Presentation by Ive Marx (*/**) and Sarah Marchal (*) [(*) Centre for Social Policy, University of Antwerp (**) IZA, Bonn] on the occasion of the EESC hearing on European minimum income and poverty indicators (Brussels, 28 May 2013)

1. Minimum income provisions in the
EU: importance, adequacy and
prospects for improvement
European Employment and Social Committee
"European minimum income and poverty indicators“ public hearing
Brussels, 28 May 2013
Ive Marx (*/**) and Sarah Marchal (*)
(*) Centre for Social Policy, University of Antwerp
(**)IZA, Bonn

2. Why minimum income protection
matters

3. 3
One slide summary to social policy thinking
during the 1990s-2000s…
• Late 90s: “Third Way”, “Active Welfare state” and associated
doctrines came to the fore
• EU: European Employment Strategy (EES), Lisbon Agenda, Kok
Report ‘Jobs, jobs, jobs’, OMC Social Inclusion,
• M. Barrosso: ‘A job is the best protection against poverty’
• EU: clear employment targets, no social inclusion targets, only
monitoring of outcomes (including income inequality)
• Core idea: more people in work is key to social inclusion and
poverty reduction

4. 4
Strong pre-crisis employment gains,
but poverty did not decline…
Source: Marx and Nelson (2012)

5. 5
Europe 2020
• Employment target of 75%
• But also new “poverty” target: 20 million fewer people socially
excluded on one of three indicators (poverty, hh work intensity,
deprivation)
• Subsidiarity remains the guiding principle and the OMC remains
principal EU governance instrument
• But minimum income protection has regained prominence in
Commission documents (reference to ’92 Recommendation) +
European Parliament Resolution ‘10
• Integrated Guidelines call for ‘modern and adequate social
protection’

6. 6
The Europe 2020 uphill struggle…

7. 7
Why are jobs not enough?
• The poor do not tend to be the first beneficiaries from job growth
• Having/getting a job does not always mean a life free from the risk
of financial poverty: in-work poverty
• (Many other factors: socio-demographic shifts, wage trends,
poverty line dynamics,…)

8. 8
Minimum income protection (MIP) matters
• Thus provisions to guarantee a minimum income floor matter to
workers and non-workers alike, as well as to children growing up
in those households
• Adequate MIP is not a matter of ‘getting right’ one type of provision
(say social assistance)
• It is a matter of getting right the whole welfare state architecture
and committing enough resources

9. 9
Why we need good indicators
on (minimum) income protection
• OMC: mostly reporting on outcomes, plus spending indicators
• But these depend on contextual and compositional factors
- Labour market conditions (unemployment, employment patterns, wages)
- Household composition (patterns of marriage, divorce, childbirth, …)
- Policies that influence these dynamics (e.g. ALMPs, child care,..)
• Institutional indicators which are directly reflective of policy intent,
are essential for the OMC to function effectively as a tool for policy
learning

10. 10
Existing data sources on MIP
• Several data bases available compiling cross-country comparable
indicators of MIP, building on standard family type simulations,
including:
- Indicators of Minimum Income Security Schemes (EuMin)
- The Social Policy Indicators Database (SPIN)
- OECD database
- CSB-Minimum Income Protection Indicators dataset (CSB-
MIPI)

11. 11
Methods issues and limitations
• Limited number of family types and situations
• Non-standard (part-time, temporary) workers
• Measurement of additional (discretionary) allowances/benefits
• Enforcement of minimum wages; take-up of benefits (stigma) and
time lags (administrative efficiency)
• Impact of sanctions
• Regional variation
• Treatment of housing costs
• …

12. 12
Data base used here
• CSB Minimum Income Protection Indicators (MIPI) database
- Minimum wages (including net incomes at minimum wage)
- Social safety net provisions for able bodied working aged
- Old age minimum income provisions
- Conditionality/sanctioning/support
• Standard family type simulations
• National experts in 25 EU Member States + 3 US States
• Period (1992)-2001-2009-2012

13. Minimum income protection for
those out of work at active age

14. 14
Net minimum income package comprises
• Gross social assistance benefit
- Minus income and local taxes
• Plus:
- child benefits
- non-discr.housing allowances
- non-discr. social assistance top-ups

15. 15
Minimum income provisions fall well short of poverty
thresholds almost everywhere in the EU (2012)
Poverty
threshold
Source: CSB-MIPI database

16. 16
While dependence on final safety nets has increased…

17. 17
Some governments took additional steps during the crisis
(2008-2012)
Source: CSB MIPI

18. 18
Is more adequate minimum income protection
possible?
• Two principal perceived impediments (among others):
- “Adequate minimum income protection is too
expensive”
- “Adequate minimum income protection is
incompatible with sufficient work incentives”

19. 19
• Indicative first-round calculations have been made of the
redistributive effort required to lift all household incomes to the
60% level threshold, i.e. to eradicate relative poverty completely
• While such calculations should be treated with much caution, they
suggest that in most European countries, this expenditure would
amounts to less than 5 per cent of aggregate equivalent household
income in each Member state; nowhere is it higher than 9 per cent
• Required effort in GDP terms smaller
• But strongest efforts required in the poorest countries in GDP per
capita terms…
Is adequate minimum income protection too
expensive?

20. 20
Is adequate minimum income protection compatible
with a well-functioning labour market?
• Some countries (e.g. Denmark and the Netherlands) combine
comparatively high levels of MIP with relatively well functioning
labour markets and low chronic benefit dependency => much
scope for peer learning (OMC)
• Minimum income protection provisions in these countries come
attached with intensive monitoring (and sanctioning), empowering
policies (training) and active labour market policies
• This comes at signifcant additional cost and need for
administrative capacity

21. Minimum income protection for
workers

22. 22
In-work poverty
• The poverty risk facing European workers is relatively low in most
countries (EU27 9% in 2010; ranging from lows of 4% to 18+%)
• But among those living in poverty at working age a sizable share
are already in work
• In some countries upwards of 30 per cent of poor people at
working age live in high work intensity households
• Most poor children in the EU grow up in households that depend
mainly on earned income
• => this points to the importance of supporting families mainly
relying on earned income

23. 23
MIP for workers
• Minimum wages and collective wage setting are essential pillars
but are not enough
• For households with dependent children and others
supplementary transfers are essential
• These can come in the form of child benefits or in-work benefits
• EITC/WTC type tax-channeled low earnings supplements are
interesting and worth further exploration but do not offer a model
for wholesale emulation throughout Europe

24. 24
Main points
• While giving more people access to work is important for a wide
range of reasons, increasing the proportion of people in work does
not automatically translate into fewer people in relative poverty;
• This points to the importance of adequate MIP for workers and
non-workers alike (and their children)
• Very few EU countries have social safety nets that provide
adequate protection against poverty (60% median); MIP levels for
full-time workers tend to be more adequate but only for workers
without dependent children

25. 25
Main points
• Relatively high levels of minimum income protection are not
necessarily prohibitively expensive and potentially compatible with
well-functioning labour markets and low structural dependency; yet
there may be important contextual constraints to implementation
• While there is ample scope for the implementation and expansion
of MIP provisions in many EU countries, there appear to be limits
to incremental expansion of traditional schemes to levels of
adequacy for some at-risk-of-poverty population segments
• Innovative paths to more adequate minimum income protection
require further analysis

26. Additional graphs for reference

27. 27
The distribution of household work intensity in the working-age population (20-59)
living in relative income poverty (SILC 2010)
Source: Analysis of EU-SILC 2010 microdata

28. 28
Source: Marchal, Marx and Van Mechelen (2012), IZA DP6510

29. 29
Gross monthly Social Assistance benefit in 2012,
PPS, euro and relative to average wages
Source: CSB-MIPI database. Note: Gross average wages for a 35 year old male worker. No gross male average wage available for the US states. For IT, DK, DE
and FI, data refer to the minimum wage applicable within a low wage sector. In AT, non-statutory national minimum wage.

30. 30
Net incomes at MW
• Gross Minimum Wage minus
- employee social security contributions
- income and local taxes
• Plus:
- child benefits
- non-discr.housing allowances
- social assistance top-ups

31. 31
Gross annual minimum wage level in 2012,
PPS, euro and relative to average wages
Source: CSB-MIPI database. Note: Gross average wages for a 35 year old male worker. Gross minimum wages for a 35 year old worker. For some countries
(BG, EL) this differs with commonly presented minimum wage levels, due to experience premiums. No gross male average wage available for the US states. For
IT, DK, DE and FI, data refer to the minimum wage applicable within a low wage sector. In AT, non-statutory national minimum wage.

32. 32
Poverty
threshold
Net incomes of minimum wages workers relative
to the poverty line, 2012: single persons
Source, CSB-MIPI database

33. 33
Poverty
threshold
Net incomes of minimum wages workers relative
to the poverty line, 2012: lone parent, 2 children
Source, CSB-MIPI database

34. 34
Poverty
threshold
Net incomes of minimum wages workers relative to
the poverty line: single earner couple, 2 children,
2012
Source, CSB-MIPI database

35. 35
Poverty
threshold
Net incomes of single social assistance
beneficiary relative to the poverty line, 2012
Source, CSB-MIPI database

36. 36
Poverty
threshold
Net incomes of a couple with two children relying
on social assistance relative to the poverty line,
2012
Source, CSB-MIPI database

37. 37
Poverty
threshold
Net incomes of lone parent with 2 children relying
on social assistance relative to the poverty line,
2012
Source, CSB-MIPI database

38. References

39. 39
Presentation draws mainly on
I. Marx and K. Nelson eds. (2013),
Minimum Income Protection in Flux,
Palgrave MacMillan
• Social assistance: Van Mechelen
and Marchal ‘Struggle for Life’
• MIP for workers: Marx, Marchal and
Nolan ‘Net incomes for workers’
• Child benefits: Van Mechelen and
Bradshaw
• Vandenbroucke, Cantillon et al.
‘Policy prospects’

40. 40
Additional references
• Cantillon, B. (2011), ‘The Paradox of the Social Investment State: Growth, Employment and Poverty in the
Lisbon Era’, Journal of European Social Policy 21(5), 432-449..
• Corluy, V and Vandenbroucke, F. (2013), ‘Household joblessness’, In B. Cantillon and F. Vandenbroucke
(eds), For Better For Worse. For Richer For Poorer. Labour market participation, social redistribution and
income poverty in the EU. Oxford: Oxford University Press.
• Figari, F. (2011) Can in-work benefits improve social inclusion in the southern European countries? Journal of
European Social Policy 20: 301-315
• Immervoll, H. (2012), ‘Minimum-Income Benefits in OECD Countries: Policy Design, Effectiveness and
Challenges’. In D. Besharov, and K. Couch (eds.), Measuring Poverty, Income Inequality, and Social Exclusion.
Lessons from Europe. Oxford University Press.
• Kenworthy, L. (2011) Progress for the Poor (Oxford: Oxford University Press).
• Marchal,S. Marx, I. and N Van Mechelen Do Europe's Minimum Income Schemes Provide Adequate Shelter
against the Economic Crisis and How, If at All, Have Governments Responded?; IZA DP 6264
• Marchal, S. and Van Mechelen, N. (2013), Activation Regimes of European Minimum Income Schemes, GINI
DP
• Marx, I., P. Vandenbroucke, and G. Verbist (2012), ‘Will rising employment levels bring lower relative income
poverty? Regression based simulations of the Europe 2020 target’, Journal of European Social Policy 22.
• Marx, I. and Nolan B.(2012), In-work poverty, GINI DP51
• Marx, I., Vanhille, J., Verbist, G. (2012) ‘Combating in-work poverty in Continental Europe: an investigation
using the Belgian case’, in Journal of Social Policy
• Nelson, K. 2011 "Social Assistance and EU Poverty Thresholds 1990-2008. Are European Welfare Systems
Providing Just and Fair Protection Against Low Income?", European Sociological Review