

3 What we know about poverty reduction from comparative social policy analysis From pre-post transfers (regression) approach and micro-simulations: Scandinavians as best practices but with declining poverty reduction (e.g. Vandenbroucke & Diris, 2014) Overall decreasing poverty reduction for work-poor households (Cantillon et. al., 2014) Problem of pre(mk)-post (MK+WS): assumes that WS corrects after MK; however they are related. E.g.: WS --> employment, work distribution and related wages (endogeneity) Low (minimum) wages make politically and technically difficult to redistribute to jobless 3

4 Our approach Hierarchy of incomes in the fabric of the welfare state: Poverty based on 60% of the median (equivalised) household income Incomes of low (minimum) wage earner households > incomes of non-insured jobless households incomes of low wage earners = glass ceiling of poverty reduction We study links between the levels and dynamics of: 1) poverty lines (or median household incomes) 2) low wages a. The impact of cash benefits on gross wages ( gross-to-net-cash effort ) 3) incomes of jobless household Before the crisis for 2 types of families in 2 situations: couples and single parents with 2 children when they are living on one low wage and jobless 4

5 3.500 Our approach Poverty line Low gross wage Low net wage Incomes of jobless 5

6 Data Poverty lines mainly from EUROSTAT (and sometimes ECHP and SILC) (and 2012) Low wage one-earner households Levelsof 2012 from standard family simulations of CSB-MIPI (because not available earlier) Gross and net incomes of low (minimum) wage households Net income = gross low wage (tax + SIC) + benefits Trends from ECHP and SILC Net wage= gross low wage (tax + SIC), at source 10 th percentile FTFY employment of working age Net incomes of jobless households from standard family simulations of CSB-MIPI: couple and single parents with 2 children (and 2012) 6

7 Our starting point Inadequacyof minima (whether countriesfail) 7

8 Incomes in relation to poverty line, 2012 (levels) Adequacy social floor Net Denmark 96% Austria 87% Netherlands 86% Belgium 83% UK 80% Finland 79% Germany 77% Sweden 76% France 67% single parent + 2 children Source: simulated net incomes from CSB-MIPI 8

9 Incomes in relation to poverty line, 2012 single parent + 2 children Adequacy social floor Adequacy wage floor Net Gross Denmark 96% 90% Austria 87% 59% Netherlands 86% 85% Belgium 83% 89% UK 80% 67% Finland 79% 69% Germany 77% 74% Sweden 76% 99% France 67% 75% Source: simulated net incomes from CSB-MIPI 9

10 Incomes in relation to poverty line and effort single parent + 2 children Adequacy social floor Adequacy wage floor Net Gross Net Effort Denmark 96% 90% 101% 12% Austria 87% 59% 90% 51% Netherlands 86% 85% 103% 21% Belgium 83% 89% 100% 12% UK 80% 67% 115% 72% Finland 79% 69% 98% 42% Germany 77% 74% 94% 28% Sweden 76% 99% 119% 20% France 67% 75% 96% 28% Source: simulated net incomes and low (minimum) wages from CSB-MIPI 10

11 Incomes in relation to poverty line, effort and incentives, 2012 Adequacy social floor single parent + 2 children Adequacy wage floor Fin. incentive to work Net Gross Net Effort Denmark 96% 90% 101% 12% 5% Austria 87% 59% 90% 51% 4% Netherlands 86% 85% 103% 21% 19% Belgium 83% 89% 100% 12% 20% UK 80% 67% 115% 72% 43% Finland 79% 69% 98% 42% 24% Germany 77% 74% 94% 28% 23% Sweden 76% 99% 119% 20% 57% France 67% 75% 96% 28% 44% Source: simulated net incomes and low (minimum) wages from CSB-MIPI 11

12 Example of trends (jobless single parent) 1%/ 12

13 13 Evolutions of poverty lines and net incomes of jobless single parents

14 14 Evolutions of poverty lines and net incomes of jobless single parents

15 Why countries failed? To what extend this is attributable to changes in median incomes, low wages and social minima? Q1: increase of multiple earners households raised the standard of living? (Marx, Vandenbroucke, & Verbist, 2012) = poverty line effects Q2 Q2A: did low gross wages follow median incomes? Q2B: did low net wages follow median incomes? (ceiling) Q3: did net incomes of jobless follow low net wages? 15

16 5 Q1: increase of multiple earners households raised the standard of living? If YES, increase in household(equivalised) median incomes should be larger than increase in individual median incomes AT BE DE DK FI FR NL SE UK Median equivalised household income Median individual income 16

17 Q2A: did low gross wages follow median incomes? 17

18 18 Q2A: Real evolution of low gross wages and poverty lines

19 19 Q2A: Real evolution of low gross wages and poverty lines

20 20 Q2B: did low net wages follow median incomes?

21 21 Q2B: did low net wages follow median incomes?

22 Q3: did net incomes of jobless households follow low net wages? 22

23 23 Q3: did net incomes of jobless households follow low net wages?

24 24 Q3: did net incomes of jobless households follow low net wages?

25 25 Summary of trends

26 AT Q1: povertyline effect? Middle 2000's before the crisis Q2A: low gross wages follow median? Q2B: low net wages follow median? Q3: net incomesof joblessfollowlow net wages? BE DE DK FI FR NL SE UK 90's AT BE DE DK FI FR NL SE 26 UK

27 Conclusion Whether countries failed: Net incomes of low (minimum) wages earners are barely sufficient (glass ceiling), while for jobless are insufficient Net incomes of jobless are generally decreasing compared to the median Why? No (dual-earners) poverty line effect Generally gross low wages sunk Somewhat less with(available) net wages Generally net (available) incomes of jobless not sunk 27

28 Conclusion (2) Although increasing policy effort allowed net low wages to follow closer median incomes in some countries, it failed in breaking through the glass ceiling. Judgement of trends was in relativeterms, while it could be (probably) worst in absolute ones. Much more effort is needed 28

29 Policy conclusion Lifting the protection for poor jobless households up to the poverty line presupposes first closing the gap between gross low wages and median income by 1) Zero tax on low wages (perhaps not enough) 2) Costcompensations as a bypass of the glass ceiling (child benefits, health care, housing allowances, etc.) 3) Indexation of low wages and benefits 29

30 Limitations and possible next steps Limitations Family simulations do not talk about frequencies of families Missing net wages in SILC (PY010N) Lacking benefits in net gross-to-net-cash effort Comparing net low wages to net incomes of jobless (lacking benefits) Besides changes in low wage levels, 10 th percentiles can include changes in the number of low wage earners Difficulty in decomposing median (dual-earners poverty line effect) Starting and ending of many trends do not match Possible next steps Other local surveys and/or combining current version of EUROMOD with old one to get missing net wages and lacking benefits for earners SOEP for DE Possible future research: Studying how much of poverty changes in the total population where caused by our mechanisms (e.g. with longitudinal data decompose median with counterfactual: what if no increase in dual-earners) Calculating cost off eradicating poverty with proposed policies 30

31 Thank you Questions, comments and suggestions? 31

32 Q1: increase of multiple earners households raised the standard of living? If YES, increase in household(equivalised) median incomes should be larger than increase in individual median incomes Individual Household T1 T2 Koen 2000 Koen 2000 Jeroen 1000 Jeroen 500 Lieve 500 Median 1500 Median 500 Koen 2000 Koen 2000 Jeroen 1000 Jeroen 1250 Lieve 1500 Lieve 1250 Median 1500 Median 1250 Difference in medians

33 Incomes in relation to poverty line, effort and incentives (couple), 2012 couple + 2 children Adequacy social floor Adequacy wage floor Net Net Denmark 96% 62% Austria 82% 82% Netherlands 73% 76% UK 72% 90% Sweden 69% 79% Finland 68% 73% Germany 67% 81% Belgium 65% 82% France 59% 82% Source: simulated net incomes from CSB-MIPI 33

34 34