A pan-European perspective on low-income dynamics in the EU

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CSB WORKING PAPER centreforsocialpolicy eu March 2017 No 17 / 03 University of Antwerp Herman Deleeck Centre for Social Policy Sint-Jacobstraat 2 B – 2000 fax +32 (0)3 265 57 98 A pan-European perspective on low-income dynamics in the EU Tim Goedemé Lorena Zardo Trindade Frank Vandenbroucke and Working Paper 16 Forthcoming in: Cantillon T Hills J “Improving poverty reduction Europe” Oxford: Oxford Press ABSTRACT1 In this paper we study trends at lower tail EU-wide distribution disposable household income contrast to most studies take a compare levels across countries after accounting average price differences More particular make use EU-SILC 2008 2014 low proportion gap From analysis emerges highly dynamic picture which points both convergence especially since 2010 divergence Living standards new Member States notably Poland Slovakia Bulgaria have considerably improved comparison with median while living Greece lesser extent Spain Italy clearly lost ground These mark an important change composition bottom increasing weight ‘old’ end crisis-hit Southern European Worryingly also observe that no country succeeded substantially reducing at-risk-of-poverty rate This emphasises need dual solidarity national underscores importance reflecting further mutual insurance true borders Corresponding author: (CSB) Faculty Political Sciences Email: tim goedeme@uantwerpen be 1 We are grateful John Bea Zach Parolin comments suggestions The research article has benefited from financial support by Flemish Methusalem Programme data were made available Eurostat (Contract RPP 175/2015-EU-SILC-ECHP-LFS) usual disclaimer applies 3 Introduction Income inequality complex phenomena Europe they often studied Indicators relative such as Gini coefficient predominantly used within indicator compares incomes 60 per cent As result remain largely invisible However required understanding challenge Union By assessing common standard it is possible gain more insight into improvement or deterioration poorest people compared rest EU’s population helps shed alternative light progress towards goal greater social cohesion (e g Brandolini 2007; Fahey 2007) complementing predominant analyses addition facilitates better disparities between poses policy initiatives (cf & Van Lancker 2009; Levy Matsaganis Sutherland 2013; Mechelen 2013) Therefore recent other mostly based Several authors directly comparing citizens Some looked excluding post-2004 Anthony Atkinson 1996; Beblo Knaus 2001; Berthoud 2004; de Vos Zaidi 1998; 1990; Kangas Ritakallio including least some Boix Bönke Schröder 2015; Förster 2005; Lelkes Medgyesi Tóth Ward Whelan Maître 2010) few changes over time if done so mainly focused whole characterizing clusters Collado 2016) Previous highlighted following First developments policies level impact upon Heidenreich Second those relatively very different With (national) at-risk-of tend live when benchmark about forty 4 joined 2004 spite their share Third rates can standards: threshold tended decrease during past decade increased several periods thresholds Fourth substantial taken place strong reductions number households below 40 (Goedemé 2016; Meeusen 2014) previous contributions disaggregate track country-specific patterns focus onset economic crisis For doing two indicators: (LIP) ratio (LIG) Both indicators defined percentage controlling LIP look LIG size four questions: (1) How evolved individual States? (2) changed crisis? (3) Which contributed (changes in) LIG? (4) do these rate? 2008-2014 consider all except Croatia acceded period under consideration structured follows set scene motivate our choice reference what original inspiration project simultaneous pursuit upward second section briefly explain methodological choices present third empirical findings discuss consecutively questions before Thereafter conclude 5 Two perspectives presented illustrate ‘cohesion’ On one hand there well-known expression associated inclusion traditionally understand aspiration prosperity Indeed ‘cohesion policy’ dimension ‘Economic cohesion’ 1986 Single Act ‘reducing various regions backwardness least-favoured regions’ EU’s treaty Lisbon Treaty adds another facet referring ‘economic territorial overarching assess (AROP) 60% i e individuals Admittedly AROP but amongst many Nevertheless believe arguments measure central order gauge thus ‘social wish here (for argument see Barnes Marlier Nolan (2002); affirmation same view (2014)) apply (technically) similar (the 40% median) not argue applying yields ‘relative poverty’ elaborate multifaceted discussion meaning measurement ‘poverty’ today’s integrated (see instance 2012; Rottiers 2011; 2009a 2009b); reason neutral expressions ‘LIP’ ‘LIG’ think useful historical point purpose socio-economic domain: say LIP/LIG only should Union; yet residents State lives provides reality sufficiently large complement 6 GDP capita technical similarity using (or 40%) respective cut-off sheds interesting fundamental founding fathers integration been described ‘convergence machine’ (Gill Raiser 2012) Convergence was just pre-condition continuing integration: ‘output legitimacy’ (through gradual development welfare states) Union) who prepared Rome optimistically assumed growing could reached supranational cooperation together specific instruments raising member states (which later brought policy) Economic organised would boost growth create convergence; domestic redistribute fruits remaining prerogative hindsight (and slightly benign interpretation) may created cohesion: sure apart redistributive aspects agricultural limited degree cross-country redistribution favour less-developed through structural funds context approach Nor risks words did envisage organisation normally implies mixtures Historically fathers’ implied fair access opportunities: trade investment opportunities joining personal wanting needing mobile Stretching notion ‘inclusion’ might pursuing motivated (relatively vague) scale It explore Until mid-2000s considered successful seemed vindicated optimistic belief Since then model broke down stopped being 7 Overall recorded impressive accession Eurozone triggered process members Commission Within overall position pensioners among non-elderly mutually reinforcing processes polarisation leading significant work-poor weak attachment labour market; experiencing higher latter trend already started (Cantillon 2014; Rinaldi 2015) Data Statistics Conditions (EU-SILC) provide harmonized information well additional meant representative sample persons private 20142 exception Ireland United Kingdom refer year survey composition) refers years reported figures rather than Although annually 2005 focuses 20143 limit break series income4 regard source vs register At writing Brexit referendum took Given covers pre-Brexit include 2007 UDB version (UK) 2009 2011 2012 2013 improve consistency UK merged subsequent countries) Four 2008: France Austria Cyprus Other breaks appeared date: wave Denmark Estonia attempted any correction equivalent multiplied factors ensure perfect alignment estimated estimates 8 data) collection modes weighting schemes imputation procedures constitutes best comparative conditions EU5 designs errors calculated assumption simple random sampling strongly downwardly biased recommended (2013) considers reconstructed design variables6 optimal calculate covariance waves expected over-estimated noted fact itself estimate basis non-negligible effect variance (Berger Skinner 2003; Preston 1995) account making DASP module developed STATA (Araar Duclos reasons decomposing Changes statistically 95 confidence start income7 Equivalent equals sum after-transfer net taxes adjusted needs modified-OECD equivalence scale8 interested cross-national real currencies selected first convert expressed purchasing power (PPS) parities (PPPs) final consumption Even though PPPs faced limitations Deaton 2002; Milanovic 2005) tool cross‐nationally comparable PPS express year-specific allows us how (2007) Iacovou Kaminska (2012) Decancq den Bosch Vanhille (2014) variables downloaded https://timgoedeme com/eu-silc-standard-errors/ Incomes coded country-year top-coded 10 times non-equivalised so-called ‘LIS procedure’) See Kerm treatment extreme values modified OECD attaches adult 0 aged 14 older less 9 bundle calculating others lead Furthermore necessarily constructed basket goods services reflects groups neglect within‐country forward simply ‘income’ denote related measures equal poor averaged total part Foster-Greer Thorbecke (FGT) index (Foster Greer 1984) FGT found et al Results So far aggregate highlight LIG; contribution correlation Pan-European glance grasp wider each Figure depict kernel density curves expressing (while taking account) graphs clear quite re-ranking throughout richer Belgium Finland Sweden Malta experienced given high happened above Netherlands seen distributions fall Central Eastern immediate effects Over Czech Republic Romania grow Hungary Lithuania (even years) Slovenia decreases somewhat depending 11 Kernel (EU27) 12 Notes: Breaks (2011) Source: own calculations details) helpful having quick allow precise interpretation direct estimation considerable expect movements unclear work fell much Also year-to-year modest (at 95% level) dropped 13 24 22 three quarters drop realised remained pattern observed stagnation surprising responses followed continued absolute Leventi apparent contrasts sharply shows detail variation enormous Luxembourg Latvia 50 even 90 looking larger vary entire (-33 p ) (-22 display strongest (+25 Substantial Estonia9 (all -10 more) whereas increases (between Remarkably does figure list indicating had stronger depicted worth pointing out timing varies biggest concentrated next witnessed increase varied caution Estonian intervals Countries ranked wonder whether observation graph threshold10 line Sala-i-Martin (1996) linearly regress annual beginning beta-convergence ordinary square regression EU27 15 (i threshold) Percentage dotted linear Please note x y-axis highlights diverging Baltic six 26 (with Estonia) Six Finally ranges -0 065 27 23 coefficients negative lifting case lifted changing suggests respects captures heavily dominated countries: concentration nearly lived either accounted 56 LIG11 becoming Whereas initially 18 its halved Germany EU15 43 Still consequence become closer country’s Nonetheless deviations still exist: now numbers exactly tell resources EUR distributed reduce zero measured ceteris paribus smaller underestimate flow overrepresented assume exogenous imply small populations bigger contribute quantify precision mechanical way (that causal framework) follow spelled Corluy (2012)12 decreased declined mentioned earlier decline stability inertia compensatory (ΔLIP) decomposed follows: component consists difference factor shares decomposition purposes caveats borne mind assumes ignores via differential mere attempt construct realistic counterfactual detailed limits 19 sorted included ≥0 01 20 Figures neglecting entirely unexpectedly almost half lack thereof) utmost keeping (especially income) 21 side pushes contributing came primarily evenly Contrasting introduction argued indispensable enlargement verify obtaining typically uses improves question achievement (a) catching-up terms middle-group whose shifts (b) improvements internal (from incomes) hardly achieve combination combined instances Notably none Potentially signals kind ‘trade-off’ Presumably why (in brief window observation) linked crisis: produced ‘national like Conclusion calls studying exceptions received little attention explored draw What short because cancel visible really Romania’s general rule sharp Moreover insofar story behind collapse traditional mixture failures architecture heterogeneity enlarged longer-term generate working age Whatever solutions proposed variety problems besetting monetary union banking union; fiscal capacity possibly re-insurance unemployment genuine scheme) always entail ex ante organization mechanisms polity emerged ‘opportunity structure’ Simultaneously supporting presupposes active ‘human capital’ deemed necessary (Vandenbroucke Thus logical ago defining normative feature ‘the Model’: Model summary description co-existing models; describes interact supposed Hence conceptual apparatus describe interaction way; methodology promising 25 References Araar -Y DASP: Distributive Analysis Stata Package: PEP CIRPÉE World Bank Université Laval Review 12(1) 15-28 E (2002) Indicators: Inclusion M (2001) Measuring Inequality Euroland Wealth 47(3) 301-320 Berger Y G C (2003) Variance Estimation Low Proportion Journal Royal Statistical Society Series (Applied Statistics) 52(4) 457-468 R (2004) Patterns Poverty Bristol: Calibrating cross-European Colchester: ISER Institutional Accomodation Enlarged Bonn: Friedrich Ebert Stiftung (2015) European-wide Berlin: DIW Measurement Distribution Supranational Entities: Case S P Jenkins Micklewright (Eds Re-Examined (pp 62-83) Beyond Investment Concepts Values Policy-making F Reconciling states? 286-318) V Individual Employment Household Risk Decomposition 80) Antwerp: K (1998) Union: Country-specific Union-wide lines? 8(1) 77-92 monitoring MDG New York: Nations Development Evolution Europe: 60-93) jobs Promoting good governance cities Sixth report Luxembourg: Publications Office Eurostat-OECD manual (1990) Figures: Early 1980s Official Communities Measure Sociological 23(1) 35-47 (2005) Space Revisited: Comparing Comparative 7(1) 29-48 Foster (1984) Class Decomposable Measures Econometrica 52(3) 761-766 Gill I Golden Restoring lustre Washington DC: EU-SILC? 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