| In-work Poverty in Europe: A Growing Problem
Peter Kelly
European Anti Poverty Network
Introduction
This short paper sets out the European Anti-Poverty Network’s developing analysis of the issue of in-work poverty. The paper is structured around the questions posed by Idesbald Nicaise, Denis Clerc and the General Directorate for Social Cohesion in their contributions to this Peer Review. We begin by considering the scale and importance of in work poverty, before looking at the key causes of in-work poverty, including the role of low pay, the structure of the labour market, the role of benefit and taxation policy and individual characteristics. We then look at the various policy responses to the problem of in-work poverty, including the RSA. Particular attention will be paid to the question of whether wage top-up policies such as RSA are a sufficient response to in-work poverty. We will conclude by considering the role in-work poverty in the broader policy context of active inclusion.
Defining and Measuring In-work Poverty in Europe
It is no longer possible to view the existence of in-work poverty as a peripheral problem in the fight against poverty. As other papers contributed to this Peer Review have noted, in-work poverty has been increasing across Europe for some time. However despite this increasing importance, there appears to be a paucity of data or research on the issue in many member States (Frazer & Marlier, 2010). This, it could be argued, is a direct consequence of the low priority that the issue has taken amongst policy makers.
With regards to the definition of in-work poverty, Crettaz and Bonoli (2010) highlight the variety of approaches that are taken internationally. The differences in definitions revolve around the how ‘work’ is defined, the reference period for any employment and the poverty threshold that is used. In the European context the latter issue is not controversial, with widespread acceptance of the 60% median household income threshold. With regard to the how work is defined there is a relative degree of unanimity in Europe on this issue, with Eurostat and member states (where the issue is tracked) referring to individuals who have been in employment or on the labour market for at least six months over the last year.
Using such definitions there are seen to be some clear patterns of in-work poverty. Overall, 8.6% of people at work were in poverty in Europe in 2008, although this ranged between 4% in the Czech Republic to 17% in Romania. Significantly, Fraser and Marlier (2010) note that “in general, countries with a high at-risk-of-poverty rate have high in-work poverty rates.” It is likely that many of the processes, structures and policies that lead to poverty for those out of work, are connected to those that cause poverty for those who are in employment. This is an issue we return to below.
Other clear dimensions to the patterns of in-work poverty include higher levels of in-work poverty for young people (10% for 18-24 year olds), higher rates amongst temporary (13%) and part-time workers (12%) compared to permanent and full time workers. Whilst the report by Fraser and Mailier notes that men are more likely to experience in-work poverty than women, it is very often the case that women are more likely to work in part-time and atypical work that is lower paid. In many countries there is a higher prevalence of low paid work, and therefore of in-work poverty, in rural settings.
The Causes of In-Work Poverty
There is broad agreement on the causes of in-work poverty across all EU member states, although the importance given to each of the causes will vary depending on the differing national conditions. Crettaz and Bonoli (2010) identify three main ‘mechanisms’ that lead to in-work poverty: low pay, low labour force attachment and large family size. Frazer & Marlier (2010) highlight the structure of the labour market, household composition and low work intensity, individual characteristics (lack of qualifications, etc) and institutional factors such as minimum wages and social protection.
All of these factors have contributed to the increase in in-work poverty that has taken place in Europe over the last 10 years. The relative weight of each of the factors will depend to a significant extent on the particular national conditions, but all will be relevant in all cases. Below we focus on a selection of some of the most important causes of in-work poverty.
Whilst most studies of in-work poverty are at pains to point out that not all low paid workers are poor, it cannot be denied that low wages are a key cause of in-work poverty. Whilst many low paid workers are not poor, most poor workers will be low paid. In terms of policy responses to in-work poverty, this then should be the starting point. This should also be the starting point for our understanding of the causes of in-work poverty.
The host and the discussion papers highlight the clear links between in-work poverty, low pay and poor quality employment. When referring to poor quality jobs what we are in fact talking about is part-time and temporary employment. Of course, part-time and temporary jobs do not necessarily need to be low quality, but the reality is that many are. Low paid jobs are often low quality for the following reasons: part-time jobs are less likely to be covered by trade union agreements; jobs may be physically demanding; hours may be excessively long; workers may not have access to pensions; basic employment rights are not granted (Pollert and Chartwood, 2009).
A frequent complaint of many people seeking to make the transition into the labour market is that they are ‘no better off’. This is as a result of the additional costs associated with taking employment, for example, travel and transport costs, childcare and other care costs, clothing, meals, etc. This can mean that for some people, particularly people with children, taking ‘marginal jobs’ (those that are very part-time, or temporary) may mean that they simply exchange poverty out of work for poverty in-work.
It is important when considering the causes of in-work poverty to highlight the evidence of cycling between in-work poverty and unemployment (Shildrick et al, 2010). The evidence of this ‘low-pay, no-pay cycle’ means that we must treat the two phenomena as related, rather than separate and distinct experiences. This has important implications for the policy responses both to unemployment and to in-work poverty. The experience of recurrent poverty, whether in work or out of work, suggests that the ability of low paid, insecure work to act as a ‘ladder’ out of poverty is questionable. The fact that many people are cycling between in-work and out of work poverty would also suggest that the notion of a lack of incentive, or lack of willingness on the part of the worker, is not the real problem. What is remarkable is that so many people are willing, with or without incentives, to move into employment, even when the experience is negative and leaves them little better off.
Policy responses
The issues identified in the host country reports and in the discussion papers all point to similar strengthens and weaknesses in the RSA as compared to similar policies to address in work poverty. All such measures seek to ensure that people taking up low waged employment see a real improvement in their incomes by providing a top up to pay through a benefit or a tax credit. This is to be welcomed. Boosting the incomes of those living in poverty, whether that poverty is as a result of not being in work or being in low paid work, is an outcome that EAPN would support. However, we have some observations about the effectiveness of such schemes and their overall intended policy outcomes:
Reductions in poverty: It is not clear from the host or discussion paper that there has been an appreciable impact on poverty rates in France as a result of the introduction of the RSA. This is surely the most critical factor to consider when looking at the success of such a policy intervention. Of course, it may be that the French experience is too recent to estimate the direct impact on overall poverty levels. In the UK there is now more than 10 years experience of systems of tax credit support for lower paid workers (the current system of Tax credits was introduced in 2003). Parekh,et al (2009) noted that whilst the tax credit system had been successful in lifting approximately 300,000 children in working families out of poverty, this has been undermined by an increasing need for tax credits as more people move into low paid employment. Therefore, whilst policies such as RSA can have a positive impact on child and family poverty, without commensurate action to address the prevalence of low paid employment, and lower quality employment in general, the anti-poverty effects of such measure will be undermined.
Take up: One of the features of policies such as the RSA is that they have the potential to introduce another layer of complexity into the welfare system.
Promotion of quality employment: As both the host paper 2 and the discussion paper note, there is a danger that policies such as the RSA institutionalise current employment patterns that lead to in-work poverty. There has been a desire for more flexible labour markets on the part of both employers and Governments for some time. (REF TO FLEXICURITY
Services to address in-work poverty: childcare
Education and training
Priorities for action
1. Address data and research gaps
2. Addressing benefits adequacy
3. Increasing pay
4: The need for greater recognition of In-Work Poverty in Employment Policy
References
Crettaz, E. and Bonoli (2010) Why are Some Workers Poor? The Mechanisms that produce Working Poverty in a Comparative Perspective, Working Papers on the Reconciliation of Work and Welfare in Europe, REC-WP 12/2010
Parekh, A., MacInnes, T. and Kenway, P. (2009) Monitoring Poverty and Social Exclusion 2009, York: NPI/JRF
Pollert, A. and Chartwood, A. (2009) ‘The vulnerable worker in Britain and problems at work’, Work, Employment and Society, Vol 23, No. 2, pp 343-62
Shildrick, T., MacDonald, R., Webster, C. and Garthwaite, K (2010) The Low-Pay, No-Pay Cycle: Understanding Recurrent Poverty, York: Joseph Rowntree Foundation
EUROPEAN ANTI-POVERTY NETWORK
31 March-1 April 2011 Peer Review Building the tools to fight in-work poverty, France
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