Social Europe

The EU approach

Measuring poverty and social exclusion in support of policy making

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Outline of the presentation1. How did the EU concept of poverty and social exclusion develop?

2. Europe 2020 and the EU target to reduce poverty and social exclusion

3. Implementing Europe 2020

• Governance and monitoring framework

• Implementing Europe 2020: More country specific analysis

4. A new impetus to measurement and analysis: building up the evidence base

• Improving the measurement of poverty and exclusion

• Identifying the drivers and assessing the impact of policies

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1. How did the EU concept of poverty and social exclusion develop?

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Social policy: a shared competence

• Social policy is still and will remain a Member State’s competence

• Policy coordination process between Member States• based on common objectives, indicators, regular reporting, joint

assessment and mutual learning (Social Open Method of Coordination)

• EU laws and tools that can contribute to poverty reduction • Charter of fundamental rights (1989)• Anti-discrimination directives• Laws on social and employment standards• EU Funds (ESF, European Globalisation Adjustment Fund, PROGRESS)• Food aid programme (1987)

• Europe 2020 provides an integrated framework and aims to bring together all available instruments

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Poverty and social exclusion

How did the concept develop in the EU?•in support of a policy coordination process•in a diverse and changing Europe•through social policy statements, activities and agreements at EU level (Commission, Council)•drawing on developments in academia•through the way they are measured•in connexion with EU level statistical developments

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An increasingly diverse EU

Variations in 1975 2000 Today

GDP per capita (PPS)

92(56) to 113 70 to 116 (212) 45 to 131 (271)

Unemployment 2.9% to 9.6% 2.3% to 13.8% 4.3% to 20.4%

Gini coefficient 24 to 36 22 to 36 24 to 37

Social spending (% of GDP)

21% to 29% (IE, IT missing)

22% to 31% 11% to 30%

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Statements by the Council1975: Common definition of poverty

the poor are "individuals or families whose resources are so small as to exclude them from the minimal acceptable way of life of the member state where they live".

2000: “Laeken” indicators for the EU social inclusion strategy18 indicators of social inclusion including headline indicator “at-risk-of poverty” rate => focus on relative poverty

2010: Europe 2020 strategy: smart, sustainable and inclusive growth.

•Ensuring that the "benefits of growth are widely shared and that people experiencing poverty and social exclusion are enabled to live in dignity and take an active part in society".•New definition of people "at-risk-of poverty or social exclusion" based on 3 indicators

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Poverty and “social exclusion”

Warning!• R. Walker (1995): “Social exclusion means different things to different

people” and this ambiguity permits “a continuing dialogue about matters that some would equate with, or at least include within, the concept of poverty”

National variations of the concept (R. Atkinson – 2000):• France: Societal solidarity ensuring participation of all in a common moral

and social order (incl. social and cultural dim)• Germany, Netherlands: reintegration on the labour market of the welfare

dependant• Scandinavian: reintegration on the labour market + deviant behaviour• UK: Labour government’s agenda: Opportunities for all and welfare to work

agenda (T. Blair’s definition)

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A multi-dimensional concept• beyond the satisfaction of basic needs, having command over the

resources needed to live in dignity, to access rights, to ensure full participation in society and the economy.

• beyond the lack of income, it covers the areas of work, health, education, or social and cultural participation.

• a temporal and dynamic phenomenon requiring solutions to durably escape poverty (labour market integration, equal opportunities and anti-discrimination)

• Poverty is graduated; the most severe forms of poverty and exclusion also need to be taken into account.

• There is also a need to reflect “absolute” differences in living standards across the EU, as well as changes over time.

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Indicators of social inclusion (2001-2010)

Dimension Indicators

Income At risk of poverty rate (60% of median) + thresholds

Persistent at risk of poverty rate (2 out of 3 years in poverty)

Poverty gap: Distance between median income of the poor and the poverty threshold

Anchored poverty risk

Material deprivation

Severe material deprivation rate: missing 4 out of 9 items

Material deprivation depth

Housing deprivation, cost, overcrowding

Labour Long term unemployment rate

Population living in jobless households

In-work poverty

Education Early school leavers

Low educational attainment

Low reading literacy performance

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Indicators of social inclusion (Continued)

Dimension Indicators

Health Healthy life expectancy by Socio-economic status

Unmet need for health care

Social protection

Social protection expenditure, current and projected

Social protection expenditure, by function

Risk of poverty before social transfers (poverty reduction impact of social transfers)

Specific groups

Child deprivation

Employment gap of migrants

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Statistics: EU-SILC, HBS, ESSPROSEU harmonised Survey on Income and Living Conditions•Yearly•EU Regulation: legally binding since 2005•Output based harmonisation: detailed definition of variables•Quality criteria (achieved sample size) •Panel dimension (rotating panel)•Modules on specific topics (housing, social participation, etc)

Household budget surveys (every five years)

•Gentleman agreements

ESSPROS

•Social protection expenditure and receipts, yearly

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Methods used at national level• Relative income poverty: at-risk-of poverty rate at 60% (or

other level)• Anchored poverty• Relative poverty based on consumption threshold• Material deprivation and consistent poverty• Regulatory thresholds: set by law (subsistence level,

minimum income, etc) – with embedded uprating mechanisms or not

• Budget standards• Food-ratio poverty lines• (Subjective poverty)

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2. Europe 2020 and the EU target to reduce poverty and social exclusion

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The Europe 2020 strategy

Three overarching objectives- Smart, sustainable and inclusive growth

Five headline targets - Employment (75 %); - R&D (3% of GDP); - Climate/energy ("20/20/20“); - Education (ESL < 10% and TD > 40%); - Poverty and social exclusion (- 20 million)

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16

3 indicators to describe poverty and social exclusion

Risk of poverty

• People living with less than 60% of the national median income

• Poverty lines vary from 200€/month to more than 3000€

• « resources so low as to exclude them from the way of life of the MS »

People living in households with very low work intensity (“jobless households”)

•long-term exclusion from the labour market for workers and dependant family members

•Households where people aged 18-59, not students have no work or worked less than 1 day / week on average during the year

Severe material deprivation • A non monetary measure of living

conditions• at least 4 out of 9 deprivations: pay the

rent, keep home warm, eat meat or protein every second day, enforced lack of a car, a washing machine...

• Single European threshold, reflecting different living standards across the EU

Risk of poverty or social exclusion

115 million

23%

Source: Eurostat EU SILC 2010

AROP

16%SMD

8%

JLH

10%

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Facets of poverty and social exclusion

17

Latvia AROPE 38 %

At Risk of Poverty Severe Material Deprivation Jobless Households

Italy AROPE 24%

Ireland AROPE 26%

Deprivation prevails

Relative poverty prevails

Labour market exclusion prevails

AROP21%SMD

27%

JLH12%

AROP18%

SMD7%

JLH10%

AROP15% JLH

20%

SMD6%

Source: Eurostat EU SILC 2010

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Dynamics of the components also vary

Source: Eurostat EU SILC

EU27

0.0

10.0

20.0

30.0

2005 2006 2007 2008 2009 2010

Risk of poverty

Severe material deprivation

Risk of poverty or social exclusion

Jobless households

Italy

0.0

10.0

20.0

30.0

2005 2006 2007 2008 2009 2010

Risk of poverty

Severe material deprivation

Risk of poverty or social exclusion

Jobless households

Ireland

0.0

10.0

20.0

30.0

2005 2006 2007 2008 2009 2010

Risk of poverty

Severe material deprivation

Risk of poverty or social exclusion

Jobless households

Bulgaria

0

10

20

30

40

50

60

2005 2006 2007 2008 2009 2010

Risk of poverty

Severe material deprivation

Risk of poverty or social exclusion

Jobless households

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Poverty or exclusion targets estimatesPeople living in poverty or social exclusion (in %)

* People at risk of poverty or social exclusion are at least in one of the following three conditions: at-risk-of-poverty, severely material deprivation or living in a jobless household.

** Member States without a marked national 2020 target have chosen to use a different monitoring indicator which does not directly translate into a comparable indicator at the EU level.

Population at risk of poverty or social exlusion* in 2010 2020 target**

Source: European Commission

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3. Implementing Europe 2020

3a. Governance and monitoring framework

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EPSCODebate /

orientations

SPC Annual Report Joint

Employment Report

(IG 10)

National Reform

Programs+ National

Social Reports

In-depth review

Janu

ary March

May Ju

ne

Annual Growth SurveyDraft Joint

Employment Report

Spring European Council

Policy guidance

Country examination

EPSCODiscussion/

adoption CSR

Social Protection Committee

Submits Country Specific

Recommendations

MSCommission

MS

Employment Committee

1) The European Semester

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2011 AGS priorities

Prerequisites for Growth:

•A rigorous fiscal consolidation

•Correcting macro economic imbalances

•Stability of the financial sector

Mobilising Labour Markets:

•Making work more attractive

•Reforming pensions systems

•Getting the unemployed back to work

•Balancing security and flexibility

Frontloading Growth:

•Tapping the potential of the Single Market

•Attracting private capital

•Cost-effective access to energy

2012 AGS priorities

Pursuing growth-friendly fiscal consolidation

Restoring normal lending to the economy

Promoting growth and competitiveness

Modernising public administration

Tackling unemployment and the social consequences of the crisis

• Mobilising labour for growth

• Support employment, esp of the young

• Protect the vulnerable

2) Europe 2020 priorities

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2012 in detail: … protecting the vulnerable

• Further improve the effectiveness of social protection systems

• Implement active inclusion policies• Ensure access to services to support integration

to the labour market and society• Monitor distributional impact of reforms• Pay attention to the needs of the most vulnerable

in any tax shift

3) Europe 2020 priorities

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• National Social Reports (At the same time as NRPs)• More detailed strategies for poverty targets• Cover all social OMC strands (inclusion,

pensions and health)

• SPC Annual Report (Mid - January head of spring Council)

• Monitoring of target + Reporting on indicators• Analysing NSR• Crisis monitoring• Thematic focus (2013: Child poverty and

Pensions)

4) Reporting

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Monitoring Europe 2020 and the social OMC

• Joint Assessment Framework (JAF)• Diagnosis tool based on key indictaors (see example)• Shared by MS and Commission analysts• Supports the work on Country Specific

Recommandations

• Social performance monitor• Summary of MS progress towards their national

targets• And of key challenges identified through the JAF• Target: remaining issues

• national ambitions do not match EU ambition• How to monitor targets based on national indicators/sources?

• OMC indicators covering inclusion, pensions and health used in thematic reporting by SPC

5) Monitoring and assessment

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3. Implementing Europe 2020

3b. More country specific analysis

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Joint Assessment Framework identifying country specific challenges

Inactivity due to care responsibility

Jobless households

Child poverty

Poverty and exclusion

Very low impact of social transfers

Poor labour market performance,

especially for the weakest workers:

e.g. segmentation, long-term

unemployment

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High impact of social transfers CZ EE AT

Few children in jobless households

NL SI FI FR (BE)

Children in working households face low risk of poverty

DK SE DE(CY)

I mpact of social transfers is high HU

Many children in jobless households

UK I E

Low impact of social transfers PL PT SK

I n-work poverty: children are poor even though parents are working

I T RO EL ES LT

LV BG

Child poverty drivers by countryUnited Kingdom:

•generous benefits but

•many children in jobless households

•high inactivity due to care responsibility-=> design of benefits-=> lack of child care

Bulgaria

•High poverty and material deprivation

•In-work poverty

•Low impact of transfers-=> improve economic and labour market conditions-=> improve family support

Diagnosis of main drivers by country

Source: ESSPROSS 2009, EU-SILC 2010, DG EMPL calculations.

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Extracts from the Commission CSRs for Bulgaria and the UK (not yet adopted by Council)

BULGARIATo alleviate poverty, improve the effectiveness of social transfers and the access to quality social services for children and the elderly and implement the National Roma Inclusion Strategy.

UNITED KINGDOMStep up measures to

facilitate the labour market integration of people from jobless households. Ensure that planned welfare reforms do not translate into increased child poverty. Fully implement measures aiming at facilitating access to childcare services.

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4. A new impetus to measurement and analysis: building up the evidence base

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Building up the evidence basePoverty and social exclusion• measurement of POVERTY AND SOCIAL EXCLUSION:

material deprivation, « extreme » poverty (homelessness, Roma), regional dimension (Poverty maps and Roma with World Bank and FRA)

• DYNAMICS of poverty and exclusion (longitudinal component)• Mid-term review of targets in 2015 (e.g. mat. dep. Comp.)• TIMELINESS

Poverty drivers and impact of policies• Do growth and jobs help reducing poverty and exclusion?• REDISTRIBUTIVE IMPACT OF SOCIAL SPENDING, (incl. in-kind

benefits) – identify efficiency gains• What is the impact of fiscal consolidation?

Social spending vs. Economic efficiency• Illustrating the working of automatic stabilizers

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Who is in the poverty target?

Sources: DG EMPL calculation from EU-SILC (2009) -

EU27

Unemployed

At work At work

(other Inactive)(other Inactive)

0%

20%

40%

60%

80%

100%

at risk of poverty or socialexclusion

whole population

DK

Unemployed

At work

At work

(other Inactive)

(other Inactive)

0%

20%

40%

60%

80%

100%

at risk of poverty or socialexclusion

whole population

ES

Unemployed

At work At work

(other Inactive)(other Inactive)

0%

20%

40%

60%

80%

100%

at risk of poverty or social exclusion whole population

RO

UnemployedRetired Retired

At work At work

(other Inactive) (other Inactive)

0%

20%

40%

60%

80%

100%

at risk of poverty or social exclusion whole population

Focus on the working age population (18-59), by activity status

Understanding poverty

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0

5

10

15

20

25

30

35

poorest 2nd 3rd 4th richest

What are the jobless households living on?

Sources: DG EMPL calculation from EU-SILC (2009)

Gross income composition

by work intensity of the householdShare of jobless households by income quintile

Earnings from work

Income taxes

Earnings from work

Old age

-40

-20

0

20

40

60

80

100

120

140

Not in very lowwork intensity

Very low workintensity

Social exclusion / housing

Family and education

Social exclusion/ housing

Unemployment benefits

Understanding poverty

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New indicator of material deprivation for mid-term review of EU target

Items being discussed (not adopted yet) being able to afford: •some new clothes, •two pairs of shoes, •a meal with meat, chicken or fish every second day, •to keep home adequately warm, •to pay for arrears (mortgage/rent, utility bills, hire purchase instalments), •to face unexpected expenses, •a personal car if needed, •a computer with an internet connection, •to replace worn-out furniture, •some money for oneself, •regular leisure activity, •getting-together with friends/relatives for a drink/meal monthly, •one week annual holiday away from home.

Understanding poverty

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Financial distress in lower income households

Share of households experiencing financial difficulties steadily increasing since beginning of 2011

Two lowest income quartiles: from mid 2008 financial stress is well above long term average

Upper quartile: financial stress remains below long term average

Reported financial distress in households by income quartile of household

5

7

9

11

13

15

17

19

21

23

janv

-06

juil-0

6

janv

-07

juil-0

7

janv

-08

juil-0

8

janv

-09

juil-0

9

janv

-10

juil-1

0

janv

-11

juil-1

1

Source: Joint harmonised EU consumer surveys & DG EMPL calculations. Note: 3 month centred moving average figures.

% o

f res

pons

es

richest income quartile

poorest income quartile

long term trend

long term trend

long term trend

long term trend

Timeliness

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36

Are people covered, by what benefit?Number of benefit recipients (unemployment insurance and social assistance) vs number of unemployed

800

825

850

875

900

925

950

1 3 6 9 1 3 6 9 1 3 6 9 1 3 6 9 1 3 6 9 1 3 6

2006 2007 2008 2009 2010 2011

pers

ons

(100

0)

150

250

350

NL Disability benefits Recipients (left axis) NL Number of unemployed ILO (1000)

NL U Benefits recipients (WW) NL Social Assistance Recipients

Sources: data on number of unemployed from Eurostat (ILO definition; thousands of persons, seasonally adjusted); data on number of benefit recipients collected through the SPC questionnaire.

0

1000

2000

3000

4000

5000

6000

7000

1 3 6 9 1 3 6 9 1 3 6 9 1 3 6 9 1 3 6 9 1 3 6 9

2006 2007 2008 2009 2010 2011

pers

ons

(100

0)

0

1000

2000

3000

4000

5000

6000

7000

DE Number of unemployed ILO (1000) DE Benefit recipients (UB I + UB II)

DE short term w ork DE Social Assistance recipients

NL DE

Substitution: decrease in unemployment benefits increase in social assistance: NL, SE, HU, EE, CZ

Combined pressure on safety nets in SI, IE

Downward trends in social benefit recipients in line with unemployment trend in DE

PT: Number of recipients UB/SA decreasing even through unemployment continue to increase – gap in coverage rising

in 1000 in 1000

in 1000

U benef recip

Social assistance recip

Number of unemployed ILO

Disability recipients (left axis)

Number of unemployed ILO

Short time work

Benefits recipients (UB I + UB II)

Social assistance recipients

200

300

400

500

600

700

800

1 3 6 9 1 3 6 9 1 3 6 9 1 3 6 9 1 3 6 9 1 3 6

2006 2007 2008 2009 2010 2011

pers

ons

(100

0)

200

300

400

500

600

700

800

PT Number of unemployed ILO (1000) PT (Unemployment + social unemployment) benefits

PT Disability (social + pension) benefits PT Social (assistance/integration income) beneficiaries

PTNumber of unemployed ILO

Social assistance/integr

ation income beneficiaries

(Unempl+social u) benefits

Disability benefits

?

Timeliness

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Economic and employment growth, jobless households and in-work poverty

Inclusive growth?

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Declining wage share

38

EU-15 and the US Germany, France, Italy and Spain

Inclusive growth?

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Labour market polarisation

Before the crisis

More jobs created in low and high wages segments

During the crisis

More jobs lost in the middle wages segments

Source: Eurostat EU LFS, Fernández-Macías (2010) Source: Eurostat EU LFS, Fernández-Macías (2010)

Net job creation 1998-2007

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

Lowwages

Highwages

Net job creation 2008q2-2010q2

-3000

-2000

-1000

0

1000

2000

3000

4000

5000

6000

Lowwages

Highwages

Source: Eurofound, ESDE

Inclusive labour market?

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40

Segmentation: are temporary contract stepping stones or dead ends?

-40

-20

0

20

40

60

EU27 Austria Spain Poland

%

Wage-penalty adjusted

Transition rate from temporary to permanent contracts

Share of temporary workers (dark blue - involuntary)

Austria

•Mainly voluntary

•Stepping stones

•Low wage penalty

Spain and Poland

•Mainly involuntary

•Low probability to move to a better job

•High wage penalty

Source: Eurostat EU LFS 2010, RWI study based on SILC, DG EMPL calculations on SES 2006

Inclusive labour market?

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Drivers of in-work poverty

Source: DG EMPL calculations based on EU SILC 2009

Labour market reasons for in-work poverty:- Low participation, low work intensity (DE)- Low wages (LV)

Redistribution also matters:- benefits do not always compensate for cost of a child (ES)

Relative importance of factors for in-work poverty

Inclusive labour market?

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Redistributive role of social transfers: room for efficiency gains

• Poverty reduction impact of social transfers depends on size and design

• Potential for efficiency gains

• Efficiency not a direct function of the level of targeting of cash transfers

Social protection benefits expenditure (excluding pensions) and poverty reduction impact of social transfers

Source: Eurostat, EU-SILC 2010 (income year 2009) and ESSPROS 2009

Policy response?

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Modeling: Redistributive impact of in-kind services

• Beyond disposable income inequality: in-kind benefits reduce inequality further by one-fifth

• Education, training, healthcare is also investment

• Source: ESDE (2011)

Distribution of in-kind benefits by quintiles

Policy response?

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Microsimulation: Impact of austerity measures

Greece

-11%-10%

-9%-8%-7%-6%-5%-4%-3%-2%-1%0%

poorest 2 3 4 richest

Portugal

-11%-10%

-9%-8%-7%-6%-5%-4%-3%-2%-1%0%

poorest 2 3 4 richest

Estonia

-11%-10%

-9%-8%-7%-6%-5%-4%-3%-2%-1%0%

poorest 2 3 4 richest

Estimated impact of austerity measures on households by income quintile: changes to income components and VAT increases

• Measures affecting disposable income of households have been progressive in Greece, regressive in Portugal and relatively neutral in Estonia

• Taking VAT increase into account, the picture especially changes for Greece, making austerity measures less progressive

• The effect of the crisis itself on household income, potentially very significant and regressive, is not represented in the graphs

• Source: Sutherland et al, 2011

Policy response?

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Automatic stabilizers and stimulus helped sustaining gross household disposable income – but not in all countries

Changes in gross household disposable income (GHDI) and in social spending% changes over 2 periods (2007/2009 and 2009/2012 – projections)

Source: European National Accounts

Despite large economic shocksautomatic stabilisers helped sustaining household incomes in Denmark and Germany

But not in Italy and Greece, where the impact of budgetary cuts after 2010 is also visible

GHDI GHDI GHDI

GHDI

Social spending

Social spending

Social spending

Social spending

Stabilizing the economy

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46

What would have happened with constant social benefits and taxes

Source: Jenkins, Bardolini et al., 2011Estimates for Greece refer to one year change, 2007-8, only.

Impact of automatic stabilizers and stimulus measures –% changes in GDHI (household income) 2007-2009

-12.0

-10.0

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

DE FR NL ES EL UK SE IT IE

GDP

GHDI

GHDI holding social benefits + taxes at 2007 value

Stabilizing the economy

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Employment vs. size of the welfare state

Countries with relatively high social protection expenditure are not necessarily those with the lowest employment rates (data: average 1995 – 2010)

47Source: Eurostat

Social spending vs. Economic efficiency?

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Deficit vs. size of the welfare state

Countries with relatively high social protection expenditure are not necessarily those with the highest budget deficits (data: average 1995 – 2010)

48Source: Eurostat

Social spending vs. Economic efficiency?