22 Jan, 2014

Europe Worries About Its Poverty Levels, and Related Social Issues

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Brussels, 21 January 2014 – European Commission Press release – A significant increase in poverty among the working age population is one of the most tangible social consequences of the economic crisis. A gradual reduction of unemployment levels may not be enough to reverse this situation if wage polarisation continues, notably due to a rise in part-time work.

This is one of the main findings of the 2013 Employment and Social Developments in Europe Review, which also looks into the positive impact of social benefits on the likelihood of getting back into employment, the consequences of persistent gender imbalances, and the social dimension of the Economic and Monetary Union.

The review shows how taking up a job can help people to get out of poverty, but only in half of the cases: much depends on the type of job found, but also on the household composition and labour market situation of the partner.

“We need to pay attention not only to job creation, but also to the quality of jobs, in order to achieve a sustainable recovery that will not only reduce unemployment but also poverty”, Commissioner for Employment, Social Affairs and Inclusion, László Andor, stressed.

Positive impact of unemployment and social benefits

The Review also features an analysis showing that, contrary to commonly held beliefs, people receiving unemployment benefits are more like to get a job than people not receiving benefits (other things being equal). This especially applies to well-designed benefit systems (like those reducing benefit levels over time), accompanied by appropriate conditions, such as requirements to look for a job. Such systems tend to support better skills matching and therefore the take up of higher quality jobs, which in turn help people to get out of poverty.

The review also highlights that in some countries (e.g. Poland, Bulgaria), significant shares of unemployed are not covered by standard safety nets (unemployment benefits, social assistance), and tend to rely on family solidarity or informal work. Unemployed people not receiving unemployment benefits are less likely to find a job because they are less likely to be the subject of activation measures and are not obliged to look for a job in order to receive benefits.

Persistent gender differences

Although the crisis saw a contraction of some gender gaps historically faced by women (largely the result of male-dominated sectors most hit by the crisis), gender differences still persist in labour market participation, pay and the risk of poverty. Moreover, women still tend to work fewer total hours than men and, while this can reflect individual preferences, it still leads to diminished career opportunities, lower pay and lower prospective pensions, underutilisation of human capital and thus lower economic growth and prosperity. Gender gaps therefore give rise to both economic and social costs and should be effectively tackled whenever they result from societal or institutional barriers or constraints.

Some distinct patterns can be found among Member States with regard to the gender gap in terms of hours worked: in some cases a high share of women are working but with relatively shorter hours (for example in the Netherlands, Germany, Austria and the UK), in others, female participation is lower, but once in employment, women tend to work relatively longer hours (in many Central and Eastern European countries, Spain, Ireland).

Only some Member States (mainly the Nordic and Baltic countries) succeed in combining high female employment rates with a low gender gap in hours worked. An effective policy mix appears to include gender-equal working time, widely available flexible work, incentives for the division of unpaid work within a couple, and employment-friendly, accessible and affordable childcare with longer day-care hours.

Social dimension of the EMU

The still growing macroeconomic, employment and social divergences threaten the core objectives of the EU as set out in the Treaties, namely to benefit all its members by promoting economic convergence and to improve the lives of citizens in the Member States. The latest review shows how the seeds of the current divergence were already sown in the early years of the euro, as unbalanced growth in some Member States, based on accumulating debt fuelled by low interest rates and strong capital inflows, was often associated with disappointing productivity developments and competitiveness issues.

In the absence of the currency devaluation option, euro area countries attempting to regain cost competitiveness have to rely on internal devaluation (wage and price containment). This policy, however, has its limitations and downsides not least in terms of increased unemployment and social hardship, and its effectiveness depends on many factors such as the openness of the economy, the strength of external demand, and the presence of policies and investments enhancing non-cost competitiveness.

Enhanced surveillance of employment and social developments was proposed by the Commission in its October 2013 Communication on the Social Dimension of EMU (see IP/13/893). In the long term and after Treaty changes, an EMU-wide fiscal capacity with a shock absorption function could complement existing policy coordination instruments.