Annex 3 - Baseline assessment of the socio-economic context and its evolution over time

• Author: Cambridge Econometrics, Directorate-General for Employment, Social Affairs and Inclusion (European Commission), Eurocentre, ICF
• Pages: 244-315

Study supporting the 2020 evaluation of promoting social inclusion, combating poverty and any

discrimination by the European Social Fund (Thematic Objective 09)

244

ANNEX 3 - BASELINE ASSESSMENT OF THE SOCIO-

ECONOMIC CONTEXT AND ITS EVOLUTION OVER TIME

Overview

Generally, the EU has seen some improvements in living standards over the past

few years, with severe material deprivation declining. This is considered to have at least

partly resulted from increasing real median income and household incomes, as well as

improvements in economic activity and the labour market.442 Indeed, the gross

disposable household income has been increasing in real terms since 2012-2013 across

nearly all Member States, although in some this has not yet returned to pre-crisis levels

(notably some southern Member States).443

Despite t hese positive developments, as well as the Europe 2020 target of lifting 20

million people out of poverty, over one fifth of the EU p opulation remains at risk

of poverty or social exclusion (AROP E).444 The Europe 2020 target was set before

the 2008 economic and financial crisisз which had a detrimental impact on th e EU’s

ability to reach this target.445 Inequality is also st ill stark. Whilst the redistributive

effects of taxes and social transfers have gone some way to stabili se it, this impact

differed across the EU, with income inequality in fact widening since 2012 in some

Member States. Households are also receiving less support in social benefits, and levels

of financial distress among the poorest people remain high (in 2017, 9% of adults in the

EU in l ow-income households were in debt, compared with 4% of the total

population).446

Poverty is a complex and multidimensional phenomenon which goes beyond

levels of income. It can be measured in different ways and people can experience

multiple dimensions of poverty. Poverty is base d on, and manifests itself through a

number of factors, including low incomes, material deprivation, low work intensity, and

housing deprivation.447 Both individual and wider social factors, such as public policies,

can impact an individual’s material assets.448 Generally, multidimensional poverty in the

442 European Commission (2018). Employment and Social Developments in Europe:

Annual Review 2018.

443 European Commission (2018). Employment and Social Developments in Europe:

Annual Review 2018.

444 Eurostat, EU-SILC [ilc_peps01].

445 European Commission (2018). Employment and Social Developments in Europe:

Annual Review 2018.

446 European Commission (2018). Employment and Social Developments in Europe:

Annual Review 2018.

447 European Commission, (2016). Social Inclusion - European Semester Thematic

Factsheet, November.

448 Israel, S. & Spannagel, D. (2013), Material Deprivation– an Analysis of cross-

country Differences and European Convergenceй FPт project ‘Combat ing Poverty in

Europe: Re-organising Active Inclusion through Participatory and Integrated Modes

Study supporting the 2020 evaluation of promoting social inclusion, combating poverty and any

discrimination by the European Social Fund (Thematic Objective 09)

245

EU has seen a decline since нлмпй This is measured using the EU’s indicator on material

and social deprivation, which decreased from 19.3% i n 2014 to 12.8% in 2018 i n the

EU-28.449 It is defined as the proportion of people living in households who cannot afford

at l east five of 13 specified items.450 Multidimensional poverty also varies

significantly across Member States, countries such as Romania and Bulgaria have

concerningly high rates of material and social deprivation, with nearly one in two people

being materially deprived (47.7% and 44.4% respectively).451 This presents a stark

contrast to Member States such as Sweden, Luxembourg and Finland, which have very

low rates of multidimensional poverty (2.8%, 3.9% and 5.3% respectively). It has been

argued that these differences are at least par tly a result of varying levels of social

protection and inclusion and social stratification between Central and Eastern European

countries an d Nordic countries.452 Generally, countries with social democratic welfare

regimes - as found in Nordic countries - tend to experience lower levels of material

deprivation than other welfare regimes.453

In-work poverty is not necessarily a new phenomenon, but it continues to per sist

across the EU and has seen a rise since 2008.454 In-work poverty is defined as people

of Multilevel Governance’й Work Package о – Poverty and its socio-economic

structure in Europe.

449 Eurostat, EU-SILC [ilc_mdsd07]

450 Since 2014, these items are collected annually in each country. Seven deprivation

items relate to the person’s household and six to the personй The seven househ old

deprivation item refer to the inability for a household to: (1) face unexpected

expenses; (2) afford one week annual holiday away from home; (3) avoid arrears

(in mortgage, rent, utility bills and/or hire purchase instalments); (4) afford a meal

with meat, chicken or fish or vegetarian equivalent every second day; (5) afford

keeping their home adequately warm; (6) have access to a car/van for personal

use; and (7) replace worn-out furniture. The six personal deprivation i tems refer to

the inability for a person to: (1) replace worn-out clothes with some new ones; (2)

have two pairs of properly fitting shoes; (3) spend a small amount of money each

week on himкherself г“pocket money”дц гпд have regular leisure activitiesц грд g et

together with friends/family for a drink/meal at least once a month; and (6) have

an internet connection. The six personal items are collected at the “adul t” levelз

i.e. for all persons aged 16 or over – See European Commission, (2017). The new

EU indicator of material and social deprivation

451 Eurostat, EU-SILC [ilc_mdsd07]

452 Israel, S. & Spannagel, D. (2013), Material Deprivation– an Analysis of cross-

country Differences and European Convergenceй FPт project ‘Combat ing Poverty in

Europe: Re-organising Active Inclusion through Participatory and Integrated Modes

of Multilevel Governance’й Work Package о – Poverty and its socio-economic

structure in Europe.

453 Yang, L. & Vizard, P. (2017), Multidimensional poverty and income inequality in the

EU. Understanding the Links between Inequalities and Poverty (LIP). CASEpaper

207/ LIPpaper 4.

454 European Parliament (2016), Poverty in the European Union: The crisis and its

aftermath. European Parliamentary Research Service.

Study supporting the 2020 evaluation of promoting social inclusion, combating poverty and any

discrimination by the European Social Fund (Thematic Objective 09)

246

who are in employment and live in a household th at is at risk of poverty.455 Arguably,

the increased prevalence of atypical and precarious employment has had an

impact on in-work poverty,456 especially in the aftermath of the 2008 economic and

financial crisis when employers were less willing to hire employees on ful l-time open-

ended contracts due to economic uncertainty.457 Non-standard work, such as temporary

contracts and part-time employment often entail low pay and work intensity, thus

contributing to increasing the risk of in-work poverty. 458 In 2018, the in-work poverty

rate across the EU-28 remained at 9.6%, the same as in 2014 (9.5%) (people aged 18

– 64).459 Whilst this rate may not seem drastically high, it represents over 20 million

workers in the EU, the same number of people which the Europe 2020 targ et aims to

lift out of poverty and social exclusion.460 In-work poverty rates are significantly

higher for people who are self-employ ed (22.2%) compared to employees (7.4%)

in the EU-28, although this gap varies across Member States.461 In terms of employees,

those on temporary and part-time contracts face a higher rate of in-work poverty

(16.2% and 15.6% respectively) than full-time employees (7.7%).462

The in-work poverty rate also varies considerably across Member States. The

lowest rates are found in Finland (2.7%) and Czechia (3.6%), whilst Italy, Greece, Spain

and Luxembourg have some of the highest rates (12.3% - 13.7%). Italy, Greece and

Spain were particularly hard hit by the 2008 economic and financial crisis, which led to

high rates of unemployment. In such Southern European countries, whilst there is

generally strong regulation of the labour market, segments of the labour market which

are typically predominated by marginalised communities are much less regulated.

Moreover, the hi gh regulations and limited labour activation and family policies create

barriers for women and young people to enter the labour market, thus placing greater

pressure on the main earne r of the household and therefore increasing the risk of in -

work poverty.463 Coun tries such as Italy and Greece also have a high share of self-

employed workers. Despite these explanations for the Southern European countries,

455 European Commission (2019). In-work poverty in Europe: A study of national

policies.

456 European Parliament (2016), Poverty in the European Union: The crisis and its

aftermath. European Parliamentary Research Service.

457 European Commission, (2018). Employment and Social Developments in Europe

(ESDE) – Annual Review 2018.

458 European Commission, (2016). Social Inclusion - European Semester Thematic

Factsheet.

459 Eurostat, EU-SILC [ilc_iw01]

460 European Commission (2019). In-work poverty in Europe: A study of national

policies.

461 European Commission (2019). In-work poverty in Europe: A study of national

policies.

462 European Commission (2019). In-work poverty in Europe: A study of national

policies.

463 Eurofound (2017), In-work poverty in the EU. Publications Office of the European

Union, Luxembourg.