WP 15 – Job growth, income redistribution and social cohesion by 2020

In the framework of the Europe 2020 strategy a poverty target has been put forward, which will be measured on the basis of three indicators, namely

1. the at-risk-of-poverty rate,
2. material deprivation,
3. the number of jobless households.

It is difficult to predict precisely future developments, but testing various scenarios can provide useful insights in socio-economic mechanisms as well as improve evidence-based policy-making. Building upon the results of WP 7 on the interrelationships between employment, social redistribution and poverty we will investigate the impact on vulnerable groups (in particular migrants, youth, women, low skilled) and on poverty of on the one hand tax-benefit policies and on the other hand job growth.

Reforms to tax-benefit policy cannot on their own meet the 2020 target for poverty and social exclusion, but they can contribute. Building on streams A, B and C of this project, this work package will first aim to identify changes to tax and benefit policy that will be effective at contributing to poverty reduction in selected Member States. It will thereby use various assumptions on income growth versus inflation within the tax-benefit model EUROMOD. Building on the strategies within Member States and on lessons learned in stream B of this project, the poverty impact of alternative tax-benefit policies will be tested.

As Europe 2020 also sets forward employment targets, it is important to better understand how job growth may affect poverty and to what extent these new jobs are likely to be directed towards individuals and groups at high risk of social exclusion. A number of studies using mainly “shift-share” analysis effectively assumed that increased employment opportunities will be allocated, more or less, randomly among the unemployed and the inactive and, as a result, relative poverty will decline (Whiteford and Adema, 2007; Fritzell and Ritakallio, 2010). However, the evidence of most EU countries during the last decade does not seem to support these conclusions (see WP 5). Countries that witnessed considerable employment growth are not necessarily the ones that achieved corresponding reductions in poverty (OECD, 2008). Using econometric techniques that estimate employment probabilities and expected wages, we will test alternative allocation mechanisms for these new jobs, as well as the corresponding effects on poverty and the proportion of jobless households.

At a final stage, the combined impact of job growth and tax-benefit policies will be addressed, thus testing more complex scenarios using EUROMOD. Sarah Voitchovsky, as an associate, will shed more light on the role of economic growth on poverty trends.