Policies Against Poverty in the Eu Countries: A Comparative Analysis

1. Policies Against Poverty in the Eu Countries: A Comparative Analysis Michele Raitano (Sapienza University of Rome) Training Programme “Effects and Tendency of Income Redistribution Policy” Italy, October 14th-28th, 2018

2. Outline • Definition of poverty • Redistributive policies affecting risks of being poor • Social spending in EU countries • Minimum income schemes (MIS) in EU countries • The role of the pension system in protecting against poverty

3. Who are the poor? A brief reminder • Poverty related to households’ resources and needs. • Poverty requires to identify poor => a threshold has to be identified. • Usually, absolute vs relative poverty concepts. • Poverty measured looking at both incidence and intensity (not only the headcount). • Redistributive policies may reduce poverty intensity also when the incidence is not affected.

4. Absolute poverty: a reminder • The threshold is defined outside from the income distribution. • A basket of basic needs is identified => the threshold is the cost of such basket. • Daily caloric requirements? Two dollars per day? • How to define such basket? Does the basket include absolute or relative needs? • How do needs change? Between countries and in the long term • Are basket goods indexed only to prices? Which are the consequences?

5. Relative poverty (a): a reminder • Poverty is a social norm: individuals very far from the others are poor. The threshold is by definition a relative concept. • As a main social norm is poor who is far from the others => if the GDP changes also the threshold has to change. • Reference to living standards of the whole population => the threshold is identified according to some points of the income distribution, i.e. 60% of median income or 50% of mean income. • Poverty does not change if income change in the same proportion. • But “income paradox”, when the growth is not “pro poor”.

6. Relative poverty (b): a reminder • How to make international comparisons of relative poverty? Is a country with a higher poverty a poorer country? • It is a sort of inequality index in the lower tail than a mere measure of material deprivation. • Keeping constant the threshold to make comparisons overtime (especially during a crisis)? • When analysing policy changes (e.g. an increase in welfare transfers), the relative thresholds has to be changed too. • Note that absolute poverty does not necessarily mean extreme poverty and it is not necessarily lower than relative poverty (thresholds can be built on different logics).

7. Redistributive policies againstpoverty • Citizenship incomes • Social insurance schemes • Contributory based social insurances (e.g., pensions and UB) • Means tested social insurance benefits (e.g., ASDI in Italy) • Social assistance schemes (safety nets), based on means testing • Categorical (e.g., the unemployed, the elderly, those with children) • MIS (independent on households’ categories) • In kind services (housing, health care; targeted or non targeted) • Specific universal or targeted measures towards children and family • Are these policies based on households or individuals’ conditions? • What is the duration of these policies? • How binding are eligibility requirements? • How much do these policies affect incidence and intensity of poverty (absolute or relative)?

8. Spending for social protection benefits in EU15 in 2015 (% of GDP)

9. Composition of social protection spending

10. Cash and in-kind benefits

11. Means and non means tested benefits

12. Decrease in the incidence of relative poverty due to welfare transfers in EU15

13. Historical Evolution of Anti-Poverty Policies (a) «First generation»: anti-poverty policies «Second generation»: minimum income schemes Act for the Relief of the Poor (1601): Discretional, residual and ad hoc support for the poor, frequently implying that recipients lost their civil and (to the extent they had any) political rights => Function: social control and repression of marginality Guarantee of a minimum of resources for those (few) people who needed a safety net in a period in which "full employment" and social insurances guaranteed support to all workers and their families =>Function: income support and prevention of marginality

14. The introduction of MIS in Europe (1945 – 1990)

15. Historical Evolution of Anti-Poverty Policies (b) «Third generation»: active inclusion strategies Towards an universal basic income? • Law proposals in France - Referendum in Switzerland • Pilot schemes in Finlands and in the Netherlands • Guarantee of a minimum income • Access to social services • Right/duty to be «active» in job-search activities • Active inclusion strategies supported by the EU • Function: income support plus empowerment and promotion of social inclusion to break the vicious circle of inactivity, obsolete skills and competences, and demotivation

16. Definition of MIS • Monetary benefit paid regularly to all households with an income below the poverty line, associated with social and labour market services aimed at “re-integrating the beneficiaries in the society” • Various types of means testing • Provision of benefit: independent from contributory requirements • Funding: general taxation • Addressed to working age individuals (elderly have often different and more generous schemes, with different eligibility requirements), not eligible for social insurance payments or whose entitlement to these payments has expired

17. The three pillars of MIS A means-tested income support benefit (means testing at the household level => benefits based on equivalence scales) Access to social servicesAnalysis of households skills / competences / social and individual problems; drafting personalized social inclusion plans; psychological and / or health and / or financial support «Active Inclusion policies»Active (and preventive) labour market policies, training, human capital investment, introduction of specific “job incentives”, including conditionality of income support benefits and/or specific tax deduction In some countries (AT, ES, GR, FI, FR, PT, SE) MIS as last resort safety net when means testing unemployment benefits have expired.

18. Generosity of MIS in EU

19. Duration of MIS

20. MISbeneficiaires

21. Spending for MIS in EU

22. MIS: active inclusion

23. MIS: conditionality

24. MIS: the territorial dimension

25. Pension scheme and poverty protection Different possible components of a pension system redistribute incomes and protect against poverty (incidence or intensity). These components might interact. Social assistance pensions (SA): means tested, independent on contribution records Means tested (minimum) pensions (MT): supplements to low value pensions, sometimes not contributory, or paid according to contribution records or to years of residence Flat rate (basic) pensions (FR): non means tested, related to contribution records or to years of residence Contributory pensions: non means tested, related to contribution records, benefit depends on the pension formula, e.g, earnings related or NDC What is the effect on income redistribution of the various schemes?

26. Anti-poverty schemes in EU15 pension systems

27. Incidence of relative poverty in EU15: all vs elderly

28. Intensity of relative poverty in EU15: all vs elderly

29. Incidence of relative poverty in EU15: all vs young

30. Intensity of relative poverty in EU15: all vs young