In-work poverty, work incentives and secondary earners in the EU H. Xavier Jara and Daria Popova ISER, University of Essex
Motivation Employment might not be sufficient to protect individuals from poverty. Important role of the welfare state in combating in-work poverty. Link between in-work poverty and work incentives: Viability of employment as a way out of poverty Extent of income protection in case of unemployment Multiple earnership is an important factor lifting families out of poverty.
Summary of what we do Examine the prevalence of in-work poverty across EU countries. Assess the trade-off between in-work poverty and work incentives. Quantify the effect of secondary earner s entry into unemployment on in-work poverty. Final results to be published in 2018.
Basic Concepts Incentives to work (at all): Net Replacement Rates (NRR) Fraction of disposable income kept when moving into unemployment. Incentives to work more: Marginal Effective Tax Rates (METR) Fraction of rise in earnings lost due to increase of taxes/sics or benefit withdrawal.
Methodology Microsimulation techniques using EUROMOD for EU28. 2014 policies (as on June 30 th ) with 2015 EU-SILC microdata and FRS 2012/2013 for the UK. For METR: simulate the effect of a 3% increase in earnings. For NRR: simulate the effect of transitions from work into unemployment.
0 5 10 15 20 In-work poverty (2014) BE FI IE CZ SK DK MT NL HR DE UK FR SE AT SI BG LU PT CY EE LV PL LT HU EL IT ES RO country
Is there a trade-off between in-work poverty and work incentives?
0 5 In-work poverty (%) 10 15 20 In-work poverty and METR (2014) RO ES BG CY EE MT EL LT PL LV PT HR CZ SK IT HU SI SE FR UK NL AT IE LU DE DK FI BE 20 30 40 50 60 Mean METR (%)
0 5 10 15 20 In-work poverty and NRR (2014) RO ES IT HU LT PL MT UK CZ IE EELV EL CY SI HR SK SE BG AT DE NL DK FI BE PT FR LU 60 70 80 90 Mean NRR (%)
Is there a trade-off between in-work poverty and work incentives? There is a trade-off between in-work poverty and work incentives Countries with high METR / NRR have lower rates of inwork poverty Correlation holds in multivariate regression METR and NRR coefficients are negative and significant
Do the working poor face lower incentives to work?
0 Mean METR (%) 10 20 30 40 50 60 70 Mean METR: working poor BG ES CY EE MT LT PL CZ EL HR LV SK PT RO HU SE IT SI FR NL UK IE AT DE LU FI DK BE country all working poor
0 Mean METR (%) 10 20 30 40 50 60 Decomposition of Mean METR: all BG ES CY EE MT LT PL CZ EL HR LV SK PT RO HU SE IT SI FR NL UK IE AT DE LU FI DK BE COUNTRY Taxes SIC Benefits
0 Mean METR (%) 10 20 30 40 50 60 Decomposition of Mean METR: working poor ES EL HR CZ IT MT BG PL PT IE EE LV NL LT HU BE DK CY RO SE SI SK DE FR FI UK AT LU COUNTRY Taxes SIC Benefits
Mean NRR (%) 40 50 60 70 80 90 100 Mean NRR: working poor LT PL HU MT UK IT CZ IE ES RO EL EE LV CY HR SI SK SE DE AT NL DK BG FI BE PT FR LU country all working poor
-40-20 0 20 40 60 80 Decomposition of Mean NRR: all 100 120 Mean NRR (%) LT HU UK CZ ES EE LV HR SK DE NL BG PL MT IT IE RO EL CY SI SE AT DK COUNTRY FI BE FR PT LU Original income Pension & disability benefits Unemployment Benefits Family Benefits Social Assistance Benefits Taxes and SICs Net Replacement Rate
-40-20 0 20 40 60 80 Decomposition of Mean NRR: working poor 100 120 Mean NRR (%) IT HR LV LT CZ BG UK EE PL HU MT RO DE NL SK SI COUNTRY IE CY PT ES SE LU EL DK FI FR AT BE Original income Pension & disability benefits Unemployment Benefits Family Benefits Social Assistance Benefits Taxes and SICs Net Replacement Rate
Do the working poor face lower incentives to work? No particular pattern for METR of the working poor: higher than average in 13 countries lower than average in 11 countries Benefit withdrawal contributes more to METR of the working poor. In most countries, the working poor face higher NRR. Earnings of other household members play a little role in NRR of the working poor.
Does secondary earnership attenuate in-work poverty?
0 10 20 30 40 50 Secondary earnership in the EU EL IT DK SE UK ES DE BE FR FI LU PT IE HU EE NL COUNTRY LT CY RO LV BG MT CZ AT PL HR SI SK 2nd earners other secondary earners
0 2 4 6 8 In-work poverty after negative shocks to employment of second earners BE EL IE FI DK UK DE SE FR NL AT LU CZ EE PT HR ES SI BG MT IT RO CY LV LT SK HU PL country 5% shock 10% shock 25% shock 50% shock 100% shock
Does secondary earnership attenuate in-work poverty? Second earners entry into unemployment would increase inwork poverty To different extents across countries. Depending on the size of the shock. Small shocks to second earners employment would have little effect on in-work poverty: Low earners more likely to become unemployed 25% shock: in-work poverty increase by 0.6 pp. 50% shock: in-work poverty increase by 1.4 pp. 100% shock: in-work poverty increase by 4.5 pp.
Summary of main results High variation of in-work poverty across EU countries. Evidence of a trade-off between in-work poverty and work incentives in the EU. Working poor face higher NRR on average. Second earners represent about 30% of all earners. Second earners entry into unemployment would increase inwork poverty: but substantially only under large shocks to employment.
Thank you! hxjara@essex.ac.uk dpopova@essex.ac.uk
Basic Concepts In-work poverty Percentage of people in work for at least 7months who live in households with equivalised disposable income below 60% of median disposable income (Eurostat definition). Secondary earners Individuals who are employed and earn less than their partners. Here: second earners are those with the second highest earnings in the household (not only partners of main earner).
0 5 In-work poverty (%) 10 15 20 25 In-work poverty after entry of all second earners to unemployment BE FI IE CZ SK DK MT NL HR DE UK FR SE AT SI BG LU PT CY EE LV PL LT HU EL IT ES RO country pre-transition post-transition