in-work poverty, work incentives and secondary earners in ... · motivation employment might not be...
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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 30th) 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.
In-work poverty (2014)
05
10
15
20
In-w
ork
pove
rty (
%)
BEFI
IECZ
SKDK
MTNL
HRDE
UKFR
SEAT
SIBG
LUPT
CYEE
LVPL
LTHU
ELIT
ESRO
country
Is there a trade-off between in-work
poverty and work incentives?
In-work poverty and METR (2014)
BE
BG
CZDK
DE
EE
IE
EL
ES
FRHR
IT
CYLV
LT
LU
HU
MT NL
AT
PL
PT
RO
SI
SK
FI
SEUK
05
10
15
20
In-w
ork
pove
rty (
%)
20 30 40 50 60Mean METR (%)
In-work poverty and NRR (2014)
BE
BG
CZDK
DE
EE
IE
EL
ES
FRHR
IT
CYLV
LT
LU
HU
MT NL
AT
PL
PT
RO
SI
SK
FI
SE
UK
05
10
15
20
In-w
ork
pove
rty (
%)
60 70 80 90Mean 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 in-
work poverty
Correlation holds in multivariate regression
METR and NRR coefficients are negative and significant
Do the working poor face lower
incentives to work?
Mean METR: working poor
010
20
30
40
50
60
70
Mea
n M
ET
R (
%)
BGES
CYEE
MTLT
PLCZ
ELHR
LVSK
PTRO
HUSE
ITSI
FRNL
UKIE
ATDE
LUFI
DKBE
country
all working poor
Decomposition of Mean METR: all
010
20
30
40
50
60
Mea
n M
ET
R (
%)
BGES
CYEE
MTLT
PLCZ
ELHR
LVSK
PTRO
HUSE
ITSI
FRNL
UKIE
ATDE
LUFI
DKBE
COUNTRY
Taxes SIC Benefits
Decomposition of Mean METR:
working poor
010
20
30
40
50
60
Mea
n M
ET
R (
%)
ESEL
HRCZ
ITMT
BGPL
PTIE
EELV
NLLT
HUBE
DKCY
ROSE
SISK
DEFR
FIUK
ATLU
COUNTRY
Taxes SIC Benefits
Mean NRR: working poor
40
50
60
70
80
90
10
0
Mea
n N
RR
(%
)
LTPL
HUMT
UKIT
CZIE
ESRO
ELEE
LVCY
HRSI
SKSE
DEAT
NLDK
BGFI
BEPT
FRLU
country
all working poor
Decomposition of Mean NRR: all
-40
-20
020
40
60
80
10
012
0
Mea
n N
RR
(%
)
LTPL
HUMT
UKIT
CZIE
ESRO
EEEL
LVCY
HRSI
SKSE
DEAT
NLDK
BGFI
BEPT
FRLU
COUNTRY
Original income Pension & disability benefits Unemployment Benefits
Family Benefits Social Assistance Benefits Taxes and SICs
Net Replacement Rate
Decomposition of Mean NRR:
working poor -4
0-2
0
020
40
60
80
10
012
0
Mea
n N
RR
(%
)
ITPL
HRHU
LVMT
LTRO
CZDE
BGNL
UKSK
EESI
IEEL
CYDK
PTFI
ESFR
SEAT
LUBE
COUNTRY
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?
Secondary earnership in
the EU 0
10
20
30
40
50
Seco
nd
ary
ea
rne
rs (
%)
ELDE
ITBE
DKFR
SEFI
UKLU
ESPT
IEEE
HUNL
LTCZ
CYAT
ROPL
LVHR
BGSI
MTSK
COUNTRY
2nd earners other secondary earners
In-work poverty after negative shocks
to employment of second earners
02
46
8
Diffe
rence
in in
-wo
rk p
overt
y (
pp)
BEEL
IEFI
DKUK
DESE
FRNL
ATLU
CZEE
PTHR
ESSI
BGMT
ITRO
CYLV
LTSK
HUPL
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 in-
work 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 in-
work poverty:
but substantially only under large shocks to employment.
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).
In-work poverty after entry of all
second earners to unemployment
05
10
15
20
25
In-w
ork
pove
rty (
%)
BEFI
IECZ
SKDK
MTNL
HRDE
UKFR
SEAT
SIBG
LUPT
CYEE
LVPL
LTHU
ELIT
ESRO
country
pre-transition post-transition